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Quit Smoking and Drinking and save a Crore

I intuitively told him ‘Did you know that if you quit smoking and cut down on your drinking, you can become a crorepati’ It got his attention. He asked me how?

My friend Ashutosh is an ardent KBC (Kaun Banega Crorepati) fan.  Every season, he makes frantic calls to participate in the competition and is now seriously preparing for its 11th season. Once during one of our casual conversations, I intuitively told him ‘Did you know that if you quit smoking and cut down on your drinking, you can become a crorepati’ It got his attention. He asked me how?

I asked him , how many cigarettes do you smoke in a day? He said 10 cigarettes. And beer? He said he guzzles about four beer bottles a week. I quickly put some numbers to it. Ten cigarettes a day roughly costs about Rs 150 a day and Rs 4,500 for a month. And beer drinking costs another Rs 2,000 for buying 16 bottles of it. I took a conservative estimate - given that buying beer in a bar costs much more than in a wine shop. Put together, I estimated that about Rs 6,500 is being spent by him on smoking and drinking every month. I told him to inflate the cost by 10% every year.

The Opportunity Cost

To give him a better idea about what he will save, I related it to his spending basket. In a week’s time, he will save Rs 1,530 – enough to buy him new clothes or dine-out for two. Or Rs 6,500 a month, enough to sponsor a weekend family travel in the outskirts of the city. Or Rs 78,000 a year to take home an Apple Mac book or do small time home renovations. 

In five years, it will save him Rs 4.8 lakh - enough to buy a small hatchback car or venture out on an international family holiday. And in 10 years? A whopping savings of Rs 12.4 lakh which will buy him a big premium car or help pay for the down payment of his new house. 

Time horizon

Now, he became eager to know the time frame to become a crorepati. I explained, that the above estimates did not take into consideration the opportunities of earning more money through investing. And if he invests these savings into equities, he could become a crorepati in 19 years.

How?

Investing in equities through mutual funds can be expected to earn about 12% per annum over the long-term. This in turn, means the savings will reach the magical mark of Rs 1 crore in 19 years, thanks to the power of compounding. 

Of course, unlike the KBC game, where the odds are against you, here success is more or less certain, if you stay calm and disciplined. He got the point. 

In five years, it will save him Rs 4.8 lakh - enough to buy a small hatchback car or venture out on an international family holiday. And in 10 years? A whopping savings of Rs 12.4 lakh which will buy him a big premium car or help pay for the down payment of his new house.

Wealth creation

An old saying goes ‘health is wealth’. By quitting smoking, you not only help yourself but your loved ones.

Moreover, in the process you also boost your retirement kitty. And this is where the promise of equities plays an important role. On the eve of World No Tobacco Day, I successfully managed to convince my friend to kick the butt. Perhaps forever. What about you?

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