Building wealth is a consistent process, and it requires an effective investment strategy to create a sizable corpus for bigger goals like owning a house. It's a dream for many Indians to buy a home and maintain a financially secure retirement life. Achieving these financial goals may seem difficult with limited income.
But, is it possible to fulfil life goals like owning a property, enough funds for retirement and higher education of children. Is it possible to meet these financial goals with a monthly salary of Rs 1 lakh?
Let's see how a prudent investment strategy can help you achieve these targets with monthly earnings of Rs 1 lakh.
The investment horizon and the amount you set aside to build a corpus for financial goals will play a crucial role in achieving your targets. For example, mutual funds could be suitable over the long run to build a large corpus due to the power of compounding. This requires setting aside a significant amount every month for investments while cutting down your regular investments.
Here are a few simple ways to build a corpus for your financial goals:
Prioritising Goals
To protect your long-term financial stability, you must distinguish between goals based on urgency and flexibility rather than treating them equally. While a home purchase can be downsized, delayed, or financed through loans, and a child's education is a non-negotiable, time-sensitive expense, retirement is the most critical, as it cannot be funded by debt.
You can adopt a priority hierarchy of retirement, then children's education, and finally home buying to safeguard your future.
Identifying Your Goals and Timelines
Start by defining when you'll need funds for each goal. For instance, a 32-year-old might need Rs 16 lakh for a home in 4 years, Rs 85 lakh for their child's education in 16 years, and Rs 7 crore for retirement in 28 years. The investment tenure is crucial – for shorter timelines, prioritise capital protection, and for longer ones, focus on growth. A longer tenure may help you generate a larger corpus with lower monthly investments, and for a shorter horizon, you may need to invest a higher amount to reach the same goal.
Investment Strategies
To ensure your fund is available when needed, you must align your investment instruments with each goal-specific timeline. For a short-term goal like a down payment for buying a home, prioritise low-risk assets like short-duration debt funds or conservative hybrid funds. Even fixed deposits or recurring deposits could be a suitable choice due to their steady returns.
For medium-term goals like education, choose growth-oriented equity and balanced mutual funds via long-term SIPs. Finally, for long-term goals like retirement, maximise wealth creation through large-cap, multi-cap, and index funds, as well as contribute to EPF and NPS. This strategy protects your immediate capital while ensuring that your future corpus grows sufficiently to meet your targets.
Calculating Future Costs
To accurately assess your financial readiness, it is essential to project your future requirements rather than relying on current costs. Using today's prices to calculate long-term goals would lead to a significant shortfall; therefore, you must adjust every target for the rising cost of living to ensure you have enough money at the right time.
A home costing Rs 80 lakh today might require a Rs 19.5 lakh down payment in 4 years (with 5% yearly inflation). Similarly, education costs could rise to Rs 86 lakh in 16 years (8% annual inflation), and retirement expenses might reach Rs 3 lakh monthly in 28 years (6% inflation).
Review And Adjust Regularly
It's advisable to review your investments and reallocate your funds across instruments to hedge against market volatility. As your income grows, increase your contributions and shift toward more conservative investments as you approach each goal's deadline. By consistently increasing your investments and revising your strategy, you can build a strong and resilient portfolio to meet your financial goals.
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