Early bird gets the worm

Remember the proverb stated above? You may think well this would help if I were to eat; how does this relate to finance?

Consider three college buddies — Vijay Dinanath Chauhan, Rahul Chopra and Prem Malhotra. Each of them commits to setting aside Rs 1000 each month and invest the same in a fund that offers them a return of 8% interest compounded each year. However owing to their differing views towards finance they execute their commitment as follows -

  • Prem realizes the importance of saving a bit later in life and diligently saves Rs 1000 each month from the age of 35 to the time he retires at the age of 60
  • Rahul starts of with gusto and starts investing at the age of 25 as committed. However he loses his way after a decade of investing and stops adding money to the fund. He however doesn’t encash his funds until retirement
  • Vijay however is diligent and committed; he invests as per his commitment from the age of 25 to the age of 60.

The chart below showcases the funds available to each of them at the end of the term when each of them turns 60.

Put this in the following context -

  • Vijay invested a total of ₹ 420,000 and at maturity receives ₹ 2,233,226
  • Rahul invested a total ₹ 120,000 and at maturity receives ₹ 1,285,773
  • Prem invested a total of ₹ 300,000 and at maturity receives ₹ 1,036,209.

Now I restate — “Early bird gets the worm” — the key takeaway discipline and perseverance is the secret to getting rich slowly.

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