The power of Consistency

October 2008: Most of my close friends had by now relocated to US one after the other. The days (specially the weekends) weren't the same anymore and the same city which we had actually started liking so much in the recent past, now felt terribly monotonous and bland…

All 3 founders of VAT club were now at different geographic locations. While we termed it "expansion plans", the truth was that something led to an explosion that scattered and threw us in different directions. The pieces were not equal though. The heaviest one ended somewhere in the northern part of India and started shedding weight thereafter. One piece flew all the way to US while the third one that was facing the ground had no choice but to go deep under. The fact was that 2 of the 3 members of the VAT club had graduated and hence had to move on as per the founding rules of the club, while the 3rd one was still "Single" spelled "Singhal" :)

Somewhere deep inside, I knew that these days were never to return. (After all, school days, teen age, college days and the golden days of bachelorhood, like all good things feel short and longed for... By Design)

The handful of us that were left in Hyderabad (by choice :)) decided to catch up over a game of cards (Flash !)

We were disciplined players and did not like to have significant sums of money involved. In case you are familiar with the game, you obviously know that the game has no meaning without money. So we played with minimal starting amounts of Rs. 1/- (about $0.02)

We used Rs. 1/- and Rs. 2/- coins for playing and the only condition was that the winner had to take back all his winnings in coins.

I have a habit of not only applying 'probability' but also 'money management' while playing games such as Flash … No, seriously…
(It may be hard to believe but my returns are usually proportionate to how long I have played)
At least I was certainly amazed by my own attempt to shape my gaming strategy to produce consistent returns over time similar to that of my investment portfolio. Off course, this strategy can only work in irrational markets :) [And it was playing for fun after all]

The net result of the 6 hours of playing all night was my win of Rs. 198/-

All the coins together in my hands felt good and the sound was sure soothing to the ears (remember the track 'Money' by Floyd), so we started again on what we did best: fooling around!; thoughts of growing this coin collection to buy a cycle, bike or an SUV… then calibrating how many boxes or cartons it would take to store as many coins and so on…


Since I was the winner and also a man of foolish ideas, I brought all the coins home and actually thought of growing this collection… :)
Without much effort, I easily managed to add about Rs. 10/- in change to my collection everyday, collected and saved from various day to day transactions.

P.S.: Sometimes, I would spill all the coins in my collection all over my bed and go crazy! I enjoyed counting, sorting and organizing my coin collection every once in a while :)

I soon realized that there were lessons to learn even here… The power of Consistency!

Nothing beats doing something regularly… even

"An apple a day means 365 apples a year"

It has been about 16 months since I started collecting these coins (change) and now have over Rs. 5000/- in change. These are actually stored in cylinder shaped plastic jars that are working well as my dumbbells these days :)

I know, I know, I ain't get no interest on these savings …
But the idea was never really that of savings and return, it was meant to be an experiment. Or perhaps, I had a point to prove...

Here is some mathematics for the day:

By saving Rs. 10/- everyday and assuming an annual interest rate of 10%, you would have about Rs. 3762/- in a year, about Rs. 23,000/- in 5 years, about Rs. 60,000/- in 10 years and Rs. 2,15,000/- in 20 years…

Here is the complete table for reference:


[assuming an interest rate of 10% per annum]

I have purposely avoided showing these calculation with higher return rates like 20% or 30% (as I would like to cover it in a separate blog sometime soon "Compound Interest - the strongest force in the universe!")

However, still trying to give you an idea of what higher rates of compounding can do to your investments: If you consider the same 10/- par day savings at a 30% annual rate, it would be equal to 1,73,528/- in 10 years (versus 59,959/- at 10%) and 25,65,767/- in 20 years (versus 2,15,477/- at 10%) [Yes, that's roughly 2.5 million]

Yea Yes, that's correct... Savings of Rs. 1000/- per day at 30% compounded annual return would be Rs. 25,65,76,800/- in 20 years (or about 250 million)

For more, try it for yourself at: http://wealth.moneycontrol.com/jtcompounding.php

Typical daily expenditures of individuals:



Hence it is clear that it won’t make an iota of difference to your lifestyle if you accidentally drop a 10/- rupee note from your pocket every day (come on... this is like having 2 cigarettes or a tea or making a regular phone call)

The term is "SIP: Systematic Investment Planning"

Moreover, if you are not investing in Fixed Return Instruments or investing in market tradable investment, you are likely to benefit from Dollar cost Averaging (knowingly or unknowingly :))
[The concept is well known, however I will do a blog on this soon]


From the table above, one more thing is quite evident, the fact that after 10 years or so, fresh savings of Rs. 10/- per day wouldn't be much needed anymore. Since the 10% interest from existing/accumulated investments is well above your fresh savings of Rs. 10/- per day.

For most people, there comes a time in life when their savings pool is large enough to self sustain. This is a time when the magnitude of their earnings/salary is much less than the pool of savings and they don't have to worry about fresh savings any more.

There are 3 stages to personal investing: (as I describe them)

• Stage 1: Saving money from monthly salary/income and investing it (Continue doing this for months/years until you build an investment pool that is significantly bigger than your saving capacity)

• Stage 2: Switch to pure Investment mode (Spend/blow all your earnings/salary and enjoy). For the portfolio, focus only on maximizing returns on the existing pool (in a somewhat protected way based on your risk appetite). However, reinvest any profits/dividends/interest from the portfolio.

• Stage 3: Financial Independence mode (This is when the secondary income from dividend/interest/income from investments is enough to either meet your monthly expenses or equals your salary/earnings (and growth of your portfolio equals or exceeds inflation). i.e.: There is no financial need for a primary earning from job etc)

This is almost the same as how most good businesses shape (specially traditional or capital intensive businesses…) They all start with an initial equity and sometimes debt. Continue to Invest more and more through equity dilution or fresh debt for years as business expands (often having a negative cash flow for several years). Then eventually maturing and not requiring any fresh investments. The mode where profits are either reinvested or distributed as dividends.

However, we behave very differently when it comes to personal finance.
Typically, people get started very late on stage 1 at an average age of 30 or 35, often take debt for house etc, reach the stage 2 near retirement (or are sometimes just forced into stage 2 after retirement) and most of us never reach stage 3 (usually a variant of stage 3 that has a diminishing portfolio)

The reason isn’t always a late start or quantum of earning/savings, but lack of thought to financial planning or money management.

Having said that, there is one more important lesson:

It was the year 2002 and I was back home for my end semester vacations. Just as everyday, the door bell rang at around 7:30 PM. It was dad who had returned back from office.

Before actually going towards the kitchen looking for some snacks and sweets :), he stopped by in the common room, placed his briefcase on the dining table, set the digits in number lock to "333" (actual numbers changed for security reasons :)), opened his briefcase with both hands mostly using the two thumbs, took our a piece of A4 paper, an article that read:
"Benefits of Saving/Investing Early"
(more on this in a separate blog later)

By August 2003, I had started saving and investing even before I had started earning :)
For the last 5 years in work life, I have been saving and investing well over Rs. 1000/- per day and have managed a compounded annual return of well over 30%.

Stage 2 is soon to arrive. Perhaps, savings or investment of fresh 1000/- per day to my portfolio would soon have little or no meaning in a few years time. What this means is that the portfolio or size of my investments will hit a size that does not need fresh investments (of the same tune as what I have been doing. i.e.: Rs. 1000/- per day) Hence, the focus would now shift to maximizing returns instead of maximizing savings!

• Spend all primary earnings on living/personal expenses/charity etc (No more savings or fresh investments)
• Focus on maximizing returns from the portfolio (Since a 2% additional return from portfolio would contribute more than a full year of primary savings)
• Grow portfolio and work towards Stage 3/Financial independence. (When dividend income from portfolio meets either monthly salary or monthly household expenses)

Happy Investing!