Ask Mint Money | While planning a corpus, don’t make unrealistic assumptions

Ask Mint Money | While planning a corpus, don’t make unrealistic assumptions

I am 26 years old and my net salary is 45,000. I work in Mumbai. I want to buy a house in the next three to four years. I don’t have any investments or insurance and can save 22,000 per month.

—Janvi Joshi

Though this is doable, it is not as easy as it sounds.

As of now you are able to save 50% but with increasing commitments you may not be able to do so. Also as you said, you don’t have any investments or insurance. What happens in case of an emergency? You need to be prudent enough to provide for the same.

The idea is not that you don’t buy a property. How you can create a balance among your investments, insurance and real estate is the key.

You need to create different baskets of savings which will provide for all asset classes. You may not be able to buy the property after four years but may do so after six years, or you may buy a smaller one and not the one which you wanted to buy in the first place.

I am 30 years old and I want to start my own venture in the next 8-10 years for which I will need 1 crore. I can save 30,000 per month. Please suggest.

—Ruchi Sharma

Creating a corpus of 1 crore will not be easy. A savings of 30,000 per month translates to 3.60 lakh per annum which without considering interest becomes 36 lakh in 10 years. Now to turn this 36 lakh to 1 crore needs a lot of hard work. There are two variable in this number crunching—interest rate (how much you can earn year-on-year) and growth (by how much you can increase your savings year-on-year). Assuming an average interest rate of 10% and the average growth rate of 8%, you will accumulate 78.27 lakh at the end of 10 years. You can tweak the numbers and the result will vary. For instance, at 12% interest and 10% growth rate, you will have 92.17 lakh. But if you want to play safe, take conservative numbers of 8% interest rate and 5% growth. This will grow your money to 63.60 lakh. But don’t make any assumption which are not realistic and evaluate your assumptions every year.

Lastly, don’t get too much attached to the magical number of 1 crore. You can always start small as you will not need all the money at one go.

Surya Bhatia is a certified financial planner and principal consultant, Asset Managers.

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