On Financial Discipline: A lesson I learnt from a famous movie

Scene from the 1958 movie, "Cat on a Hot Tin Roof"
Scene from the 1958 movie, “Cat on a Hot Tin Roof”

Apart from the other famous quotes in the 1958 movie “The Cat on a Hot Tin Roof” ,this particular line, which,  Elizabeth Taylor’s character, Maggie tells Paul Newman’s character, Brick, “You can be young without money. But you can’t grow old without it,” sort of became a very defining moment for me when I watched the movie for the first time as a twenty year old.

Financial discipline: Retiring Rich (Lines from the script of "Cat on a Hot Tin Roof"
Financial discipline: Retiring Rich (Lines from the script of “Cat on a Hot Tin Roof”

At 20, when one is most commonly a student and has a habit of falling into financial crunches, I realised a fundamental truth of life that though it is kind of exciting to be without money as a youngster but it is very demeaning to be without money when you grow old. I always had a habit of saving a part of my monthly allowance in case I needed it for some emergency. That used to be my ONLY GOAL: Saving for an emergency. But then my priority changed and I opened another bank account only for my savings that were not to be touched and carefully segregated the emergency fund from it.

Corollary to Maggie’s words is the part that I had read in dozens of Personal finance articles in newspapers. They all urge you to start saving at an early age for your retirement.

So, it depends on your financial goals whether you have to start saving when you are in your 30s or have to start when you are in your 20s.

One article I came across mentioned that if you can save Rs 10,000($185.2) per month(which is a pretty low

amount), you’ll have over Rs 1crore (10 million rs or $185,200) when you retire.

At a glance, probably this is what comes into a person’s mind:

I = P*R*T or 120,000*.08*40= Rs 384,000 or $7,111. Pretty low, huh! So it’s not possible!

(Taking Rate of simple interest= 8% per annum, time period = 40 years, and Principal= 10,000*12= 120,000)

But here comes the power of Compounding, which, according to Einstein is the most powerful force in the Universe. The simple fact is that 120,000 is not the principal for 40 years. Each year’s interest @8 % (arbitrary value, not inflation adjusted) gets added to the preceding year’s principal and the new interest gets calculated on it.

Financial Discipline and the Power of Compounding
Financial Discipline and the Power of Compounding

Therefore, according to this calculation, if I start saving a small amount say Rs 10,000 per month when I turn 22, I can actually accumulate a sum of Rs 28.5 million or $ 528,000 when I am 62. This is solely a retirement fund and is separate from the emergency or the savings fund. This amount and the interest earned from it are perfectly sufficient to help you live comfortably through old age. This is the simple power of Compounding!

Financial Discipline and the Power of Compounding
Financial Discipline and the Power of Compounding

Some might argue that idle cash is itself a least productive resource (from the point of view of Economics, such a saving would only be a loss of opportunity gains) but from the liquidity point of view, and also in view of the fact that one might not decide to invest in real estate or stock, a disciplined saving is the best alternative.

Enjoy you weekend. More interesting posts coming up soon.

You may also like:

Smart Shopping?

Ideas and Inspiration

Game Theory: Determining Strategic Behaviour

Getting Rich in 2013

The Budget Line

Investments and Recession

Analyzing Choices while Buying

Cost-Benefit Analysis and Decision Making

©The Idea Bucket, 2013

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6 Comments

  1. good post. i also been bloggin on personal finance part.
    there are 2 main concept that caught my attention here was.: start saving early concept .
    people dont have proper financial goals early at life and hence they dont realize power of compounding.
    people are more interested in expense part of cash flow..
    b) yes i prefer atleast 3 month income to be kept in savings account. since liiquidity is high it will be helpful in emergency situations

  2. Fantastic and so simple!! If only the discipline were there to follow it through-financial freedom is really just around the corner!! I wish I’d had this drummed into me when I was young…oh sh*t, I did!! I rebelled!! Oh well!! I’ve learnt now almost in my 40’s. 🙂

  3. Well the movie quote is actually a reference back to Dickens :“‘My other piece of advice, Copperfield,’ said Mr. Micawber, ‘you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” from
    David Copperfield (1850). You might want to look at Freakeconomics also for some interesting ideas on all this finance… Anyway, thanks for coming and reading and liking my blog on the pudding I made… hope you get the chance to make it!

  4. Hi! Thanks for liking my recent post “Fun Fact about Getting Good Grub” 🙂 I’m definitely trying to save while young as well. Thanks for the interested post on compounding!

  5. Compounding is the single most important theory to learn when young. Start young and compounding with make you wealthy! Well done.

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