Do a little bit

The other day, I was reading a blog post about someone's travails with a fitness app. This writer installed this app and then put in the target amount of exercise he would do every day. After a few days, he noticed that if he did not record the targeted amount of exercise on time, the app would immediately offer to let him put in a small amount.

He missed his half an hour, so the app would pop up a message, asking him if he would like to exercise for five or 10 minutes or even less. At that time, he was disappointed.

He felt that the app's logic was making it too easy for him to accept that he would exercise just a small bit. However, he stuck to it. He realised that it made sense to exercise even a small amount. At least he pulled out his yoga mat and did something, even if only for three-four minutes. It may not have made a difference to his fitness but the habit started forming up.

I see the equivalent of this in saving and investing all the time. People think of starting to save and the first thing they do is to go to an online goal calculator and work out how much they need for some future need. It turns out to be a lot - more than they can probably save but full of enthusiasm and determination, they set themselves a difficult monthly goal. They start a large SIP. After a few months - or maybe just one month - they find that they can't pay the SIP so they don't. The investment level falls straight to zero.

The solution is the same as in the fitness app. To begin with, do only a little, only as much as you actually can. Do not go to an online calculator and see how much you need to save to buy a four-room apartment in five years or some such 'stretch target'. Instead, savers should just start with whatever they can realistically save. If it's just a few thousand rupees, that's fine. If it's just one thousand rupees, that's fine too. That's the equivalent of exercising for two minutes, it's the beginning of a habit that will only grow. The important thing is to start somewhere.

I've seen often enough that while the maths of investing regularly, like through an SIP, is important, it's the habit-inducing nature of SIPs that keeps them investing. It's the psychological factor that is the real driver for investing returns and success. That happens because the biggest problem in investing is not where to invest. Instead, it is to invest at all times and keep investing through thick and thin. People invest sporadically and then, stop investing when they don't have money to spare or when the markets fall. SIPs do the job because investing becomes a habit. It gets ingrained in your behaviour patterns, it happens automatically every month and you don't have to overcome any inertia to invest every month. It helps when you start with a reasonable amount that is easy to take out.

The important thing is that there should be no 'zero months', when you have not saved at all. Of course, it doesn't make sense to keep investing the same small amount forever. However, I've seen that the increase happens automatically. Money accumulates, gains build up and then you start enjoying the way your money is growing. Soon, a year or two pass and your income, too, goes up. That's the time people find that they start investing more without any problems.

I do wonder whether mutual funds should facilitate the kind of thing that fitness app did. Right now, whether you are investing directly with the fund or a third-party app, no one bothers too much about a missed SIP instalment. Maybe if a message would pop up and offer a simple way of investing a smaller amount, it could work just as well.