Financial planning calculators can go a long way in helping you estimate how much you need to save regularly to reach a particular objective, say your retirement or children’s education.
The process starts from setting your financial goals. To meet your future goals, it is important to estimate the amount you would need for that objective, keeping in mind the time frame of the investment and the rate of inflation during the period.
“Goal planning is often understated but it is the first and the most important step of financial planning,” says Anant Ladha, founder, Invest Aaj For Kal, a financial planning firm.
The next step is to decide the avenues where you would be investing your money. For goals that are still some time away like your child’s education or your own retirement, it is important to invest in equity because as an asset class it has the potential to deliver returns that beat inflation. While one may invest in stocks, it requires a fair bit of knowledge and expertise. Investing in equity mutual funds through systematic investment plans (SIPs) is a better way to invest regularly for a long-term goal.
Once you know the estimated amount for a certain goal, you need to figure how much you need to invest every month to reach the goal. You can get an idea of your goals and required investments by using financial planning calculators.
Goal Planning Calculators
Two basic calculators can help plan for your goals. The first is a SIP calculator, which can help you estimate the amount you need to invest regularly to reach your goal. The second is a retirement calculator which helps in calculating your retirement corpus.
When planning for goals, you need to make some assumptions like the rate of inflation, the expected rate of returns on your investment and so on.
Such calculators are easily available online on the websites of financial planning firms, financial product aggregators, mutual fund distributors and their mobile applications.
How To Use These Calculators
Using these calculators is quite simple. You just need to input the required values and the calculator will throw up the results.
Let us take the example of an SIP calculator. You would need to put in figures like how much money you need, the number of years you have left for the goal and the expected return. For example, if you want to get a corpus of Rs 10 lakh in seven years, you need to invest about Rs 7,600 per month at an assumed return rate of 12 per cent. While the rate of return is an assumption, it still gives you an estimate of how much you need to save every month.
A retirement calculator has more input fields. You need to estimate the cost of retirement at current costs and then put in the expected rate of inflation and assume a life expectancy. This helps calculate the required retirement corpus. Inputs like how much you expect to earn on your investments and the returns your retirement corpus would get will help you estimate how much you need to save every month.
Things To Keep In Mind
Ladha has some tips on what one needs to keep in mind while using such calculators. “Firstly, never underestimate inflation and always consider lifestyle inflation. Secondly, never overestimate returns looking at the returns of the past one year or so," he says.
Also, stick to your calculations and goals and give it time. If a goal is 15-20 years away, there is no need to panic or react if the markets perform badly over a certain period. Stopping your SIPs and redeeming your mutual funds during a market crash is a bad idea.
“Plan your goal and then stick to it. Jumping out of the financial journey is just like jumping off the plane in the middle of a flight,” he says.
