SIPs (Systematic Investment Plans) are one of the best ways to achieve your financial goals. But, unfortunately, most people don’t increase their SIP contributions enough when there is an increase in income.

Taking an aggressive approach to SIPs, however, can significantly boost your accumulated wealth.

The general tendency is to revise SIPs in proportion to salary hikes. For instance, if you get a 15% hike, you increment SIPs by 15%. Though far better than no change, this strategy is suboptimal.

Say, your current monthly income is ₹100,000, of which you invest ₹20,000 in mutual funds through SIPs. Let’s consider a 15% hike (i.e. ₹15,000). Increasing SIPs at the same rate would mean an additional ₹3000 (15% of ₹20,000) for investments, leaving ₹12,000 for expenses.

But if you think about it, do your expenses actually increase by ₹12,000 immediately?

You see, expenses typically rise at a slower rate than income. Your rent would continue to be the same, at least for a while. You won’t start consuming more groceries overnight. Your car wouldn’t use more petrol. The same holds for other expenses. They stay “fixed”. Mostly.

This means you can put aside significantly more money towards investments. Far more than what a proportional increase would indicate. And due to compounding, even seemingly minor changes can make a big difference in your wealth.

Let’s consider the impact if you were to direct ₹7,500 (50% of the additional income) to SIPs:

Monthly SIP Accumulated Wealth after 10 years* Increase in Wealth
No Change ₹20,000 ₹41 Lakhs
Same Rate as Salary Hike ₹23,000 ₹47 Lakhs 15.0%
Optimized ₹27,500 ₹56 Lakhs 37.5%

*Assuming a CAGR of 10%

With just a 15% increase in income, you can amass 37.5% more wealth!

Similarly, when your expenses decrease, say, when a loan EMI is closed, you can consider assigning a majority or even 100% of the freed-up amount towards SIPs.

To be clear, you deserve to and should spend some of the increased cashflow. Treat yourself to fancier dinners. Buy more or nicer clothes. Get your very own Netflix subscription (I did!).

But whichever way you choose to indulge, directing a majority towards SIPs will accelerate wealth growth, and also remove the temptation to overspend.

Remember, these decisions are quick and easy to revert. If you ever feel like you were a little too aggressive and need more money, you can always tweak the deductions to a more comfortable level.