Your monthly salary need not be very high to plan a good retirement. While it may appear incredible, the regular practice of invest 7k per month can add up to a significant amount of around Rs 2.47 crore when you retire, all thanks to the power of compound interest.
The secret behind this extraordinary transformation is regular investing. Instead of waiting to get a lump sum, investing small amounts every month can add up over time. Investing on a regular basis, especially in systematic investment plans (SIPs) for mutual funds, allows you to avail the benefits of rupee cost averaging and compounding. Even in months when the market is falling, you can benefit by buying more units at lower prices, which can be very rewarding in the long run.
Learning Compound Interest
Compound interest is also referred to as the “eighth wonder of the world”. When you save Rs 7,000 every month, your money earns interest, and it too earns interest on that. Assuming an average return of around 12% (or approximately 1% per month) annually, the formula used to calculate future value of regular monthly investments is a good illustration of how with consistent contributions in 30 years your steady investment will balloon into around Rs 2.47 crore. What a staggering expansion it makes from a total investment of just Rs 25.2 lakh, turning it into a big pension fund.
If you’re strapped for cash, starting your investment process may seem daunting. However, even a small quantity, when invested systematically in the correct investment vehicle, can place you on the expressway to financial independence. Here’s how you can start:
– Starting a SIP: Choose a high-performing equity mutual fund that is suitable according to your risk profile.
– Invest automatically: Arrange to have Rs 7,000 debited every month, so saving is easy.
Monitoring and realignment: Periodically, check your investments to see if any realignment is needed to stay on track.
A future worth investing in
With even a small salary, small, consistent investment schemes can yield bountiful dividends in the years to come. With the advantage of compound interest, you build a sizeable corpus for retirement. While developing the virtues of discipline for your finances to build a secure future.
ALSO READ: Financial Tips for Women: How to Save, Invest and Grow Your Wealth
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