The cost of delay!

By | December 9, 2014

Procrastination and Savings



When I was kid, I had a lesson “little drops of water make a mighty ocean”. I understood little or nil of the same and as soon as the exams were over, I had forgotten everything about it except the big words for they seem very confusing. But, now, that I am in financial planning, I know how effective the lesson was. If I had learned that lesson well then, I would have been happily retired doing farming/gardening in the hills of Uttarkhand.

It is not for anything that there is a saying Time is Money. The more time you give to your money, the bigger kitty you will have. So, time is not only money but also magic.

I have seen investors who say “Retirement, now? Come on, I have just started to fulfilling all my dreams (vacation, smartphone etc) and you are spoiling it by mentioning ‘retirement. Isn’t retirement to be thought of when we cross 50s?”

Saying to you “I will start next week” is nothing less than a disaster. This next week could well next fortnight, next month, next quarter and even next year. Time flies and the amount you need to invest will only increase. The hard truth is you just can’t afford to delay.

You will be surprised to see the enormous difference by investing just 1 month early. This just shows that the longer you delay, the fewer corpuses you will have at the end of your investment tenure. What this also means is that the higher input that you will have to shell out to reach the desired targeted amount. What happens with this kind of delay is that your ‘Retirement Target’ goes for a toss both in terms of corpus as well as the age of retirement.

Suppose you want to retire at 60, and you feel that Rs.10 crores would be a comfortable amount and say you are aged 30, how much you should need to invest?

Now, let us assume that you are able to save Rs.20000 /- every month and keep this amount towards retirement.

Now, this Rs.20000/- per month investment for 30 long years would give you Rs.11,26,35,408 which easily gives your targeted corpus.

Now, if you delay your investment by just 1 year (12 months), your corpus will come down to Rs.9,77,18,543, down by a massive Rs.1,49,16,865, yes, nearly 1 and half crore!

Even if you delay your monthly investment of Rs.20000/- by just a single month, your retirement kitty will be down by Rs.13,24,235

Some funds like HDFC Equity have given a CAGR of 23% for 20 long years and Reliance Growth Fund has given 25%. So assuming that you delayed your investment in such a fund by just 1 month, your Rs.20000/- will cost you a whopping Rs.99,58,257.

Shocked! Yes, that’s what a single year of postponement does. This is because of the compounding effect!

In the initial years, the returns are on a small corpus, but as the years roll by, the corpus starts getting big and for this the returns are added and on this growing amount, the returns will also grow.


What will happen if I invest for 20 years instead of 30 years?


With the same Rs.20000 monthly investment instead of 30 years, if you are investing for 20 years you will left with only Rs.2,65,41,469 way below your targeted 10 crore. But, assume you are ready to invest more to achieve the targeted 10 crores but have only 20 years, then, you will be needing to invest Rs.75,354 instead of Rs.20,000 which you would have to invest 10 years back.

The cost of delaying your savings/investment is deadlier than even inflation. The lesson here is that if you have time on your side, then you don’t need to put in too much effort to achieve your targeted corpus.

Another advantage is that when you start early, the losses if any will have little bearing on the overall corpus as time factor takes care of the same. The time factor is that in the initial years, your contribution will be low and the losses will affect only a small corpus and also, since you have time on your side, you can always pitch in extra and average if necessary.

And, most importantly, the market cycle itself will ensure that your losses are taken care of. The market volatility will only ensure that your monthly SIP will average out your purchases.

The earlier you put your money to work, the more it earns for you. The earlier you invest, the earlier your money starts working for you. So, instead of investing more money later in your life, invest small now to achieve the same desired target corpus. And ‘do not stop’ investing in between just because the markets are too high or too low.

Another big advantage of starting early is that this inculcates a saving habit in you. If you start saving and investing early, it will also set the stage for significant financial growth later in your life. So what is stopping you from starting now?  Do you think starting early make sense? Why is that most of us do not realize this? What has been your stumbling block and what steps did you take to over come it, share your thoughts, maybe it can help someone start today! Cheers!




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