Three friends Mr. Smart, Mr. Responsible, and Mr. Fun aged around 50 meet up after a long time in the Alumni Club. After the usual chats on the good old days, the discussion turned towards investing habits.
Mr. Smart was proud of his investment habit, he said "I have been been saving and investing since my age 30 and made good 15% returns".
Mr. Responsible said "I started my saving and investing once I established my family at my age 35 and made great returns of 12%".
Mr. Fun said " I enjoyed my life thoroughly, went on foreign holidays and started my saving and investing only at the age of 40. Anyway I am not interested in big returns and was happy with a return of 10% ".
Now, let's for a moment assume, three of them put Rs. 1 Lac each.
- Mr Smart put 1 lac at the age of 30 earning @ 15%.
- Mr Responsible put 1 lac at the age of 35 earning @ 12%.
- Mr Fun put 1 lac at the age of 40 earning @ 10%.
Now let's see who wins the race.....
At 50, during the time of their get together, can you imagine what kind of money each one of them would have made?
Mr. Smart put Rs 1 lac at his age 30 and at his 50, he accumulated @ 15%
Rs.16,38,000
Mr. Responsible put Rs 1 lac at his age 35 and at his 50, he accumulated @ 12%
Rs.5,48,000
Mr. Fun put Rs 1 lac at his age 40 and at his 50, he accumulated @10%
Rs.2,60,000
Result: Mr. Smart, @ 15% made a whopping Rs 13,78,000 more than Mr. Fun, who got 10% ; And Mr. Smart made Rs 10,90,000 more than Mr. Responsible, who got a return of 12%.
Moral of the story:
Saving should not only begin at the earliest but should be maximized. Trying to catch up at the later stage may not yield desired results.
As we saw in this case, the winner was Mr. Smart who made higher returns than the other two 1) by starting early 2) by maximizing returns.
As we saw in this case, the winner was Mr. Smart who made higher returns than the other two 1) by starting early 2) by maximizing returns.
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