Returning from a vacation, you wish you had another day before returning to the daily grind for your monthly pay cheque. What if you have enough money to work only when and how much you wanted, just like your insta friend? The good news is that you can become a millionaire when you are at 30 after starting from scratch. Here’s how.

Busting popular misconceptions on wealth

Most people think that large investment creates wealth. The truth is that the wealthy save enough to live off their savings. Higher salaries don’t create wealth if you are not a smart spender. The key is to have large savings for the future that progressively makes you less dependent on regular income.

 

 By when can you save your first million? 

This depends on your regular investments, their growth, and the time your stay invested. Higher the investments, the greater the chances of you reaching Rs 1 million milestone. Higher returns help you get there even faster. Conversely, lower the investment and returns, more time it takes to reach the milestone.

 

Building Your First Million by 30

If you start with Rs 10,000 monthly investments when you turn 23 and let’s assume that the money grows at reasonable rate of 6% annually, you save your first Rs 1 million, just 4 months short of completing 30 years. A lower regular investment of Rs 7,500 will need to grow at 12% p.a. to reach the same figure about 2 months after you turn 30.

 

Time to Your First Million (in years)

 

Assumed Annual Returns (p.a.)	6%	8%	10%	12%
Regular Monthly Investment (Rs)	Years to accumulate 1 million
1,000	30.0	25.5	22.4	20.0
2,500	18.4	16.3	14.7	13.5
5,000	11.6	10.6	9.9	9.2
7,500	8.5	8.0	7.5	7.1
10,000	6.8	6.4	6.1	5.8

Note: The rates assumed in the above example are for illustration purpose only and not to be construed as a guarantee for future performance. Different asset classes have different return potential.

 

Why the first million is so important 
The first million is important for many reasons.

 

Helps you get subsequent millions quicker

The power of compounded growth, where your money keeps growing on an ever-increasing principal amount, takes the most time for the first million. After that, you have the advantage of high principal, and wealth naturally accumulates faster.

Lowers dependence on pay 

As money is itself making money, you increasingly depend less on your salary to grow your wealth.

Helps consider higher risk, high reward options 

With increasing wealth, you feel empowered to consider some investments with higher risk and potential to deliver better risk adjusted returns in the long term i.e., 8-10 years or more.

 

First Million’s Building Blocks 

Reaching the first million by 30 is less about discovering a “magically get rich quick” investment formula and more about “religiously doing simple and routine things”.

 

Keep loans at bay as far as possible

Repayment obligations for loans may reduce your ability to make regular investments.

 

Resist lifestyle inflation

Sure, in your early career, you may not get to save much, given the many expenses related to setting up your own establishment. However, to invest a small fixed amount, you may consider cutting down on expenses, using smart options like renting and sharing, be it while buying furniture or travelling to work in shared car rides.

 

Start small, automate investments

Kickstart regular investments with mutual funds with as small an amount as Rs 500 with Systematic Investment Plan (SIP) offered by mutual funds.

 

Increase regular investment and save big 

Consider increasing regular investments with the powerful tool of Top Up SIP from mutual funds. Here, regular investment is increased by a pre-determined amount, say 10% every year.

We saw above how if you start at 23, you can work towards becoming a millionaire around the time you are 31.

 

Consider higher risk, higher return investments 

Options like equities and equity funds, have the potential to provide high returns in the long term i.e., 8-10 years. Do remember, market goes through cycles and this may impact actual returns on redemption. You can start investing in equity, with index funds or exchange-traded funds (ETF) which invest in stocks in the same proportion as the index they follow, like Nifty50. Such funds follow the general broad market indices and provide close to market returns.

 

Secure your future

Any mishap or emergency shouldn’t force you to dip into your savings. You should get adequate insurance coverage for life, health, income and major possessions along with an adequate emergency fund.

 

Opt for tax-efficient investments

Low or no tax on investment at the time of investing, or on returns while exiting, helps investments grow better. For example, long-term investments in equity funds, such as ELSS can be considered. For tax related advices, please consult your tax advisor.

Invest lump sums

Supplement regular investments with periodic lump sums from sources such as gifts from parents, incentives, commissions, and bonuses.

Reinvest passive incomes

Passive incomes are inflows from sources like dividends and interests, which are earned on the original investment. Reinvesting these allows for continued growth.

Periodically review progress

Periodically review progress and take corrective actions if you are going off track to optimise portfolio as per your needs and preference.

 

Investors often term the first million as the toughest

The first million puts in place a solid foundation that helps build a multi-storied building of wealth with the subsequent millions.

 

<< LINK TO SIP CALCULATOR >>

 

Disclaimer-

SIP is a feature offered for disciplined investment of a certain amount on a pre-decided date in a specific mutual fund scheme, regularly over a period of time.

 

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.