First Step: Prepare your goal chart

If you read my last blog HOW MUCH MONEY TO SAVE EVERY MONTH, I am assuming that by now you have made your chart of goals to be achieved similar to the one mentioned there. The chart is reproduced below:

Second Step: Find the current and future cost of your goal

After listing your goals, Find out how much does each of your goal cost today and then calculate its future value which will be obviously higher due to inflation. If the expense on your goal currently is Rs. 1,00,000, lets see in the table below on how much will it cost in future:

Third Step: Invest in accordance with your goal

For short-term goals (coming within one year or so) like ‘Buying a Tablet Computer’, Child’s Admission and Vacation etc, stock market can be risky due to their volatile nature. Simplest and safest choices can be an FD if you have the money and RD if you plan to save every month. Just divide the required amount by number of months and hope interest earned will cover the cost increase.

For medium term goals (3-5 years away) like buying a car or making your home down payment, you can look at Mutual Funds, preferably Balanced Funds and if you are a little aggressive investor….then at Diversified Funds.  Mutual Funds invest in stock markets, so it is difficult to predict precise returns and  required monthly savings (If somebody claims to know, he is trying to fool you). Therefore simply divide the required amount by the no. of months and invest that money. If you earn extra due to good markets, then you can buy a surprise gift for loved ones.

Unit Linked Insurance Policies or ULIPS (those investing in stock markets) are another choice but they have a lock-in of 5 years and deduct a lot of expenses from your investments due to which returns are likely to be lesser than MFs.

For long-term goals ( after 5 years or more), choices vary from Mutual Funds and ULIPs, PPF, PF to even Gold because you can invest in installments every month or quarter through Systematic Investment Plan (SIP). Property can be another one if you want to make lump-sum investment. How to invest your money is a vast subject and needs to be dealt with separately. Let's remain focused on how much money to save every month.

In the table below, I have taken three possibilities of 12%, 15% and 18% growth in stock market related instruments and I will call them pessimistic, realistic and optimistic scenarios (your definitions of them may vary). You can see return on investment of Rs. 1000 in these three cases.

Your question may be…what if I want as per chart on the top Rs. 15 lakhs after 15 years for my child's education in the realistic scenario, how much will I need to invest…..simple to calculate. As you can see that in 15 years, in the realistic scenario i.e. at a growth rate of 15%, your return on Rs. 1000 comes out to be 6,68,507. You have to simply put in this formula to calculate the required monthly investment amount.

(Desired Return / Return on Rs. 1000) X 1000
In the above case, it will be 15,00,000/6,68,507 X 1000 = Rs. 2,244 p.m. approx.

I guess that you are already feeling great about having calculated the savings required for your goals…Well, Congratulations for the journey so far!!! 

However, you will still need help to decide, which instruments to put your money in. Read my next blog ‘Where To Invest Your Money’ or take the help of a qualified investment advisor.

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The author of above article is only trying to give a broad sense of basic rules of investment. His views are in no way binding on anyone reading this. He will not be liable for any loss, whatsoever, incurred on account of action taken on reading this blog. Before taking precise investment decisions, advice of a qualified investment advisor is recommended.