The fact is life is too short to accumulate enough wealth for one’s golden years. The sooner you begin, the better it would be for your retirement life.
You have just landed a new job after completing your MBA and it is time to pat yourself on the back and make merry. After all, you have just started your career and it’s just the beginning of your working life. So, why to worry much about the future? Basically about things like saving and investment, and future planning? There is in fact a long way to go before you retire and such things can be taken care of when you grow a bit old. Right? Not actually!
Young persons usually make a big mistake by thinking that they have enough time to plan for their future and build their nest egg. The fact is life is too short to accumulate enough wealth for one’s golden years. The sooner you begin, the better it would be for your retirement life.
Here we are taking a look at five things which you should start doing in your 20’s or before you turn 30 to avoid being broke when you grow old:
Savings Budget: The key is to start early and adhere to a strict savings and investing budget. The idea is to invest first and spend later. “It doesn’t matter how small the amount is initially, but investing early on allows the magic of compounding to have its effect on your money and helps it grow to a sizeable corpus. As your earning increase over time, you can scale up your savings exponentially,” says Amar Pandit, CFA and Founder & Chief Happiness Officer at HappynessFactory.in.
Take Medical Cover and Term Insurance: Having sufficient health cover should be the top most priority for any individual, irrespective of one’s age. There cannot be any compromise on health cover as any untoward illness without sufficient cover will have you dip into capital, which is unnecessary. Hence, it is always better to have a decent cover in place. Similarly, having adequate term insurance helps in safeguarding one’s dependents, in case of premature death.
Contingency Reserve: There are various events like accidents, illnesses and other unforeseen events that one should factor in while planning. Even though health insurance may cover the medical expenses, there may be an event that could hamper one’s earnings for a few months or years. “These events should never occur in life but if they they do, one needs to be adequately prepared for the same. Therefore, it is always better to have a surplus corpus in place, equivalent to at least 5-6 months of living expenses, to meet such needs and avoid any last-minute stress to the family,” says Pandit.
Set Goals: Young investors can start by identifying future goals with a help of an experienced financial planner. Identifying goals early in life gives one a savings target to work towards, and gives some purpose to investing. Once the goals are defined and time horizon is clear, investments can be started towards these goals. For example, you can start investing in liquid funds if you have a vacation goal which is 5 months away and in equity mutual funds to accumulate a corpus for your higher education or marriage goal, which may be after 5 or 7 years.
Tax Planning: It is very important for each one of us to ensure that we are efficiently planning our taxes. “You can start by maximizing your investments in instruments in which you can avail tax deductions. There are instruments like tax-saving mutual funds (ELSS) and PPF which help investors save tax. However, the purpose of investing should not be merely saving taxes, it should be to generate highest post-tax returns from investments. These investments can also be allocated towards long-term goals like your retirement,” informs Pandit.