Accumulating Rs. 1 crore can be really easy if you know what to do. The key is to draw up a plan and stick to it.
Becoming a crorepati a decade or two ago seemed like an impossible task. But with higher salaries and better awareness, getting to that first crore is not very tough. Having said that, nothing can be achieved without a good plan in place and the same is true for accumulating a corpus, especially something like Rs. 1 crore. Even though it would be a huge advantage if you start with a good amount of money, you could start from scratch too. But the savings plan in case of the latter and the former would be different. Let us look at the common points of creating a savings plan.
Goal? Think micro goals
Instead of looking to achieve Rs. 1 crore, divide it into achieving Rs. 10 lakhs first, then Rs. 30 lakhs and so on. These can be called your micro goals. This would not only make the goals easier to achieve, it would also allow you to review your savings plan and investments to achieve your target amount. You can even step up investments as you reach your micro goals.
It is important to set realistic micro goals so that you can achieve them as intended. For instance, it doesn’t make sense to have a goal of accumulating Rs. 10 lakhs in a year if you are starting with zero investments and save just about Rs. 30,000 every month. Even if your investments gave you 12%, you can accumulate only Rs. 3.84 lakhs at the end of the year. However, if you are able to save Rs. 30,000 every year for four years and get a return of 14%, you will be able to save Rs. 18.55 lakhs.
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So, take into account the amount you are able to spare and investment rates when you are setting micro goals. Don’t overestimate investment growth rates. Take the equity markets for example. They seem to be tanking now. If you expected the markets to give you more than 10%, you would be disappointed. So, take into account the nature of the investment as well as the time horizon to set realistic goals.
As any finance expert would tell you that you need to keep track of your progress towards the goals and make changes if necessary to stay on track. Review your portfolio at least once a year. Interest rates have gone up? Check if you can get better rates for your fixed-income investments. Equity markets tanked? Check if your stocks or funds are underperforming. Compare them to your best ones and see if you can still have them in your portfolio.
Your household budget should be your handbook for savings and would decide how much money you ultimately accumulate. So, try to draw up a good budget that maximises your savings over the years. You should aim to save at least 25% of your income every month if you don’t have liabilities. Make the most of cashback, discounts, reward points and other such savings so that you save more. When you get a salary hike or bonus, step up those investments first and then splurge later.
If you are starting with a good corpus, you have an edge over others. You could reach your goals quicker than someone starting from scratch if you remain invested. In that case, capital preservation will be more important. You can use the Systematic Transfer Plan (STP) to lower risks.
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STP is similar to SIP, but here, you transfer amounts from one fund to another over a period of time. If you have a large amount of money, you can invest in debt funds and do an STP to equity funds ensuring that you earn money while moving to higher risk, higher return funds. You can even set triggers to do this. For example, you could set a trigger that if equity markets go down by 1%, 5% of your money will be transferred from debt fund to equity fund. This means that you are investing when the markets are down rather than investing at market highs.
Whatever be your plan, it is important to stick to it for your money to grow. It is also crucial that you keep a tab on your investments so that you can book excess profits and put them into lower risk investments.
This article was originally published on LinkedIn.