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The key to achieve your financial goals
Oct 25, 2013

"Motivation is what gets you started. Habit is what keeps you going."- Jim Ryun (an American former track athlete and politician).

Every individual has certain dreams and ambitions. It is a time tested theory that achieving success requires discipline and determination. Even a child needs discipline and regular monitoring to achieve his goal of being a good student. Hence, as a grown up individual you definitely need to invest regularly and wisely to meet your financial goals. The most convenient and one of the easiest ways to accumulate wealth is by investing regularly and in a disciplined manner. The following illustration will help you understand this better:

Example 1). Mr. Singh has a 6 year old son. He wants his son to pursue higher studies after his graduation. The cost for the same is Rs 10 lakh today. What will be the cost after 15 years when Mr Singh's son is ready to pursue higher education, and how much will Mr Singh need to save for the same?

Son's Age 6 years
Cost of Education in today's terms Rs 10 lakhs
Time left for Higher Studies 15 years
Inflation Rate 10% p.a.
Cost at time of Post-Graduation course Rs 41.77 lakhs
Amount Mr Shah needs to invest per month Rs 8,362

The table above depicts that cost of pursuing the post-graduation course after 15 years would be Rs 41.77 lakhs. And if Mr Singh starts saving today for his son's higher studies, then the amount he would need to save and invest per month would be Rs 8,362. However, if Mr Singh delays and starts saving after 10 years, then he would need to save almost 6 times more i.e. Rs 51,149 per month for 5 years in order to accumulate the desired corpus.

So, the above example explains that by investing regularly you will be able to create a large portfolio which could be extremely difficult to replicate with a single instalment.

Infact, investing small amounts regularly will also prove to be light on your wallet and reduce the burden of defraying a huge amount in one shot from your bank account. Hence saving and regular investing can enable you to meet all your financial goals in life in a comfortable manner. Procrastinating saving for even small goals of life can create a financial crunch later.

Investing regularly and in prudently in the right investments also gives more time for your investments to grow. Hence you further benefit from the impact of compounding. The money that we invest regularly manifests on itself and grows. However to gain the most out of the compounding effect you must start saving and investing early. The earlier you begin investing and the longer you remain invested, the more compound interest you will be able to earn i.e. greater would be the power of compounding.

Another advantage you obtain by investing regularly is protection from 'Investment Risk'. This is the risk which can arise if investors buy when the markets are expensively valued and sell when the markets are cheap. Most investors are not capable of forecasting markets over the short term. They do not know when is a good time to buy or sell. Hence by investing regularly you spread your purchases and hence can take advantage of the market highs and lows. This is nothing but rupee cost averaging.

Often while investing, many investors seek the perfect entry and exit point of the market which amounts to nothing but market timing. However, it is often very difficult if not impossible to regularly be correct in predicting market fluctuations, and thus know exactly when to enter and to exit. Timing the markets, apart from requiring full time attention also requires expertise in understanding economic cycles and market scenarios, which you may or may not possess. Regular saving and investing makes market timing irrelevant and enables you to exploit market opportunities.

Speaking of regular investing, Systematic Investment Plans (SIPs) inculcate a very good habit of discipline in investing. It ensures that you save a certain amount every month regardless of the state of the markets and removes the need for timing the markets. Furthermore, since you are investing on a fixed date every month or quarter in SIPs, you also get the benefit of cost averaging over long time periods.

PersonalFN believes that as the desire to meet life goals provokes one to invest; all investors must ideally adopt a regular and disciplined approach towards investing. Infusing a regular investing habit will help your financial dreams come true - be it buying a dream house or a car, providing good education to children, getting them married well, or even your own retirement. You might be surprised at how planned and regular investing can help you establish the requisite corpus exactly when you need it. Hence if you wish to achieve this financial nirvana, discipline and regularity must be your key traits as an investor along with selecting the right investment avenues.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.


The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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