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Building wealth through traditional means depends upon two factors – how much you save/ invest and the rate of return on investment.

While the return on investment is something which is not always in our control, the savings rate is. And as we will show in this article, that the savings rate is a more important determinant when it comes to doubling your wealth than the return on investments.

We often look at savings rates as a proportion of our income. This is known as Income Saving Rate. If you earn Rs. 10 Lacs and save Rs. 1 Lacs in a year, your income savings rate is 10%. of the total income.

However, a wealth savings rate considers a savings rate relative to your wealth. This can provide more meaningful insights into how long it should take for you to double your wealth. After all, the purpose of savings is to build wealth.

In this article, we explain what wealth saving rate is and will explore how long it takes for you to double your wealth at different savings rates assuming a 10% and a 12% average annual return on investment.

## The Magic Number: 72

The rule of 72 is the simplest way to estimate how long it will take for you to double your initial investment. Simply divide 72 by the expected return on investment and you will get the number of years it takes to double your initial investment.

Formula:

Years to Double = 72 / Interest Rate

For example, if your investment grows at 8% annually, it might take around 9 years (72 / 8) to double your money.

The problem with this method is that it only measures doubling time for one-shot investments. In reality, no one invests like that. Most people are adding regularly to their investment assets over time (SIPs).

Therefore, to calculate how long it takes to double our money, we need to adjust for new money being added.

## What is the Wealth Saving Rate?

The wealth savings rate is how much you save relative to your total wealth (i.e. assets minus liabilities).

For instance, if your total wealth is Rs. 20 Lacs and you save Rs. 2 lacs, your wealth savings rate is 10%.

Wealth savings rate = annual savings / total wealth

A high wealth savings rate is inversely proportional to the time it takes to double your money.

## How Long Does it Take to Double Your Money?

We assumed a starting capital of Rs. 10 Lacs and estimated how long it would take to double this amount at various savings rates ranging from 2.5% to 30%. We performed the simulation using a 10% and a 12% average expected annual return since the long-term average return of Sensex is in the range of 10-12%.

Doubling Time (in Years) for Various Wealth Savings Rates and Expected Returns: –

Table 1

You should be able to use this table to figure out approximately how long it will take you to double your money given where you are today.

For example, if you have Rs. 10 Lacs in investable assets today and you plan on saving Rs. 25 Thousand per year, you would have a wealth savings rate of 2.5%. Using the table above, and assuming a 10% return, this means that it should take about 6.1 years for you to double your money.

As you can see in the table, the time it takes to double your wealth decreases dramatically as your wealth savings rate increases. In other words, the time to double your money is inversely proportional to the wealth-saving rate.

If you don’t save at all, it would take about 7.2 years for you to double your investment at a 10% expected return (72 / 10). However, if you increase your savings rate to 15%, you will be able to double your money in less than half the time. 3.4 years to be precise.

If your savings rate is 30% or above, you will double your money in no time.

An important thing to note is that the wealth savings rate only works for the first time you double your money. After your money has doubled, you then need to re-calculate your doubling time based on your new wealth savings rate.

## Key Takeaways

1. Wealth saving rate is a more important determinant when it comes to doubling your wealth than the return on investment.

Of course, the return on investment matters, but as Morgan Housel once said of Warren Buffett:

If, at age 30, Buffett was worth \$24,000 instead of the \$1 million he actually accumulated, and went on to earn the same returns,  he would be worth \$1.9 billion today.

That’s 97.6% lower than his actual net worth of \$81 billion.

The punchline is that 97.6% of Buffett’s current success can be directly tied to the base he built in his teens and 20s.

2. The biggest decline in the time it takes to double your money is at the initial increases in wealth savings rate. In other words, saving something is always better than saving nothing.

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How Long Does it Take to Double Your Money?
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