There is no doubt money is essential for us. We all invest for our future, but we should know how much money is actually needed. You want to create wealth but have you ever calculated how much is enough – Rs 1 crore, Rs 5 crores, or Rs 20 crore?
You must figure out the amount you need to save. It will help you in many ways. If you can reach your goal with a 50K saving per month, you can spend the additional money for your present needs and desires. Accumulating money is not about destroying your present for a better future. It is about enjoying the present and ensuring you are thoughtful about the future.
In this article, we will help you find – how much money you need for your future and how to reach the number?
Factors to consider to now the amount
Your goals – There are two things for which everyone has to save – it is unavoidable. First, you need to save for a child’s education. Second, for retirement. If you have any other major goal that will need considerable money you can list that down. It could be buying a house or a foreign vacation before you retire.
Your current investment – Next, you should list all your existing investments. Set aside only two things – your emergency funds and the house in which you leave (that is not an asset). Include your PF, stocks, bonds, gold (not jewelry), etc. Try to figure out how much average return you get on your current investments.
Your current expenses – List your spending for the past year and take an average to determine your average monthly expense.
Bring in the devil – The devil that hinders your investment journey is – Inflation. You have to consider inflation to figure out how much you need for the future. To figure out how much you need for different goals – you have to factor in inflation differently. For example, inflation in the education sector is at a lower double-digit. For your retirement, we can consider average inflation of 6%.
How much is needed?
Based on the information you have gathered, you can calculate the amount you need for different goals. To give you an idea, we will calculate the money required for retirement:
Assumptions –
- Your current age – 30 years
- Retirement age – 60 years
- Life Expectancy – 80 years
- Current Average expense – Rs 50,000
- Inflation – 6%
- Rate of return on investment before retirement – 10%
- Rate of return on investment post-retirement – 6%
- Existing investment and rate of return on that – Rs 20,00,000 and 10%
Based on the above numbers, you will need approximately Rs 8 crore for your retirement. Is it hard to achieve?
You will have to save Rs 22,000 per month approximately for your retirement goal. Similarly, you can calculate the investment needed for educational goals.
Factors that impact the amount – the most
Your existing investments – If your current investment is only Rs 5 lakh at age 30, you will have to invest 1.5 times more per month – Rs 34,500 approximately. If you have accumulated Rs 30,00,000 at the age of 30, you only need to invest Rs 13,500 per month. For the same reason, it is advised, you should never delay your investments.
Your returns – In the above calculation, we have assumed a rate of return of 10% on your new and existing investments. However, if we change the return to 8% for both, your required investment almost doubles to Rs 42,000 per month. If it is reduced to 12%, your investment reduces by one-third to Rs 6,500. With 11%, you will only need Rs 11,000 per month.
Life Expectancy – The deciding factor in this calculation is your life expectancy. We have used 80 years as life expectancy. I that is changed to 85 years, your monthly investment changes to Rs 33,000 per month. The idea is to get a rough estimate of what you need for your goals.
The amount looks too much?
If you think the monthly amount is high, we can bring in one more factor – Step-up SIP. It means, for now, you will invest less, but every year you will increase by a certain percent. If you can increase your investment by 5% every year, you can start with only Rs 13,000 per month instead of Rs 22,000.
Note – the above numbers are only for retirement – make a similar calculation for other goals.
Conclusion
There is not much you can do for what you have saved till now. However, you can make investments to get a 10% return, if not 12%. To achieve such returns for the next 20 to 30 years, you need to invest in equity. It is the only financial instrument that can give you such returns.
If a significant percent of your investment is not in equity, for sure, you will not be able to achieve 10-12 percent returns. Yes, you may still accumulate the amount you need for your retirement (or other goals), but you will have to sacrifice a lot in the present.
Why should you when there is the option not to? One of the primary reasons most people don’t invest in equity is because they don’t understand it, and doing it on their own requires time and effort.Hence, we have created Jarvis Invest – an AI-driven platform that uses technology to help you get the best results from equity and help you achieve your goals. You can download our app to get started or reach out to us to know more.