Viraj Khatavkar
Saving First 50 Lakhs is the Toughest Part of Your Financial Journey

“The first $100,000 is a bitch, but you gotta do it. I don't care what you have to do—if it means walking everywhere and not eating anything that wasn't purchased with a coupon, find a way to get your hands on $100,000. After that, you can ease off the gas a little bit.”

Charlie Munger

Charlie Munger, partner of Warren Buffet, has said this famous quote in one of Berkshire's AGM.

Save Aggresively

In the Indian context, we can say that saving our first 50 lakhs is a bitch. We have to do it, no matter what. We try to lose our mind on investment returns and totally ignorant about how much we save. Even if we get 50% returns on a savings of 10,000 rupees, we just get 5,000, which is not significant to move the needle for our financial status. But getting a simple 10% return on 50 lakhs would give us a considerable amount.

Until we achieve our first 50 lakhs, we have to save as much as we can. Don't spend on a big house or a fancy car. Don't try to waste money on unnecessary materialistic possessions. I have done that. Believe me, after the initial dopamine rush, it doesn't matter! I have learned this lesson the hard way. I wasted around 50 lakhs in stock trading, status games, and other risky business investments. Luckily, it didn't put me in a lot of debt, but I lost all my savings of 3+ years.

What Happens After Saving 50 Lakhs

Compounding takes over to get our snowball rolling. It will take a hell lot of time to get our net-worth to the first fifty lakhs. However, it will take only half the time to get to the next 50 lakhs and even less time for the next.

Here's a calculation showing our net worth progress if we save 50,000 per month and invest it at a return of 12% per year.

The main takeaways for me from this table:

  • It takes 6 years for our net-worth to reach 50 lakhs
  • It takes 3 years for our net-worth to reach 1 crore (i.e., add 50 lakhs)
  • It took only 5 years to reach 2 crores from 1 crore
  • Over a period, our salary would increase, but the saving amount remains the same. This gives us the extra money to splurge

This how compounding works for us as we give it more time. It took us 9 years to reach our first crore, but only 5 years for the next crore, and only 3 years for the subsequent crore.

It is generally taught that "we should work for money," but the day we truly understand the concept of making money work for us, we can be genuinely financially literate.

For now, start saving aggressively and get to your first 50 lakhs. Once you reach that goal, you can lose the brakes and begin splurging a bit. But don't get ahead of yourselves to get into massive debt.

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