Accumulating wealth for a particular goal might seem arduous but it is not an unachievable task
Usually, when an investor uses a financial calculator to plan their future, they may get disheartened looking at the huge numbers (which the calculator comes up with) that they need to accumulate. Many might not even look further or give up investing when they look at such huge amounts. Well, the amount looks daunting at first but the investor must understand that it's not impossible to reach the final goal.
Inflation - The invisible monster
Inflation is a rate that explains the decline in the value of a currency over a period of time. We can use this rate to gauge the rise in a product's price to the cost of living of a country. A rise in the rate means that the currency effectively buys less than it did in prior years.
Inflation is a hard pill to digest. It is not something new, it's been there for ages. If we'd ask our parents or grandparents about the price of milk or groceries, we'd be shocked to hear that there's a handsome difference between the then prices and the prices of the recent times.
So one must understand that the various financial calculators take the inflation factor into account and that is a reason why the numbers appear big and unachievable.
Proper planning is the key
The big numbers, that financial calculators throw, are achievable, provided there is proper investment planning. Instead of getting disheartened and thinking low of yourself, you need to build your investment portfolio. Take a look at the chart - one can accumulate nearly Rs 2 crore by investing Rs 20,000 every month for the next 20 years. Here are some actionable steps to get you started:
Learn the basics of portfolio-building.
If you start your investment journey early in your life, you can take advantage of compounding. Compounding is a process where the interest earned on the investment is added back to the principal amount and reinvested. If you start early, you not only give time to your investments to grow but also benefit from the power of compounding. Looking at the chart above, you can clearly see that there is a substantial difference between the corpus accumulated in 15 years and 25 years.
Investing and incrementing
Our financial goals are achievable, given we don't get carried away looking at the final amount that we require. It looks unrealistic at first but if we start slow and work up by incrementing your SIPs, it is possible. Investors should increase their investment amount every year (or whenever they can). This slight increment proves to be very fruitful in the long-run, as can be seen in the chart below.
So do not get disheartened. Start your investments with the goal in mind and be disciplined and consistent. Doing so will make your investing journey easy and joyous.
It is never too late to start investing. You can make up for the lost time if you started investing late.