The most important thing, of course, is to choose the right goals, goals that continue to be important to you as time passes. However, how to set your goals is not the purpose of this blog. For that you can read, ‘Know what you need and want in your life and plan for it’
Through two blogs we look at smart decisions you must take to meet your financial goals. In this first blog we look at decisions that must take even if you don’t have clarity of your specific goals.
Save and invest early
We can’t emphasize the importance of this enough. The earlier you start, the longer your money compounds. The impact is most impressive on your long term goals e.g. on your retirement corpus. Investing just Rs 5000 per month from the age of 25 until retirement at 60, compounded at a rate of 10.6% (Equity: Debt @ 80:20) will give you a corpus of ~Rs 2.2 crore. Start 10 years late and you will have to save substantially more to make up for the shortfall. Start 20 years later and you will almost never be able to make up for the lost years. (look at the table below to see how much more you got to save to match the corpus when you start early).
|Starts at age||25||35||45|
|Investment period (years)||35||25||15|
|Monthly Investment amount||5000||15000||50000|
|Total Investment||21 lakhs||45 lakhs||90 lakhs|
|Amount at retirement||2.2 crore||2.2 crore||2.2 crore|
|Growth of Investment||10.5 times||4.9 times||2.4 times|
Suppose you started at 25 and stopped investing when you are 45. Even then you would need to save Rs 30000 monthly i.e 6 times more if you start at 45. So start today, even if it is an amount as small as Rs 1000. For more, you can read our blog, ‘How the Magic of Compounding works?’ or watch this video.
Save & Invest more
If you’re thinking how, when even right now I am struggling to pay all my monthly bills, you’re not alone. Most people don’t have any money left at the end of the month. What do you do then, towards the end of the month? You start making ‘smart’ money choices, prioritizing things and somehow managing the shortfall.
All you need to do is make smart money choices right from the beginning. As the adage goes – Save first, spend later. As young people we too found it very tough to believe this ourselves; but now we know it’s the wise thing to do. Imagine you earned 10% less salary every month; wouldn’t you still make ends meet. Of-course you would and you would find your level of happiness is unaffected by this. So if you are not saving at all currently, listen to the saying and put aside 10% of your salary as soon as you receive your pay check. Once you make this a habit, see how you can increase the amount you save every month. The more you can save now, the lesser you will have to work later in your life.
Automate your savings
Humans by nature aren’t much disciplined. So saving that 10% of pay-check every month can be an uphill task. The urge to dip into your savings in time of difficulties is very high and with the decision lying in your hands every month, you’re sure to give in sooner or later.
The good news for you is – Its 2018! You have all kinds of automation options available. Automate your savings decisions and ensure a better future. Just start an SIP and auto-debit the amount from your salary account.
Let your goals inspire you to keep the discipline of saving and investing
Let’s face it; if you are going to postpone spending that extra amount on something that will give you some gratification right now then you need to be motivated if not inspired by the goals you are saving for. Do your goals inspire you? Are they something that you just have to achieve? If not you need to change the way you think about your goals. For example retirement may seem far away and how does one get inspired by this? Look at people around you who have retired. Surely you know some who have ‘retired in style’, enjoying a carefree life doing things even you envy. And there will be some retired people you know who are struggling or cutting corners. Which life would you want to live? And if it means saving a little now, isn’t it worth it. You bet it is. If you want to know how much you need to save for any of you goals click the MoneyWorks4me Financial Planning Tool.
Get that insurance
Once you have a financial plan, you do not want any unexpected event and expense to disrupt it. Your financial plan includes things for your family, so you may worry about what if something happens to you. While not everything can be set right in the event of your death, a good term insurance will make sure your family does not feel the absence of your income. Plan for about ten times your annual take home salary or twenty times your annual expenditure, but not less.
Similarly an illness in your family can suck out a lot of money. To provide for this you need to take a good medical/health insurance plan- a family floater plan for large enough sum say min 15 lacs should be a good plan.
These two are a must-do expense and don’t grudge it. Enjoy the peace of mind that it brings!
Read our next blog to know the Smart Decisions you can make to reach your financial goals after making a financial plan.
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