Investors always have the queries of what would be the ideal amount which one should invest or what should be the ideal percentage of salary which one should invest every month. There are different components on which this depends and no fixed formulae for everyone. Different factors help an individual in determining the amount which should be invested.
Mainly the income is being for 3 major purposes as –
- Expenditure
- Emergency fund
- Long term investment goals
The basic rule is that one should at least invest around 40 percent of their income from which around 20 percent should go to investing. Now, one should decide the amount which one should invest in the SIP monthly plans which could be difficult as alterations at a later level could be difficult depending on the changes in priorities.
There are various factors which one should keep in mind before fixing any amount of investment –
Obligations that are fixed – There are some of the obligations which are fixed, so a portion of it should be kept aside from the salary or income generated monthly. For doing these payments an amount should be kept aside as these are the basic requirements for supporting the daily routine life. Supposedly, a person Shyam is earning around Rs 40,000/- in a month. Out of this, the expenses which one needs to take care of are –
Rent = Rs 8,000/-
Electricity bill – Rs 3,000/-
Food and other bills – Rs 6,000/-
Total fixed obligation = Rs 8,000 + 3,000 + 6,000 = Rs 17,000/-
So, the total income which is left with Shyam for investment is around Rs 40,000 – 17,000 = Rs 23,000/- Hence, Shyam can do the investment in SIP with an amount up to Rs 23,000/- If an amount required for meeting fixed obligation is less than one will be getting a higher amount for investment and vice versa.
Withholding amount for an emergency – From the income which is left there are times when one sets aside a certain amount for unforeseen expenses. At any time, there could be an emergency and for that one needs to have some liquidity or money in hand. These funds which are withheld could be used at the time of emergency.
This amount can be kept in the form of cash with an individual or a bank under-saving account. Though, the best way to keep this emergency corpus under the liquid funds. This one will get the high liquidity facility and whenever there is a need it could be redeemed instantly without any issues.
So, the emergency fund will be accessible to individuals when they need it. The appreciation of an amount deposited will be around 6 to 7 percent, while on a saving account one will get around 2 percent of return. An amount for these should be set aside before considering investment into the long-term SIP plans.
Long-term goals – Every individual has their own financial goals and investing in SIP should be according to that. The corpus for these goals will be accumulated based on time, funds chosen, how much amount invested in which type of SIP, and for how long.
The SIP amount can be determined by choosing an amount for children’s education or retirement, funds chose to be like it’s a debt fund, equity-based fund, or growth fund. The amount invested in SIP and the type of SIP should be analyzed carefully depending on the stock market expectations and income one earns.
Conclusion
If one saves a small portion of their income earned monthly then it would help in creating wealth for the future. The consistency and persistence over a longer period will create a good investment portfolio. As there is an increase in income, one can increase the amount proportionally towards the investment for increasing the creation of wealth at a faster pace.