Financial Planning for WHOM? The Myths and Realities – 5

Regarding the Financial Planning, there are many myths in the minds of the common investor public. I’m trying to discuss some of these here. This is the Fifth & Final Article in this series.

Myth no. 5:-

Compounding is useless. It’s for poor or old fashioned not for us the younger generations. We can turn the things our way as & when we want to.

Reality:-

There is no substitute of compounding. Yes compounding is very dull & boring. Let’s try to understand it with this example. Just imagine if I ask you to put 1 Rs. in an square of a chess board & there after asking you to put, simply double the money in next square. Do you know what ‘ll be the result, at the end of all the 64 squares? Please look at this table to know the answer.

Square no.

Amount in Rs.

Square no.

Amount in Rs.

1

1

2

2

3

4

4

8

5

16

6

32

7

64

8

128

9

256

10

512

11

1024

12

2048

13

4096

14

8192

15

16384

16

32768

17

65563

18

131072

19

262144

20

524288

21

1048576

22

2097152

23

4194304

24

8388608

25

16777216

26

33554432

27

67108864

28

134217728

29

268435456

30

536870912

31

1073741824

32

2147483648

33

4294967296

34

8589934592

35

17179869184

36

34359738368

37

68719476736

38

137438953472

39

274877906944

40

549755813888

41

1099511627776

42

2199022255552

43

4398044511104

44

8796089022208

45

17592178044416

46

35184356088832

Now, I stopped here intentionally at the 46th Square. Do you know why? The reason is – the amount in 46th Square is 3518436 Crore. Why it’s important? My dear friend, do you know the size of Budget of Govt. of India in FY 2013-2014? It’s 2220619 Crore only. (source)

Now what this boring table indicates? This is the power of compounding that by the time, you reach the 46th Square, you have already surpassed the Budget amount for whole of India to be spent by Govt. of India.

You are still 18 more squares to calculate. Should I or you calculate any more? No it’s not required, I think. I hope, the very basic concept of Compounding is clear to you. If you give time, the money ‘ll grow on the basis of compounding.

OK, It’s about me. Agreed. Then what?:-

Please do not jump the gun. Take small steps, baby steps. Life is all about starting small. I know you are agree & now want to start your financial planning now. A word of caution here. “Over enthusiasm can actually do more harm than your inertia to take any action.” Let me explain a bit. Before planning anything, should you not check that there is water with you or not? Now as you have checked with yourself, that you are having the water & want to conserve it for your own betterment as well as for your family, your near & dear ones. The intention is not to make you a professional but an informed person who can make informed choices regarding his/her financial life.

This is the last article in this series. So what’s your take on this article? Can you face your own Myth for ‘Compounding is Nothing’ now? Can you now face some or all your Myths related to Financial Planning or Personal Finance?

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