Saving should be approached with a specific goal and a predetermined target amount in mind. This strategy facilitates the accumulation of the necessary funds to achieve particular financial objectives, such as financing a child’s education or preparing for retirement.
It is essential to adopt the principle of “Income minus Savings equals Expenses,” rather than the reverse. Many individuals tend to spend their income first and then invest what remains. However, prioritizing savings before expenditures ensures that financial goals are met more effectively.
For instance, saving Rs 5,000 monthly in an equity mutual fund, assuming a growth rate of 12 percent, can result in approximately Rs 50 lakh after 20 years. Of this total, Rs 12 lakh will be your initial investment, while the remainder will be the profit generated. If the monthly savings are increased to Rs 10,000, the final amount could reach nearly Rs 1 crore.
Over a more extended period of 25 years, saving Rs 5,000 or Rs 10,000 monthly could yield around Rs 95 lakh and Rs 1.9 crore, respectively, at the same assumed growth rate of 12 percent.
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Before commencing any investment, however, it is crucial to consider the inflated costs of your financial goals and the timeline for achieving them. For example, if you require Rs 25 lakh for your child’s education in 20 years, the cost may escalate to Rs 35 lakh after 25 years. Investing Rs 3,000 monthly in a Systematic Investment Plan (SIP) for 30 years can result in a maturity amount exceeding Rs 1 crore.
Utilizing a SIP calculator can help determine the necessary investment to reach the milestone of becoming a crorepati, and you can adjust the duration to see how long it may take to achieve this goal. It is advisable to invest in equity mutual funds, as equities have the potential to provide substantial inflation-adjusted returns over the long term.
To cultivate a saving habit and mitigate the temptation to time the market, initiating SIPs in 2-3 mutual fund schemes is recommended. Ensure that these funds are diversified across various market capitalizations and sectors, and that they have consistently outperformed their benchmarks over an extended period.
It is advisable to commence saving for your long-term objectives if you have not already done so.
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