All About the Wealth Calculator

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Introduction

Savings are the first steps you can take towards building a future that is financially secure. This is why financial experts advise you to prepare a budget and set aside some money each month for your various short-term and long-term life goals.

But while savings are undoubtedly essential, they are not enough. To truly secure your future and to fulfil all the goals on your wishlist, you need to invest. Savings protect your money, while investments help your money grow, thereby creating wealth.

And wealth planning is a very crucial part of financial planning.

Why is wealth planning essential?

Let's say you earn Rs. 80,000 per month. Your average monthly household expenses are, say Rs. 30,000. Then, you spend around Rs. 10,000 on other discretionary expenses. This leaves you with around Rs. 40,000 in hand each month.

Over the course of 10 years, you can save up Rs. 48 lakhs at most - assuming you diligently save up Rs. 40,000 every month.

But with Rs. 48 lakhs, it is not possible to meet all the life goals you may have in your wishlist, like buying a family home, purchasing a car, saving up for your children's higher education, and building a retirement fund. Phew! That is a long list, isn't it?

Investing, however, can help you grow your money. Let's say you invest that Rs. 40,000 you save each month for a period of 10 years. And let's say your investment gives you a moderate return of just 8% per annum. In this case, by the end of the 10-year period, your money will have grown to more than Rs. 73 lakhs!

This is what wealth planning is all about. And here are the top reasons it is an essential part of financial planning.

  1. It helps you achieve your big-ticket life goals without any compromises.
  2. It allows you to start investing early, and gives you a better idea of the amount you would have to invest to build the corpus you need.
  3. It ensures that you don't take on unnecessary debt to meet your goals.
  4. It protects your loved ones and secures their financial future too.

For these reasons and more, it is essential to get a clear idea of the wealth you need to make your dreams come true. A wealth calculator can help you with this.

What is a wealth calculator?

Also known as an investment planning calculator, a wealth calculator is a free online financial tool that gives you a clear estimate of the amount of money you need to invest to achieve various financial goals.

The ABSLI Wealth Planning Calculator is a fine example of this kind of an online tool. It helps compute the amount of money you need to invest today, to build the wealth you need for different life goals such as –

  • Buying or building a new house
  • Buying a car
  • Starting your own business
  • Generally creating a certain amount of wealth
  • Any other life goal that requires a huge capital

To compute the wealth and the investment needed for these objectives, the wealth planning calculator factors in different parameters. Here is a preview of the common details that you need to provide for your goal –

  • The cost of the asset you wish to buy or the amount of funds needed to achieve your goal
  • The timeframe within which you would like to achieve this goal
  • The person(s) with whom you will be sharing this goal (spouse, kids, parents, relatives etc.)
  • Your current total savings
  • The amount of money you are currently saving each month
  • The expected rate of returns from your investment

Apart from these details, there may also be some factors that are specific to certain life goals. For instance, if your goal is to buy a new house or be an entrepreneur, you also need to enter the details of the city in which you want to buy the property or establish your business.

Once you enter the particulars needed, the wealth calculator will give you a ton of useful information such as –

  • The total amount of money you need to achieve the goal
  • The effect of inflation on the corpus
  • The amount of money you need to invest each month
  • The tenure over which you need to keep investing to build the wealth needed

How the wealth calculator works: An illustration

Every life goal is different. And the investment and wealth creation process for each goal is also unique. A wealth calculator can help you create a budget that is tailored to your individual financial needs. Let's take up two examples to understand how the wealth calculator works to provide these essential details.

Scenario 1: You want to buy a house

Here are the other details we'll assume for the sake of this illustration.

  • Your new house is in Mumbai
  • Your house would be worth Rs. 1 crore
  • You would like to achieve this goal in the next 10 years
  • You want to share this goal with your spouse and children
  • You currently have savings of Rs. 15 lakhs
  • You are already saving Rs. 30,000 per month
  • The rate of returns you expect from your investments is 8%

After feeding in these details in your wealth calculator, you will get the following insights from the online tool.

Amount needed to buy your dream home after factoring in inflation

Rs. 1,50,00,000

Extent to which you are already covered

57%

Amount you need to invest each month

Rs. 35,513

Investment tenure

10 years


Scenario 2: You want to start your own business

Here are the other details we'll assume for the purpose of this illustration.

  • Your live in Bengaluru
  • You need an initial capital of Rs. 50 lakhs for your venture
  • You would like to achieve this goal in the next 3 years
  • You currently have no savings for this purpose
  • You are saving Rs. 10,000 per month
  • The rate of returns you expect from your investments is 8%

After feeding in these details in your wealth calculator, you will get the following insights from the online tool.

Amount needed to start your business venture after factoring in inflation

Rs. 60,00,000

Extent to which you are already covered

6%

Amount you need to invest each month

Rs. 1,38,024

Investment tenure

3 years


Why use a wealth calculator?

As you can see from the examples discussed above, each life goal is different. The amount that you need to save up depends on the capital needed, the investment horizon, the expected rate of returns, and the amount that you already have set aside for these goals. Calculating all these details manually can be tedious and prone to errors.

But a wealth planning calculator can make this job several times easier. However, that's not the only benefit of using this financial tool. Here are more reasons to use a wealth calculator for planning your future.

  • It is easy to use and beginner-friendly
  • You can use the wealth calculator online from the comfort of your home
  • You need not pay any fee whatsoever to make use of this tool
  • You can use this tool multiple times to change the parameters and adjust your investment plan as needed
  • It helps with wealth planning for a wide range of life goals

Conclusion

Now that you know all about what a wealth calculator is and how it helps with wealth planning, all you need to do is go online and get started with your investment plan. Make sure you enter the requisite details correctly, so your results are accurate and aligned with your life goals.

ADV/5/22-23/314

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