Personal Finance

For a Secure Future, Get Time On Your Side

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You might roll your eyes if we were to say “time and tide waits for none”. After all, who doesn’t know this old saying? Yet, most of us are unaware of how true this is when it comes to our families’ financial future. Our big dreams, be it buying a home, the child’s higher education or retirement, all need substantial amounts of money. These requirements can’t be met by our regular income and need our savings which can only be accumulated over time.

Our major financial needs typically arise at different points of time and require different amounts of money. To successfully meet major needs one needs financial planning. This includes, among other things, finding out the amount of money required for each need, the time available and the regular investment required. Needless to say, the more time you have on hand, the better is your advantage. Here’s an illustration.

Suppose, you need Rs 20 lakh for the education of your daughter in 15 years, you will need to invest Rs 5,780 every month if you begin today; assuming that the money invested grows at 8% annually. This amount goes up to Rs 8,127 if the money grows annually at 4% annually.

What happens if there is a delay of one year? Well, the regular investment amount required, goes up to Rs 6,493 and Rs 8,900 respectively if the money grows at 8% and 4% respectively. If you start 5 years from now, be prepared to invest higher monthly amounts of Rs 10, 932 and Rs. 13,582 respectively. In short, the regular investment burden gets doubled in the former case.

It is fair to conclude that greater the delay you make, the less time your money gets to grow with compounded growth. Regular investments ensure that the growth of additional investment supplements the ever growing principal of existing investments. Take a look at what compounding can achieve.

In our example, where the money grows by 8% to achieve the target of Rs 20 lakh in 15 years, a monthly investment of Rs 5,780 helps save Rs 6.48 lakh after 7 years. The remaining Rs 13.52 lakh needed to reach Rs 20 lakh is achieved in the next 8 years. In short, the savings amount gets doubled. So, what are the lessons that we can learn from these two examples?

Firstly, we need to start investing early for our future needs and need to invest regularly. Here, life insurance savings plans which require you to make regular life insurance premium payments can be of great help. You can choose life insurance premium paying mode depending on your convenience, be it monthly, quarterly, half-yearly or annual.

The great thing about life insurance plans are that they instil investment discipline that comes through paying regular premiums. What’s more, this is combined with financial protection to your family through life insurance coverage.

Second, regular investments made after an early start helps you save large sums even with low regular investment amounts. This means you can easily have a balance between present and future financial needs. What’s more, an early start to regular investments helps your accumulated money grow more thanks to the compounded growth from life insurance savings plan.

Finally, an early start means that you don’t have to look around for fancy investment schemes that typically lure people with false promises of abnormally high returns. They typically cause major financial mishaps. In fact, with an early start to investing through life insurance products, you can take the help of expert investment managers of the life insurance company to make the money grow.

To sum up, when you seek to secure the future of your family, you can’t afford to miss the boat of an early start. This puts you on the path of constant and steady progress, leaving you with plenty of time to enjoy the many good things that life has to offer. Time can be your best friend but it will still not wait for you.

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