Many dream of a financially secure future, but not all manage to get there. Regular savings can provide phenomenal returns over the long run. Despite countless financial obligations and huge debts, one must set aside a fixed amount every month. This can be a contingency buffer or surplus that can bail you out of financial crisis. Wouldn't it be wonderful if your small contributions grew into a huge avalanche of wealth over a period of time?

   The power of compounding is phenomenal. Your savings grow exponentially with time, and the sooner you start the more will be the quantum of returns. For example, assume a person sets aside Rs 1,000 in an instrument each year. If the returns were 10 percent compounded annually, at the end of one year, the investment would have grown to Rs 1,100. At the end of the second year, the investment would have grown to Rs 1,210. At the end of 10 years, Rs 1,000 would have grown to Rs 2,594.

   If an individual invests Rs 1,000 every year, in 10 years at a 10 percent rate of interest, his investment would have grown to Rs 17,531. Such is the power of compounding. Compounding is reinvesting of income at the same rate of returns to constantly build the principal amount, year after year.

 
   This New Year, make a resolution to save regularly and benefit from the power of compounding to build a corpus. Rule 72 will help you decide on the investment tenure to double your money. By dividing 72 by the annual rate of returns, you can estimate the number of years it will take for the initial investment to double.

   If you invest Rs 100 at a compounding interest of 10 percent per annum, according to rule 72, the approximate timeframe required for the investment to double is 72 divided by 10, that is 7.2 years. Instruments like the safe cumulative fixed deposit or recurring deposit offered by banks or the more aggressive systematic investment plan offered by mutual fund houses allow you to get into a regular saving habit.

   The actual returns on investments vary significantly even for the smallest rate differential. Hence, it is crucial for investors to pick the best rate of returns. Suppose Rs 100 is invested annually at a nine percent compounded rate for 10 years, the returns at the end would be to the tune of Rs 1,656. Suppose the rate of returns was a few percentage points higher at 11 percent, the returns at the end of 10 years would be Rs 1,856. Further, greater investment durations bring you larger returns.

   In the current high interest regime, where the cost of borrowing is high, people who have taken a home loan and a personal loan may be walking on tight finances. The increasing cost of living and high inflation levels may increase the strain on the wallets. Periods of economic recession and slowdown are difficult to predict. Hence, it makes sense to make saving a regular habit and benefit from the power of compounding.