When it comes to investing, there are several things that are not in our control as investors. The economic conditions, events triggering changes in the market, how the market reacts to such conditions and hence the returns in the near term, and so on.
But there are still some things that we (the investors) can influence.
1. The amount we can put into investments
2. The time period of our investments
In the Compound Interest formulae, out of three factors namely, invested amount, interest (returns), and the number of years invested, we focus more on the returns, while the other two also influence the overall growth of the investment fund.
Here is an illustration where Amit and Ajay begin investing Rs.1 lakh each year (about Rs.8000 per month) into a well-researched product. As soon as he received his raise, Ajay made a conscious decision to raise his investments by 10% annually. Both of them continued to invest for 20 years without redeeming at any time during the period.
Here are some observations from the 20 years of their investment journey.
At the end of the 20 years period, Ajay had made more than 100% of what Amit made!
Amounts highlighted in ‘Blue’ are where additional 5 lakhs were achieved. During his fourth year, Amit earned his first “5 Lakhs.” His subsequent “5 Lakhs” was made in under three years. He started making “5 Lakhs” every year after 13 years of consistent investments. This is the magic of compounding!
Ajay achieved the same even sooner than Amit.
After all, we are making an investment toward our goal, and achieving that goal is our first priority. Hence, it is prudent to take advantage of the factors we have under our control rather than solely relying on external factors to build investments.
#Consistency #Compounding #Investment #planning
Have you defined the goals for your investments and savings?
Have you got a clear idea of what you want to achieve with the money you are investing?
We have all traveled. From where do we start the travel?
‘Where are you going?’ Until you can answer that question, you can’t say that any one route is better than another.
Any road will get you to where you want to go.
Similarly, when you define your purpose for the money like Retirement, Children’s education, a world tour, a beautiful home, etc., you can look at where to invest to achieve the above.
Not having a direction, not having a goal, not knowing where you are going, it’s all the same. You go nowhere.
Without direction, without a destination, without a goal, how do you pick a direction, choose a road, or choose an investment avenue to get “there”?
Where are you going? or, for what are you investing the money? Answering the question is important.
If the answer to the question is anywhere, you’re probably already there. #goals #investment
Rome was not built in a day but the brick was laid every hour.
This popular quote by JohnHaywoord is applicable to various aspects of life, especially finance. Regular savings and thereby, investments are important to build wealth.
Meticulous, planned, and regular investment into known, understandable financial products fetch better results than identifying and understanding new financial products and investing randomly.
After all, wealth is not built in a day or rather a year but by saving(read as investing) pennies each day.
#saving #investing #rome #colosseum #discipline
Amit desired to renovate his home. He had planned to spend between Rs. 7 and Rs. 8 lakhs on the project.
He had gotten quotes from a few good architects and settled on one whose price matched his expertise.
While the renovation was going on, Amit was advised to renovate his bathrooms and attic as well. It seemed reasonable. He wouldn’t have time to do this later.
He considered purchasing new furniture after the renovations because the ones he had, looked old in the new house. The house now appeared to be posh and lovely.
Amit had already exceeded his budget by a few lakhs, to Rs.15 lakhs for which he went for a top-up on the home loan. He didn’t give it much thought at the time. But this caused a dip in his overall monthly savings.
What he didn’t realize was that this extra expense had a cascading effect on his finances.
They took a planned international vacation the following year. To achieve his goal, he needed to take out a loan of about 5 lakhs. Again, his EMI payment towards the vacation brought down his monthly savings.
His son graduated a few years later, and they were planning a post-graduation abroad. Because of the drop in monthly savings, there is once again a significant gap between his investments and the planned budget for his son’s higher education. So he had to go for an education loan.
He does not want to burden his son with a large EMI as soon as he finishes his education. As a result, he contributes to the EMI on his education loan.
Again, all of this has an impact on his retirement corpus.
As a result, he is forced to work for a few more years to retire safely. His dream of retiring early and pursuing his passion post-retirement is crushed.
When it comes to goals other than retirement, total spending can be flexible. (i.e) Spending on furnishings could be forgone, vacations could be taken closer to home, education loans could be paid off by the child, or college choices could be more cost-effective. However, retirement expenses CAN NOT be compromised.
Prioritizing one’s financial goals always aids in budgeting for expenses. If one’s goal is to be financially independent after retirement, saving for retirement should be the TOP priority.
Any big spending should be aligned with long-term goals.