19 January 2014

How To Become A Crorepati – The Ultimate Guide

Crore. One followed by 7 zeros. There is something about this word which puts a person in an altogether different orbit. It does not matter whether a person has a crore rupees or not. The word is magical. If a person does not have a crore, he aspires to be a Crorepati. If he has it, he wants to remain a Crorepati.

So ladies and gentlemen, boys and girls...

Please welcome the commonest of words, which we regularly come across when discussing rich people. A Crorepati.

It has been proven by psychologists that a person having 99 lacs does not feel as rich as a person having 1 crore (=100 Lac) :-)

(If you are not familiar with the term Lac and Crore, please read this first).

So assuming that you know the importance of being a Crorepati, let’s go back to our original question.

How To Become A Crorepati?

Now there are easy ways and there are tough ones. First lets list own the easy ones –

  • Win a Lottery
  • Marry a Rich Girl
  • Inherit from your rich aunt
  • Get lucky with your stock market predictions
  • Become the ‘Perfect’ Market Timer
  • Join Politics
  • Become a Criminal
  • Start with 2 crores ;p (It is far easier to lose money and come back to 1 crore)

Now lets see the tough ones...

John D Rockefeller once said – “I have ways of making money that you know nothing.” By the way, if you don’t know this guy, then you are seriously missing out on someone really important in world’s business history. He was the richest man ever. Worth more than 650 Billion Dollars (in today’s terms). That’s more than 10 times of what Bill Gates and Warren Buffett were ever worth. Do read about him here.

So when he said that he knew things about making money which we know nothing off, according to experts, he was referring to dividends and more importantly to the concept of compounding (read more here).

So can you become a Crorepati if you are not lucky, criminal, politician or an-already-rich guy?

I say you can. But its not easy. It is tough. It will take time. And more importantly, it might not be worth the efforts. Because, life is not just about accumulating money. But if you intend to be rich the hard way, here it is...

You would be required to invest (& not just save) every month for years. And depending upon your monthly contributions and expected rate of return, it can range from anywhere between 8 years to more than 22 years.

As far as the expected rate of returns are concerned, I have chosen 8% (Given by Recurring Deposits, Fixed Deposits, National Savings Certificates); 12% (Given by Index Funds, Good Mutual Funds); 15% (Given by ‘Very’ Good Mutual Funds over long term). For monthly investments, one can go ahead with systematic investment plans (SIPs) offered by various mutual fund houses.

I did some number crunching and results are given below -

How to become crorepati


How to become crorepati

  • Assuming 8% returns (per annum), if you invest Rs 15,000 every month for next 22 years, you would reach your target of 1 crore. At 12% & 15% returns, it would be achieved in 18 and 15 years respectively.
  • Similarly, for monthly investment of Rs 30,000, years required are 15, 13 & 12 at returns of 8%, 12% & 15% p.a. respectively.
  • For Rs 50,000 per month, a crore can be achieved in 11, 10 & 9 years.

The graphs are more or less self explanatory. But the most important component of this calculation is the expected rate of return. I have taken 8%, 12% and 15%. You should understand that higher your expected rate of return, higher are the risks associated with instruments providing such rates. Please read the previous sentence once more for impact and to understand its importance. :-)

But aren’t we forgetting something?

Have we taken care of everything?

No. We are forgetting something very important.

We have not taken inflation and erosion of value of money which it brings about.

One crore today is not worth one crore after 15 years.

So if we assume an average inflation of 7% over the next few years, today’s One crore would have following values after given number of years:

10 years- Rs.51 Lacs

15 years- Rs.36 Lacs

20 years- Rs.26 Lacs

25 years- Rs.18 Lacs

Never forget inflation. Never! It has a bad habit of disrupting the long term financial planning. And earlier you start your efforts to become a Crorepati, higher are your chances of becoming one.

And to help you with your calculations, here are a few tables which let you easily calculate the time / monthly contributions required to become a Crorepati. Click on the thumbnails to get the higher resolution images.

Calculation Table for 8% Returns

Calculation Table for 12% Returns

Calculation Table for 15% Returns

So since now you know quite a lot about becoming a Crorepati, what are you waiting for? Go out there and become one!!!

:-)
______

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