Achieving big results through small improvements

Written on Saturday, November 17, 2018
By Mitali Sharma

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When you are young and feel invincible, saving for retirement is probably not in your priority list. Small wages, the strong desire to party - eat - travel, on-going loans, and for various other reasons maybe you are not left with any money for saving, especially for a goal like retirement, which is yet a distant affair for you.


If you have not yet started saving or investing for your retirement, then the right piece of advice for you is: ‘Start Young , Start Small, Step-up and Automate.’


Start Young - Start Small


In India, typically one starts a job by the age of 25. If you are a 25 years old working individual, then what would be the minimum amount that you can save in a month? Let’s consider an amount as small as Rs.1000 per month. Now, you may think, it’s a too small amount that will hardly make a difference, so better use it up and procrastinate the act of saving till you become able to save at least Rs. 5000/ month. 


But suppose instead of procrastinating, you decide to save and invest Rs. 1000/month till your retirement at 60, and your investment draws 6% per annum rate of return. Now, because of compounding at the end of 35 years, your investment of Rs 1000/month will grow up to Rs. 14.3 Lakhs. Now that’s not a very satisfactory amount to retire with but at least it shows how much a small amount can grow if you have the time advantage. When you start young, you have ‘Time’ working in your favour, and thus even an amount as small as Rs. 1000/month or Rs. 12000/ year can grow up to Rs. 14 Lakhs. 




Now, let’s talk about making small improvements in your investments. If you continue investing Rs 1000/ month from the age of 25 till your retirement at the age of 60, and at the same time you manage to step-up your investments by adding Rs. 250 to it every month, then at the end of 35 years, you will end up accumulating a little more than Rs 54 Lakhs considering 6% rate of return per annum. So, a step-up of Rs 250/month will shoot up your retirement corpus from Rs. 14 lakhs to Rs. 54 lakhs; that big difference small improvements in your investments can make.




If you think that you will save from your left-overs, then there will never be any leftovers. So best is to automate your investing. Since we are talking about small investments, so you can definitely initiate an automated deduction of your investment amount at the onset of the month itself, when salary gets credited. This is just to ensure that you stay disciplined in your investment procedure. 


Conclusion: How to invest?


In the aforementioned assumption story, the considered rate of interest is just 6%, usually given by banks in fixed deposits or recurring deposits. Investment in Mutual funds through systematic investment plan (SIP) is another investment option you have. Mutual funds have the potential to offer better returns. SIP is a systematic and disciplined way to make investments in mutual funds in a completely automated way, and you can start making investments with the amount as small as Rs. 500 per month, also there are options to make step-up investments. It gives the advantage of rupee cost averaging and power of compounding.


Saving for retirement is not a thing to be considered when you are already old. To retire rich and to have your best bet, the mantra is to ‘start young, start small, step-up and automate.’

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