- In this personal finance article, we will explore a case study on money and wealth. We will walk through hypothetical examples and fictional characters to illustrate these ideas.
Let's assume that Person A and Person B both start their careers at the same time at a reputable firm and earn the same salary. Let's see how they manage their money at the end of each month.
Individuals should consider how much of their income is being transformed into an asset or contributing to asset generation.Individuals should consider how much of their income is being transformed into an asset or contributing to asset generation.Person A & B factsheet:
| Item | Amount | Comments |
| Salary (Revenue) | $10000 | Core earnings |
| Expenses (Expense) | $5000 | Leakages |
| Taxes | $1000 | Leakages |
| Salary Remaining (Net Income) | $4000 | Value to Store |
Person A lacks personal finance awareness
Person A has a monthly salary of $4,000. He decides to invest in an expensive car with an EMI (Equated Monthly Installment) of $2,000. The remaining funds are allocated to cover additional expenses, including the purchase of more devices. Person A continues to manage his excess salary in this manner each month and does not invest for the next 10 years.
Person B is well aware of how to handle his personal finances.
Person B owns a car and receives the same salary of $10,000. With this amount, he drives his own vehicle and invests the remaining $4,000 in an index fund with an average historical return of 7% per month over the next 10 years.
Case 1 numbers:
| Term | Amount | Comments |
| MONTHS | 120 | 10 Years * 12 Months |
| Interest rate | 7% annually | Assumption |
| Years | 10 | Total term |
| Present value | 0 | Assumption |
| Monthly Payment | $4000 | Savings into investing |
| Future value at 10 years | $696,377.88 | Assuming at 7% rate compounded annually |
Disclosure:
This future value calculation is provided for illustrative and educational purposes only. The results are based on assumed inputs and simplified mathematical formulas and do not represent actual or guaranteed investment outcomes. Actual returns may vary significantly due to market conditions, costs, taxes, and other factors. This content does not constitute financial advice or a recommendation to buy, sell, or hold any financial instrument.Person B is trying something new since he expects his salary to grow forever with that assumption.
Person B believes he can increase his investment by 10% each year. For example, in year 1: $4,000, in year 2: $4,400.
Case study 2 numbers for illustration only
| Term | Amount | Comments |
| Months | 120 | 10 Years * 12 Months |
| Interest rate | 7% annually | Assumption |
| Years | 10 | Total term |
| Present value | 0 | Assumption |
| Monthly Payment | $4000 | Savings into investing |
| Future value at 10 years | $696,377.88 | Assuming at 7% rate compounded annually |
| Step-up EMI | 10% | The rate at which the monthly amount grows is $4,000 * 1.10 =$4,400 |
| Future value after 10 years | $ 1,002,545.76 | Future value after 10 years with step-up |
- The graph shows the difference in the future if you contribute 10% more at the end of each year.
Above graph is for illustration only
Person B now has a corpus available for retirement or other financial needs.
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