8-4-3 Formula: A large number of people aspire to become a millionaire through savings. However, hardly anyone knows that it is possible to do this even on a salary of Rs 50,000 per month. This may sound a bit surprising, but if you understand the power of compound interest, then you can easily achieve this goal in 15 years. For this, you have to adopt the rule of 8-4-3
8-4-3 Formula: A large number of people aspire to become a millionaire through savings. However, hardly anyone knows that it is possible to do this even on a salary of Rs 50,000 per month. This may sound a bit surprising, but if you understand the power of compound interest, then you can easily achieve this goal in 15 years. For this, you have to adopt the rule of 8-4-3. Also, discipline has to be maintained in investment during this entire period. Let us understand how the 8-4-3 formula, combined with compound interest, can help someone become a millionaire.
What is the power of compound interest?
Compounding is a method of investment that makes money grow rapidly year after year. In this method, the interest received on the investment is not withdrawn, but is invested back. This increases the investment amount every year and the interest received on it also increases accordingly. With this method, the money increases manifold in a very short time.
What is the 8-4-3 formula?
The 8-4-3 formula is related to compounding. By adopting this formula, the investor can get a fast return on his money. Let us understand this with an example:
- Suppose someone’s salary is Rs 50,000. Out of this, he invests about 40% i.e. Rs 20,000 in a place where he gets an average interest of 12 percent annually. In this way, he can earn Rs 32 lakh in eight years. That is, the first Rs 32 lakh is received in eight years, but the next Rs 32 lakh will be received in four years at the same interest rate. In this way, he can get a return of Rs 64 lakh after 12 years.
- Now, if a person leaves his investment as it is for three more years and continues to invest Rs 20,000, then the total value of his investment will increase from Rs 64 lakh to Rs 1 crore in these 3 years.
- However, before investing money in any assets (shares, mutual funds, bonds, bank FDs, gold and other investment schemes), people are advised to consult a certified investment advisor.
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