The Snowball Effect

Yesterday, I was surprised when I saw Mahesh arrive for some AC-related work at my place. I had utterly forgotten him as he quit the neighbourhood some three-four years back, but till then, he was my go-to guy for all AC-related services.

Meeting him after a long time, I enquired about his work, family and wellbeing.

Mahesh explicitly mentioned that, barring his finances, everything was fine. With many responsibilities knocking on his doors, he felt anxious.

‘What about savings’? I asked. Mahesh replied he does some savings here and there, nothing regular.

He said, ‘Sir, I always wanted to take your advice but didn’t because you manage large investments, and I can only save a small amount.’ ‘I am not sure if 5K is a good amount to start investing and what a mere 5k monthly investment can do?’

I told Mahesh to first discard this self-defeating mindset. Everyone has a different financial situation and capacity, but one must save proportionately no matter if the amount seems small.

Many people think like Mahesh.

They assume that a 5k or 7k monthly investment will do nothing for their dreams; and thus, ignore the power of compounding, which can transform a small but regular saving into a sizeable corpus.

A 5k SIP in a diversified equity fund at 12% CAGR approximately amounts to 46 lakhs in 20 years and 1.5 crores in 30 years.

So never underestimate the power of small and consistent savings.

Just like a little wet snowball rolling down a high hill becomes a giant ball, this snowball effect is seen working in many aspects of life, especially in investing, where small savings become huge given sufficient time to grow consistently.

Thus, initiate the process with any amount you are comfortable with; keep topping it up as the income grows. You will gradually pick the habit of disciplined savings, ensuring long-term wealth creation.

After our conversation, Mahesh felt relieved, confident and convinced of the advantages of investing regularly.

Don’t wait for the right time or amount; just start with what you have.

‘Something’ is always better than ‘nothing’, and with compounding and some patience, that ‘something’ can be your dream house, vacation or a comfortable retirement in the future.