When you’re in your mid 20s retirement is not usually something that you think about. However the sooner you start retirement planning, the sooner you can retire, with a great deal of money.
Think about it. If you start putting away as little as Rs. 1,50,000 per year (i.e. just 12,500 per month) every year for 40 years from when you are 25, you will have a total of Rs. 4,19,67,156 (4 Crores) saved by the time you’re 65 years old. This is at the current 8% rate of interest. If you start saving the same amount per year from the age of 35, you’ll have only Rs. 1,83,51,880 (1.8 crore) by the time you hit 65. Just a difference of 10 years makes a difference of 2 crores! So better start early!
So what should you do? Here’s how experts advise you to start.
If you’re in your 20s, start saving regularly now. This will give you the financial advantage later. Experts also agree you sign up for the EPF or PPF. Your employer will match savings up to your contribution. Your contribution will be deposited before taxation, so you will pay less tax.
If you’re not eligible for EPF it is advised that you go for a PPF account. That way you save tax on both investment and your savings will also be tax-free later.
Look at other opportunities for high return investment other than just bonds, which give just 7-8% return. Stocks can get you around 10-30% return on your investment every year. When you are it is suggested that you put up to 75 – 90% of your investments into stocks, diversifying your investment. Think of investing in a variety of different stocks instead of putting all your eggs in one basket. Mix in some mutual funds that are targeted to your specific age bracket.
It is also also suggested that you to get savvy about investments. Ask for advice from the experts. Most investment companies will be more than happy to give you all the advice you need. There are also articles and a wealth of online resources on Rupeeji.com that you can tap into.
Start an emergency contingency fund, so you won’t find yourself in a financially tight situation. Ideally you should save around 3 – 6 months of your monthly budgeted expenses as your emergency fund. If you can’t, do put aside as much as you can.
Keep track of your spending habits. Give your budget an overhaul to keep you from falling into the debt trap. If you find it difficult to pay your bills think about getting a roommate to keep living costs down. Remember good financial discipline now will pay off in big dividends later on! There are a lot of budgeting websites around that help you get organized with a digitized budget.
What else? Be proactive by developing a marketable skill. A good rule of thumb is going for something you enjoy doing that can make you money. Get yourself insured. Make sure you start building a good credit history right now.
Most of this is common sense. Some of it is good financial sense. All of it is doable!