"Step-up" is one of the most underrated concept into Investment. Many people are aware of this technique, but none is focus on actually applying into their investment profile. Step up investment" generally means gradually increasing your investment amount at regular intervals (like yearly) to align with rising income. This trick is mostly aligned up with the SIP in mutual funds, where you set an initial investment and a percentage/amount to automatically increase it annually. However, if the trick is mindfully use and followed with discipline then this one trick is enough to turn your 10K amount of money into 37Cr over a period of 40 years. The power of Compounding over a span of decades may create good amount of wealth. But before drilling down to the calculation , lets plan a budget of an individual.
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Budgeting is an important financial tool for an individual. A person can get into investment, only when he/she can able to budget their income & expenses and take out some crux for saving. In todays time, 50k is an average salary of most of the individual. There are individuals who earns handsomely more than this, but on a hypothetical basis, lets assume a person monthly income is 50k (50000). On a broader scenarios I have budget his expenses into following.
The individual total expenses comes down to 40k so the monthly saving would be 50k - 40k = 10K . The individual would like to invest the saving into mutual fund through SIP. The 70-20-10 rule of investment is the most preferred way to invest in Mutual funds. It is a framework designed to build a diversified portfolio by dividing invested capital into different risk level. Lets further drill down he saving of 10kk into monthly SIP one the basis of 70-20-10 :
In last few yeas the mutual fund investment is giving an average return between 12% - 14%. On an average assumption of 13 %, and Step-up of 10% every year, lets see how the mutual fund SIP will grow in 40 years
I made use of an online calculator provided by Groww. It is one of the popular investment and demat service platform. With the above criteria, the returns it shows is astonishing.
The same criteria over different time period gives us the following result :
Who does not wan to see their money grow and step up is just a simple way to make everything possible. But it requires a discipline approach and patience for long period to see the money grow. This tool is perfect for salaried individuals who get annual raises, allowing investments to grow as income grows.
"Wealth isn't built in a day, but it鈥檚 built by consistently stepping up."
In good faith - Peace!!
