There is no shortage of financial calculators available on the web and sometimes novice investors are amazed at the sheer number of calculator links that appear for a simple search such as “Goal Sip Calculator” or “Goal Calculators”. How, then, do you choose the calculator that will answer exactly what the investor was originally looking for?
There are many calculators on the internet that can help you find answers to some of your questions financial planning Interrogate. But here is a list of basic calculators that everyone should try, because they will help you understand the need for a financial plan in the first place and how you should start working towards yours financial goals in life.
- inflation calculator
- Target SIP calculator
- SIP calculator
This calculator will help you to do a reality check in life. If you think life is great for you, you have a stable source of income that allows you to live a decent lifestyle while you can still save a little bit, then this calculator will bring you some surprises. Inflation Calculator helps you find the amount you will need in the future to cover your current expenses or how much an expense will cost, say Rs. X today will cost you after certain no. of years. Historical data shows that the inflation rate in our country in the period from 1969 to 2013 averaged 7.7%. Now you can imagine how inflation can take a toll on your savings. Therefore, you need a smart investment plan to beat inflation over the long term. Let’s take an example to simplify it for you. Say you want to buy an SUV 4 years later that costs 10 lakhs today. It will take you 12.16 lakhs to buy the same SUV after 4 years if inflation averages 5% over that period. Actual inflation could be higher than our assumption. In this case you will need more than 12.16 lakhs. For example, if inflation turns out to be 6% instead of 5%, you will need 12.62 lakhs for the car.
This calculator is the next thing to try once you figure out how much your future spending will require for a specific goal after adjusting for inflation. It could be an SUV for yourself, or medical school for your teenage daughter, or just a family vacation on board after a few years. The Goal SIP Calculator helps you calculate the monthly SIP amount you need to invest in a mutual fund over the goal horizon so you can easily cover future expenses when they come due. You must state the future value of your goal, the timeframe within which that goal must be achieved, and the return you expect on your investment. Don’t forget to add the rate of inflation to your expected rate of return, or you’ll be staring at a huge shortfall when you need to hit the target. In our example, at 5% inflation, our SUV would need 12.16 lakhs in four years. So you can set the target amount to 12.16 lakhs, the period to 4 years and the expected return to 15% including 5% inflation. The expected rate of return is your expectation from the investment you are making and is different for each person. If you invest in a mutual fund or bond fund with a conservative approach, you need to lower the expected return compared to what you would expect from an equity fund. The calculator gives you a monthly SIP amount of Rs. 18,642 in our example. This is the amount you need to invest in a mutual fund, where you expect a 15% annual return, via monthly SIP.
If you’re one of those savvy investors who’s already started planning their life goals and have a few SIPs, this calculator is for you. It shows you the future value of your SIPs and you can compare that to what the inflation calculator gives you. If the future value of your SIP is higher than what the inflation calculator gave you for the same target, you’re really smart! But if the future value indicated by the SIP calculator turns out to be lower than the inflation calculator, you really need to increase your SIP now or you’ll be staring at a deficit when the time comes to meet your goal.