There is no dearth of financial calculators available on the internet and sometimes novice investors get baffled by the sheer number of calculator links that come up for a simple search query like 'goal sip calculator' or 'goal calculators'. How does then one choose the calculator that will precisely provide an answer to what the investor was looking for in the first place?
There are many calculators available on the internet that can help you find answers to some of your financial planning queries. But here is a list of the basic must-try calculators that everyone should try because these will help you understand the need for a financial plan in the first place and how should you start working towards your financial goals in life.
This calculator will help you do some reality check in life. If you think that you are doing well in life, you have a stable source of income that gives you a decent lifestyle while you still manage to do a bit of savings, then this calculator is going to throw up some surprises. The inflation calculator helps you find the amount you'll need in future to meet your current expenses or how much will an expense costing say Rs. X today cost you after certain no. of years. Historic data shows inflation rate has averaged 7.7% in our country for the period 1969 to 2013. Now you can imagine how inflation can dent your savings in a big way. Hence you need a smart investment plan to beat inflation in the long-term. Let's take an example to simplify it for you. Suppose you want to buy a SUV 4 years later that is costing 10lakhs today. You'll need 12.16lakhs to buy the same SUV after 4 years if inflation averages 5% during this period. Actual inflation could turn out to be higher than our assumption in which case, you'll need more than 12.16 lakhs. For instance, if inflation turns out to be 6% instead of 5%, you'll need 12.62 lakhs for the car.
Goal SIP Calculator
This calculator is the next one you should try once you have figured out how much your future expense for a particular goal requires after adjusting for inflation. It could be a SUV for yourself or a medical degree for your teenage daughter or simply a family vacation aboard after few years. The Goal SIP Calculator helps you calculate the monthly SIP amount you need to invest in a mutual fund over the goal horizon so that you can meet the future expense with ease when it comes due. You need to put the future value of your goal, the time period over which this goal needs to be achieved and the rate of return you expect your investment should give you. Don't forget to add the inflation rate to your expected return else you'll be staring at a huge shortfall when you need to fulfill the goal. In our example, our SUV would require 12.16 lakhs in four years from now at 5% inflation. Thus, you can set goal amount as 12.16 lakhs, time period as 4 years and expected return as 15% which includes 5% inflation. Expected return is your expectations from the investment you are making and will vary for each person. If you are investing with a conservative approach in a balanced fund or fixed income fund, you must lower the expected return as compared to your expectation from an equity mutual fund. The calculator gives you a monthly SIP amount of Rs. 18,642 in our example. This is the amount you need to invest in a mutual fund through monthly SIP where you expect to make 15% annual return.
If you are one of those smart investors who has already started planning for his/her life goals and have a few SIPs in place, this calculator is the one for you. It'll tell you the future value of your SIPs and you can compare that with what the inflation calculator gives you. If the future value of your SIP comes out to be more than what the inflation calculator gave you for the same goal, you are really smart! But if the future value given by the SIP calculator turns out to be lower than what the inflation calculator shows, you really need to step-up your SIP now else you will be staring at a shortfall when the time to fulfil your goal comes.
7 Costly Mistakes made by investors
Mistake number one: Being too conservative
Being too safe will cost you in the long run. If your retirement funds are invested in conservative funds throughout your working life then you are short-changing yourself and your future retirement. Financial experts have said this will leave you more than $100,000 short of what you could have had. It is important that your money is working as hard for you as you work hard for your money.
Mistake number two: Being too greedy
Some investors are at the other extreme and are too greedy to the point of being reckless. I am not talking about those who invest in their retirement fund but rather those who have their entire savings invested in finance companies which entice investors with market interest rates. Greed sets in as was the case when investors got their fingers burned during the Global Financial Crisis of 2007-2008 with the collapse of several finance companies.
Mistake number three: Lack of diversity
The one major mistake made by many of those who lost money during the Global Financial Crisis is their lack of diversity; that is, they put too many eggs in the one basket and when one basket is dropped, the result is a complete mess as far as their finances are concerned.
Mistake number four: listening to the wrong advice
Associating with the wrong crowd will affect your finances because you end up listening to their conversation which will affect your mindset. It is just like non smokers inhaling the fumes of their so-called friends who are addicted to the habit. If you hang around them long enough your own health will be affected.
Mistake number five: Not doing your homework
You have to do your homework on whatever you are investing your money in and not just invest blindly. There is a lot of information online so there is no excuse for ignorance in this area. The public library has plenty of financial books so you do not need to outlay money for books.
Mistake number five: Getting too emotional with your investments
You cannot be emotional with your investments. Use cold hard logic when assessing your investments. Investing in mutual/managed funds takes your emotions out of investing as it is the fund manager who chooses the investments.
Mistake number six: Lack of patience
Depending on your strategy, some investments are long-term and require patience, but it all depends on your age and personal circumstances. Still, if you are young you have the advantage of time on your side so patience will help you acquire your financial goals.
Mistake number seven: Lack of planning.
All successful ventures are well-planned! So having some kind of strategy for your financial future is essential. You need to decide what the purpose of this money is for; is it for your retirement, a new car, a house deposit, your education? You must be specific.
Read all you can about the various investment options and which ones suit your particular circumstances. Everyone has different goals so your strategy needs to be one which suits your personal desires.
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