By Vijayananda Prabhu
Money would never seem sacred unless we associate it with some purpose or need. If you have numerous goals and requirements for the money you hold, you will think twice before spending each penny. Hence this means, spendthrifts never hold definite financial goals in life and they spend hands free. But this does not mean that one should not spend on leisure or entertainment. All expenses should be calculated and within ones predefined limits. If not, one ends up in a financial crisis.
First step towards saving is to have a list of goals and the amount required to achieve them over different time periods. Secondly, choose 2 or 3 investment schemes suited for each goal (For short term goals, pick fixed return schemes and for long term goals, pick equity related schemes and for medium term, a mix of both). Mutual fund SIPs are time tested instruments for long term wealth creation. Now, you have a table of goals and the investments allocated towards each goal. Decide upon the amount you wish to invest in each scheme. You may name the bunch of schemes you have allocated towards a particular goal with the name of the goal. For e.g. if you have a retirement fund, it would comprise of one or two mutual fund schemes and your PPF,NPS,EPF etc. Thirdly, every year, increase the SIP amount as your income goes up. If you receive any payments in between, such as bonus from the employer, allocate that amount towards any of your sacred goals or nearest short term goals (If there is any market fluctuation in the short term, your goal would stay safe). You may decide between prepaying your loan and increasing your monthly investment based on interest cost in the loan versus earning prospect from the investment in that year. If the market stays heated up, allocate funds towards loan closure and if investment prospects weigh bigger, then allocate funds towards your goals.
Ideally one should invest at least 20% of one’s monthly income into systematic investment schemes like SIP, PPF etc (And one should not spend more than 35 % of one’s monthly income towards EMI payments). Increasing the investments by a specific percentage (Let say 5%) every year, would reduce the burden towards penultimate years of goal.
As “Rome wasn’t built in a day”, it requires diligent and disciplined effort over many years to accomplish great things. Small savings every month would grow into large corpus of wealth over a longer period of time. The compounding effect complemented by incremental investments will make sure that your goals are achieved at ease. The only thing an investor should have control over is the tendency to withdraw from goal portfolios. Never withdraw money from your retirement fund for buying a new television.
Note: Always choose investments that best suits your risk profile.