Have you ever thought about retirement savings for your future? With such a fast moving life paying bills, managing daily expenses, and trying to have a life can be interesting but saving for a future that seems so far away can feel like the last thing on your mind. It is very easy to say, “I’ll start saving later.”
But building your retirement fund can be an easy step as compared to complicated charts and big numbers, it is more about creating a future where you have freedom and peace of mind. It’s about ensuring that tomorrow you can live comfortably, without financial worries.
In this blog we will learn about future saving tips, how to increase retirement savings and even retirement savings strategies to show you how to maximize retirement savings without needing to be a financial expert.
The 10 Essential Tips for Your Retirement Journey
Tip 1: Power of Compounding
Compounding is like making your money work for you and your money starts to earn its own money, this is the most powerful force for growing your money. The returns you earn start earning returns themselves, and over time, this creates a snowball effect that can dramatically grow your savings.
The most important thing is that you need time for compounding to work for you, due to this you need to start putting money in the early stages. This can easily be started by putting aside a small amount each month, starting in your 20s or 30s and giving your money decades to grow on its own. It’s the simplest way to build wealth without putting yourself under huge pressure to save massive amounts later in life.
Tip 2: Know Your Goal
Saving without a goal is like driving without a destination. Instead of aiming for vague targets or huge numbers, a good starting point is the “Rule of 25.”
Your Target Retirement Fund = Your Current Annual Expenses x 25
This isn’t about hoarding cash; it’s about building a fund that can pay you an income forever. The idea is that you can live off the earnings your fund generates each year, without ever touching the main amount.
Also, remember that the price of things goes up over time also termed as inflation, for example the cost of a cup of chai or a movie ticket is much higher today than it was ten years ago. Your savings need to grow faster than this rise in prices, just to afford the same lifestyle you have today.
Tip 3: Pay Yourself First
Most of us try to save whatever is left at the end of the month, which generally comes to nothing. Now let’s use a different rule where you “Pay Yourself First” at the start of the month itself, this sets aside your savings at the starting itself.
Consider your future self as your most important bill, the day your salary comes in, before you pay for anything else, transfer a set amount (even 10-15% is a great start) to your savings or investment account.
The best way to do this is to set up an automatic transfer for the first of every month, by this way, your future is taken care of without you needing willpower or discipline and you’ll naturally adjust to living on the rest.
Tip 4: Employee Provident Fund (EPF)
If you’re a salaried employee, you have a powerful savings partner with you which is your employer. Through the Employees’ Provident Fund (EPF), a portion of your salary is saved automatically, and your employer contributes to it as well. Your employer’s contribution is added to the small amount that is deducted from your part, collectively both you and your employer contribute to this future savings type.
But here’s a suggestion, don’t assume your EPF will be enough on its own for your future. Think of it as a fantastic head start, a solid foundation for your retirement. Your job is to build on top of it to create a truly secure future.
Tip 5: A Balanced Investment
You might have heard of this “don’t put all your eggs in one basket.” In investing, this is called diversification, where you diversify your investments in such a way that if one of them turns negative then at least the other saves you.
- A Stable Investment: These are your safe investments like EPF, Public Provident Fund (PPF), and Fixed Deposits. They provide stability and predictable returns.
- The Growth Engine: This is your equity, like stocks and mutual funds. They can be a bit up-and-down in the short term, but over many years, they have the best potential to grow your money and beat inflation.
Tip 6: Government Initiatives
The government of India has special initiatives for long term tax free savings, these initiatives help you to save for your future with good returns. The two most popular are the Public Provident Fund (PPF) and the National Pension System (NPS).
Public Provident Fund (PPF)
It is a savings account that is very safe as it is backed by the government. It is best suitable for people who don’t want to take any risk. The feature of PPF are as follows:
- Guaranteed Return: It offers the investors a guaranteed return (currently 7.1%).
- Tax-Free Earnings: The best part of this investment is that the interest you earn, and the final amount you get are all completely tax-free.
National Pension System (NPS)
NPS is a special retirement account that invests your money in the market, so it has the potential to earn higher returns with time.
- Higher Growth Potential: Though the returns are not guaranteed in this but mapping the future tells us that it has positive results. You can choose a mix of safe and growth-oriented investments.
- Extra Tax Savings: NPS gives you a special extra tax deduction of Rs.50,000, which is a bonus you don’t get with most other options.
Tip 7: Systematic Investment Plan (SIP)
SIP is one of the simplest ways to invest for your future, in this you don’t need a financial expert to guide you throughout. SIP works as an automatic payment plan for your investment where you can fix a small amount that can be deducted on a monthly basis and gets directly invested from your bank account to the financial market.
You can set up a fixed amount at once, this amount directly gets out of your bank account on a set date and gets invested for the future. This autopilot approach helps investors in building discipline and investing consistently, which turns out to be helpful for the future expenses. SIP can turn out to be the smartest way to build wealth over a long run keeping your future secure and stable.
Tip 8: Systematic Increases
While we talk about the future we should also consider that today we need to invest so that tomorrow we can get. So a simple trick is to increase your savings with increased income. Let’s say if there is any salary hike you should also consider increasing your investments. Here’s a simple trick that can have a massive impact on your final retirement fund. Every time you get a salary hike, give your investments a small hike too.
If you have a monthly SIP of Rs.10,000, maybe you can consider increasing it to Rs11,000 next year once you get a raise. It’s a small change you probably won’t even feel in your monthly budget. But over 20 or 30 years, these small annual increases can add lakhs, or even crores, to your final amount. It’s a simple way to make sure you’re saving more as you earn more.
Tip 9: Safeguarding via Insurance
Insurance will not turn out to be an investment for you but it will protect your savings, as your future comes with multiple risks, one of the risks is a health emergency. This is what insurance is for. Insurance keeps your healthcare expenses and many other expenses under control resulting in minimal effects on your savings. Like this there are many types of insurance but the two main types that shall be considered are:
- Health Insurance: A single hospital visit can wipe out years of savings. Health insurance is there to pay those big bills so your retirement fund stays safe.
- Term Life Insurance: This insurance plays a protective role for your family as if something were to happen to you, this insurance pays out a large sum of money to your loved ones so they can be financially stable. A good amount to aim for is a cover of at least 10-15 times your yearly income.
Tip 10: Emergency Fund
These days life is unpredictable for all of us, a sudden job loss, a family emergency, or an urgent car repair can happen to anyone. So you should also have an emergency fund as a safety cushion for such moments as you grow in life.
This is a separate budgeted money, generally 4 to 6 months of your monthly essential living expenses that can only be touched in harsh emergency situations.
It is suggested that you should keep this money safe and separately to a place that can only be opted out during sudden emergencies. It is advised to have a separate savings account or a fixed deposit that can be easily liquidated.
Read Also: How to Set Financial Goals for Your Future
Conclusion
Planning for retirement isn’t as hard as we think, it is just about making a plan and climbing the stairs step by step with consistency. You cannot suddenly start saving for your future, rather it is a time taking step that needs to be started as soon as you realise the real need.
Your future planning does not require a financial expert to create a plan. It is as simple as saving from your monthly budget but you need to start early, be disciplined by automating your savings, and protecting your future.
Frequently Asked Questions (FAQs)
When should I start saving for my retirement?
The best time has already started, every passing day is giving you less savings. The earlier you start, the more time your money has to grow through compounding.
How much money shall I save from my salary to save for my retirement?
One should at least make an aim to save 15% to 20% of their salary or income, at the beginning you can also start with saving just 10% of it.
Will my EPF cover the requirements of my future?
EPF can be a great foundation for your retirement but with rising costs and inflation you should also invest in mutual funds SIPs, PPF or NPS to build a stable fund for hassle free retirement.
Difference between PPF and NPS?
PPF is a guaranteed return investment that comes with great savings, also it is tax free on the other hand NPS is linked to the market, so it has the potential for higher returns but also comes with more risk.
Should I keep my Emergency fund separately?
A separate savings account or a Fixed Deposit (FD) are excellent choices for keeping your emergency funds. The main goal of an emergency fund is to have quick access to your savings for any crisis and not to earn high returns on it.
