Today, let me talk about the most important habit that everyone should build as early as possible in life.
It is the habit of SAVING…!!
We have all heard the phrase ‘A penny saved is a penny earned’ but do not come to realize the value that this simple practice can add to our lives.
In an attempt to explain to you the urgency to develop the habit of saving and investing immediately let me cover two concepts –
Compound interest is basically interest that you earn on the interest that you have already earned.
Example 1 – Bank FD – Let’s suppose you invest Rs. 100 at compound interest of 10% per annum. Then your first year interest will be Rs 10/-. Now your total invested amount will become Rs 110/- and your interest in the second year will be Rs 11/-
Now a difference of Rs. 1 might not seem like a lot, but let’s see what happens when we do this for a longer time.
Source: L&T Financial Services Mutual Fund
Despite investing 1/3rd the amount of Mr. B, Mr. A could still accumulate more than double the amount of Mr. B. It is truly astonishing to see the power of compounding over longer periods.
Morgan Housel said it in ‘The Psychology of Money’ and I quote “Wealth is what you don’t see.”
Often when people dream of becoming wealthy, they dream of a big house, fancy car, etc. However, true wealth is not a collection of fancy stuff, it is the assets that you build that add strength and stability to your financial life. It is the money saved in your bank account. It is the fund invested in equities that not only grow with time but also become a passive income source through dividends.
If you truly wish to become wealthy, then you will have to understand the concepts of wealth. You will have to start saving and focusing on building assets immediately.
People often think in their early years that they still have time to start a retirement fund and it’s still too far in the future. However, the right age to start saving and investing is as early as possible.
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