Can You Wait 103 Years to Become a Crorepati in India?

Rs 9,000.

According to the 2016 world bank statistics, Rs 9,000 is roughly how much an average Indian earns in a month.

Assuming they are able to live frugally and save 30% of their income in a bank FD @ 6% interest and no taxes, they will be able to save 1 crore in 33 years.

Not too bad, right?

But there’s a catch.

1 rupee today, is worth much less in the future due to inflation.

Ignore the “Become a crorepati” ads by investment firms and insurance companies. They are designed to play on your emotions; not to educate you.

Sure, you might get 1 crore after 50 years if you invest in their scheme. But if all you can buy with 1 crore is an Apple iPhone after 50 years, that’s not much.

The math behind becoming a real crorepati

Let’s apply the present value calculation, adjusted for inflation, to the above numbers.

To save an equivalent of 1 crore, an average Indian needs to save for 103 years!

I am not sure about you, but I am pretty sure I will not live that long.

How do you increase your chances of becoming a crorepati?

There’s no rocket science here.

You need to do three things to become a crorepati:

1. Earn more
2. Save more
3. Get higher returns for your investment

How can I earn more money?

Earning more money has the biggest impact on your ability to reach your goal.

Using the math earlier, if you earn 5 Lakhs a year, and everything else remains the same:

You can reach an equivalent of 1 crore in 64 years.

Even though most people cannot work for 64 years, it’s definitely better than 103 years!

The more you earn, the faster you can reach the 1 crore milestone.

To earn more money, here are a few things you can do:

1. Ask for a raise
2. Start a side business
3. Learn a new skill or get a better degree and change career track
4. Move to a better paying job

How can I save more?

In the previous 5 lakhs income example, instead of saving 30%, if you save 40%:

You can reach 1 crore in 49 years instead of 64.

It does not matter if you earn 10,000 a month or 10 lakhs a month if you spend all the money you earn consistently.

You’ll be living pay cheque to pay cheque and will never become a crorepati.

While you increase your income, it’s equally important to increase how much you save too.

To save more, here are a few things you can do:

1. Save first and spend the remaining
2. Unless you absolutely need one, never buy things on EMI even if the EMI is affordable
3. Apply the 4-question-rule before you buy anything

Don’t go extreme and cut out all costly experiences. It’s OK to take your spouse out for a fancy candlelight dinner once or twice a year. Experiences are what stays with us. Not money.

How can I get higher returns on my investments?

In our 5 lakhs income example, let’s go back to 30% savings. But this time, let’s assume our investments earn a 10% returns every year.

You can reach your target goal of Rs 1 crore (adjusted for present value) in 35 years.

Even a 1% increase in your investment returns can significantly shorten the number of years it takes to reach your goal.

To earn more returns, here are a few things you can do:

1. Invest in equity mutual funds
2. Invest in stocks
3. Invest in corporate FDs

Investments come with risk. Don’t ignore your ability to take risks and your asset allocation while investing in riskier assets.

Technically, you can lose 100% of your investments if invested in the equity markets. However, that’s very unlikely. Even in the worst 2008 crisis, most people did not lose more than 50 to 60% of their investment value.

The power of 3

Now let’s combine all the 3 scenarios above. You:

• earn 5 lakhs
• save 40%
• invest in equity mutual funds which gives you an average 10% return.

You can become a crorepati in 29 years!

The real meaning of being a crorepati

When people often say “I want to become a crorepati”, what they really mean is “I want to spend 1 crore rupees”. Those are two different things.

If by working all your life you save 1 crore, you cannot spend it recklessly. Your investments should be able to fund your expenses during retirement and other goals like children’s education, marriage, etc.

Be money wise and become a crorepati.