Practical Approach to Being a Millionaire
- Using the Power of Compounded Returns

Pick up any mutual fund articles and you will hear these funds talking about the power of compounded interest. Mutual Funds, typically, like to talk about how your investments would look like in 30 to 50 years.

While all that sounds really nice and cool to be financially free when you retire, seriously, who would want to wait around to be that old to be finally financially rich? I certainly wouldn’t be in that crowd. A period of 3 to 6 years would be more reasonable for most folks.

If you are good in calculation, you probably can tell that over that period of time if you can just increase your percentage points by even 1% each year, your total net worth would almost double in 72 years.

With $10,000 as your initial investment, and at a rate of 10% per year, it will take you about 40 years before you become a millionaire and producing a yearly cash flow of $100,000 per year. Not too bad for retirement.

This amount may be a large sum today but take inflation into consideration; this sum may not be enough in 40 years. To truly determine how much is enough for your retirement, you must factor in the average inflation rate. For estimation purpose, it is best to leave it higher at 5%. Inflation will eat away your spending power.

So while most of us out there are saving and compounding our returns – be it through mutual funds or fixed deposits – there are better investment vehicle that produces much higher returns.

There are just too many ways to invest – some short term and some longer term. You would want to start thinking of an investment vehicle which will allow you to consistently generate good returns with manageable risk.

The main thing is to start investing with a small amount that you promise (to yourself) that you will not touch for minimum of 5 to 10 years.

A good place to start is to work with a reputable Mutual Fund which probably will provide 10% return per year. However, to accelerate your wealth accumulation process, you will have to take your ROI a notch higher and normally, it means you have to start investing your own money.

If you have a financial game plan set, you will realize that it is not so difficult to reach your financial goals. So for the next few days, stay focus, and start drawing out your financial plan by listing how much money you will need to start, time required, and expenses that you can live without.