I see two sets of people. The first one increases their SIP contribution regularly as their income increases.
The rest keeps the SIP amount constant even after 5 years of starting the SIPs.
Over a period, both our income and expenses keep increasing. Proportionately our savings and investing also needs to increase.
As we repeatedly point out, you should save at least 25% to 30% of your income. The ratio needs to be higher if you want to achieve early financial independence in life.
Once in 2 years, aim to increase the SIP amount by 20%. If you start with Rs.50,000 SIP per month for 20 years; the SIP instalment needs to be as follows:
Year 1- 50,000
Year 3- 60,000
Year 5- 72,000
Year 7- 86,400
Year 9- 1,03,680
Year 11- 1,24,416
Year 13- 1,49,300
Year 15- 1,79,160
Year 17- 2,14,992
Year 19- 2,57,990
Assuming an annualised return of 18%, a fixed amount of Rs.50,000 invested every month over a 20 year period becomes Rs.11.72 crores.
If you start with Rs.50,000 and keep increasing the contribution by 20% every 2 years, again assuming an annualised return of 18%, you end up with Rs.18.64 crores.
By increasing your contribution by 20% every 2 years (or roughly 10% every year), your final corpus increases by 159%
To repeat; 10% yearly increase of SIP contribution would increase your final corpus by 159%
My question again:
Your income increases regularly!
Your expense increases regularly!
Why not your savings and investing?
Note: I could have also assumed 10% increase every year instead of 20% every 2 years. What I’ve given is only an illustration. We can plan around with another way like 10% every year, 30% every 3 years etc. The more closer the frequency better would be the compounding.