By adopting the 8-4-3 rule and committing to long-term investing, one can become a millionaire in 15 years. (Rep/Shutterstock)
Many people aspire to become a millionaire through savings, but one might not know that it is possible even on a salary of Rs 50,000 per month. Although it may seem surprising, achieving this goal is achievable through the power of combination.
Adopting the 8-4-3 rule and committing to long-term investing can make a millionaire within 15 years. Let’s understand how the 8-4-3 rule, combined, can pave the way to becoming a millionaire:
What is this compound formula?
Compounding is the power of investing to grow money year after year. With this one’s investment increases manifold. The amount generated is reinvested by adding interest or returns on the invested money. This is called compounding.
8-4-3 formula
The 8-4-3 rule is related to compounding, following which an investor can get a faster return on their money. Let’s understand this with an example:
Suppose a person’s salary is Rs. 50,000 and they are Rs. 20,000 is invested in an asset class that pays 12 percent interest per annum. In this way a person can earn 32 lakh rupees in eight years. First Rs. 32 lakhs is received in eight years, but the next Rs. 32 lakhs will be received in four years at the same rate of interest. Following this method, after 12 years, a person can get a compensation of Rs 64 lakh.
Now, if a person leaves the amount for three more years and continues to invest Rs 20,000, the amount accumulated by him in these years will increase from Rs 64 lakh to Rs 1 crore.
However, before investing money in any asset class (shares, bonds, bank FDs and other investment schemes), it is advisable to consult a certified investment advisor.