This article is focused on the young generation that has just started working / earning or have been doing so for a couple of year.

25 years is a perfect context for this article as most professionals start working around this age. With the cash deficit that most of us grew with (either due to situation at home or due to parents’ restrictions) this new situation tends to get you carried away. Most of us start to splurge – clothes, eating out, pubbing, holidays’, movies, gifts etc. This situation pretty much applies across all levels of income. Some folks think they are earning too less and hence don’t have enough to save. What I am saying here is something that shall resonate with almost everyone.

However, a few individuals tend to go the right way and start saving from their first salary. I know of a couple of them, and I am happy that they will be in a far stronger situation 20 years from now than I have been.

Now, let me go back to the title of my article of “5”. I am going to compare 2 friends A & B, who finish their studies and land their first job at age of 25.

A is a typical spender who thinks it too early to save and needs to enjoy for a while after years of restrictions. He decides to start investing at age of 30yrs.

B however has his priorities set right and decides to start saving from his first salary.

Assuming both of them invest until 60 years Rs.5000/- per month in an Equity Mutual Fund which has a long-term return rate of 14%, the table below indicates the variance in their corpus at 60.

SIP Invested Amount Final Corpus at 60
A – starts at age of 30 yrs 360 – 12×30  Rs. 18 Lacs  Rs. 2.78 Cr.
B – starts at age of 25 yrs 420 – 12×35  Rs. 21 Lacs  Rs. 5.62 Cr
Variance of B over A  Rs. 3 Lacs  Rs. 2.84 Cr

B has an additional corpus of Rs.2.8 Crores as compared to A.

What was the additional amount he had invested? Just Rs.3 Lacs and that too over a period of 5 Years.

However, can you see the power of compounding over time..

Rs.3 lacs have turned out to be Rs.2.8 Crores over a 30 year time frame. Starting 5 years earlier than his friend has provided “B” a far larger retirement corpus.

I have always said time works wonders for compounding and this is a classic example.

Hope people take a cue from this and my previous articles and kick start managing their money better if not already doing so. I would also urge everyone to pass this on to their children, friends, family & people in your known circles in this age group.

Managing money is not taught at any levels in our education system and we need a massive initiative on this front. All and any help is welcome.