Work out a financial plan according to your needs and goals
If you want your dreams to come true, there is no running away from taking small, but steady, steps in the right direction.Different people have different needs, therefore, a financial plan that works for someone may or may not necessarily work for you.
The right way to go about building your wealth is to create your own financial plan aligned with your future goals. This discipline needs to be adopted in any investment. When you invest in mutual funds, work out the right amount to be invested in a Systematic Investment Plan (SIP) that fits well with your financial plan than blindly follow someone.
SIP is one tool that can help you build investment corpus for the long term by investing in mutual funds.
Thanks to the volatility, more often than not, investors find it hard to time the market.In a turbulent market, if you wait for the opportune moment to invest, you might end up not investing at all.
This is where SIP offers you the opportunity to invest small portions of your surplus regularly.This not only helps investors tide over volatility in the market but also inculcates investment discipline.
Factor in inflation
With soaring inflation and rising cost of living, Indian families often find themselves stretched financially. As a result the amount they set aside for investment to meet their long-term financial goals proves to be insufficient.Hence it is pertinent to know the right amount that needs to be regularly invested, to meet your future goals.
So how do you go about that? The first step is to arrive at the amount that needs to be invested regularly. To do this, get a fix on your target amount and then work backwards to ascertain how much money you need to set aside every month.Make adequate provision for inflation as a higher-than-expected inflation can eat into your returns. For instance, let us assume that you wish to invest for your daughter’s marriage slated to happen, say, 10 years from now.
If you estimate that at the current price it will cost you around Rs. 10 lakh, budgeting for an annual inflation of 7 per cent, you will need about Rs. 20 lakh after 10 years. If you expect your investments to yield annual return of 12 per cent, you need to invest around Rs. 4,000 per month to have a corpus of Rs.20 lakh, 10 years from today. So, quantify your goals and account for inflation before you decide on the amount to be invested.
While arriving at the amount for your SIP, ask yourself — What am I investing for? How long should I invest? Is the investment adequate to achieve my goal? You could make use of wealth creation tools such as SIP calculators to arrive at the right amount of SIP or seek the advice of your financial advisor.