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Why you should aim to increase your SIP by 15% each year

Increasing the SIP amount each year by even 5% can have a dramatic effect on your final goal amount. A 10% increase means achieving 7 lakhs more (or the price of a hatchback). When the increase is 15% the result is a corpus that’s three times bigger.

Many of us see saving as a burden. When someone tells us to save more, we tend to groan inwardly. “I am barely managing to save what I am saving, and you are asking me to save more?!!”. 

Let’s try to understand why exactly saving more in a month towards a SIP is not just a good thing but an essential thing.

Yes, saving more is hard, no doubt

Our salary normally grows by certain percentage points above inflation rate and depends on the economy. It also depends on the role, years of experience, the industry we work in, and the company within it. In the recent past, salary growth has been within 8%-10% for most private sector employees. 

This growth should be seen also in terms of absolute numbers. The salary growth of 10% for someone making 5 lakhs a year might not be as big an amount as it is for someone earning 12 lakhs. Taxes impact salary growth as well, especially when your salary hike puts you in a higher tax bracket. 

Inflation was at 8% pa historically and is currently trending at 5%-6% pa. In some cases it is much more. Consider the case of education where inflation has trended at 12%. In case of services and entertainment, inflation is higher as well.

Your savings today are more valuable than savings in the future. This is a fact that escapes many who feel they will save only when they have enough money. It escaped me as well when I started my first job where I could save only Rs 500 in 2007! That 500 is worth double now. 

But beating inflation needs higher saving

For most of you, your incomes would have grown and so would have your expenses. But did your savings grow in line? 

Inflation might be lower in the recent past but it isn’t going away. Your saving of Rs 5,000 a month five years back is not the same as saving Rs 5,000 now. In fact at a 6% rate of inflation, saving Rs 17,000 every month ten years in the future would mean saving Rs 10,000 now.

Your savings today are more valuable than savings in the future. This is a fact that escapes many who feel they will save only when they have enough money. It escaped me as well when I started my first job where I could save only Rs 500 in 2007! That 500 is worth double now. 

Considering money is being devalued each year, financial freedom requires active steps to stay ahead. As long as those steps put you ahead of inflation, even starting small and increasing your investments each year helps more than you can imagine. Let’s see how.

The magic of a 15% increase

How much of a difference would saving more and investing it would make? Let’s consider the following table:



We have considered investing in equity for this purpose which is expected to give a return of about 12% annualised. 

Increasing the SIP amount each year by even 5% can have a dramatic effect on your final goal amount. A 10% increase means achieving 7 lakhs more (or the price of a hatchback). When the increase is 15% the result is a corpus that’s three times bigger. 

Yes, considering inflation the purchasing power of these amounts will be lower than the numbers reflect. However, if you understand your financial goals, plan for them, and invest adequately, even starting small will not pose a barrier to your financial security.

Finally, we should remember that even a 5% increase means saving up 20% more. In the case of investing, something is truly better than nothing at all.
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