People usually say that 1 Crore (equivalent to $100K) changes your life because after 1 Crore your wealth starts to explode. So let's find out what is the truth behind it and does your wealth really explodes after 1 Crore. To be honest 1 Crore is just a number like 1 Lakh ($1000) or 10 Lakh ($10000), the effect of compounding is also the same whether you have 1 Lakh, 10 lakh or 1 Crore. When people say that your wealth explodes at 1 Cr, this is because a 10% increase in 1Cr is 10L whereas 10% increase in 1Lakh is just Rs 10K. So yeah in absolute numbers you can see that higher the capital you have, higher the amount of money you will get as interest. That simply means that compounding have more affect when you have higher capital.
But the problem is not everyone can have 1Cr as their net worth as of today. We all have to start from 0 and then build our wealth. So instead of thinking in absolute number to achieve 1 Cr, we should think about the financial goals we have to achieve. Everyone financial goals are different and thus we have to achieve that in systematic manner.
If I talk about myself, I am not calculating how much net-worth I have as of today. I am more concerned about the financial goals I can reach or not. Like for my Children Education goal, I have to get Rs 50L in next 12 Years and I am investing 15K from the last 3 Years. So in 15 years I will accumulate 60 Lakhs with 10% expected rate or return. And I will achieve the goal.
Why it is said that 1 Crore is hardest because when you start from scratch you don't have much capital for bigger compound interest. So basically you have to achieve smaller goals like 10K, 1 Lakh, 10 Lakh and eventually you will reach to 1 Crore. Now once you reach 1 Crore, the next crore is easier only because your 1 Crore is earning interest for you i.e. your money is working for you. Along with that if you are continuing saving that in the same rate, then the next crore will take less time. And the cycle continues. And you will see the real compounding take place when you give it time and keep on investing for long term.
So when we are investing we have to increase our savings rate in such a manner that we should reach the 1 Crore faster which means more buying in dip, increasing savings rate when the income increases, and increasing your primary source of income i.e. active income.
So if you really want to reach 1 Crore, so let's see how much time it will take. Investing 10Lakh as LumpSum, with 12% interest and time period 21 Year. Investing 10K vis SIP, with 12% interest and time period 21 Year
