How to Save for Retirement | Financial planning for Retirement

Updated : Oct 22, 2019 in Articles

How to Save for Retirement | Financial planning for Retirement

welcome back to Finnegan in our last
video we have learned about a plan to achieve our financial freedom one of the
foremost aspect of retirement planning is to determine how much money you need
for the retirement having solved that problem let’s move on to the next level
let’s see how to achieve this goal you may think that a fatter income package
would help you to achieve this goal faster but no in reality you would
achieve the golden nest faster if you base your retirement projection on your
level of spending rather than on your income having said that your spending
pattern in retirement will be suddenly different than what are you spending now
for example you may not have a mortgage payment your children may have grown up
and living on their own and you will no longer need to support them cost related
to childcare transportation partying will also dissipate however you have to
account for other kind of expenses which may be a bigger concern for example
medical expenses you may also choose to travel more open to free time to explore
the hobbies that you couldn’t pursue during your working years incidentally
all these expenses will be covered by using the magic formula which we
discussed in our last video that is saving 25 times of your annual expenses
let us now devise a plan to achieve the financial freedom the simple way to
early retirement is to aggressively contribute to your golden nest account
in other words save more and save harder in our school days we would have come
across the code little drops of water make a mighty ocean this code teaches a
very important lesson about life yes it implies how patience can reward us to
achieve the financial freedom the little things you
you today will eat the bigger fruits for you someday the saying a journey of a
thousand miles starts with a step also conveys the same meaning
so start something small today and someday it will benefit you
exponentially take for example you are saving a measly sum of rupees five
thousand every month starting from your first salary day and if you keep saving
it for next thirty five years it could reward a big summer assuming a
reasonable return of fifty percent compounded annually from mutual fund it
could fetch more than seven crores at the end of thirty five years if you
adequately save rupees ten thousand every month then it could return nearly
15 crores in 35 years with the same rate of return in the last three decades or
more well managed mutual funds in India have returned more than fifteen percent
compounded annual growth rate and we can safely assume it could return at least
15 percent for next several decades to come starting late on the path to
financial freedom can fairly be a daunting task it’s going to take some
determination and more contribution to the nest assume that you missed the bus
at the age of twenty-five and decide to start at 40 years what amount is needed
now to stay afloat for same retirement plan of achieving 7 crores by 60 years
yes you have to contribute a lump sum of rupees 35 lakhs at 40 years and continue
to save rupees 5000 per month to achieve the same goal alternatively you have to
contribute around rupees 50000 per month till the age of 60 to bridge the gap yes
that’s the penalty you have to pay for the late cut having understood the way
to achieve the goal let us concentrate on the crux of the problem which is
in order to save you have to first knock down your expenses once you map your
spending pattern it is much easier to cut down the unwanted expenses to make
those cuts you have to start with the big expenditures first usually it’s on
the rent and mortgage payments you will have to check if you can lower your rent
or mortgage payments by refinancing or moving to a smaller apartment or living
with your parents typically you will have to bring down on rents to about 15%
of your salary ideally rents and repayment including repayment of your
vehicle an apartment loan should not exceed 40 percent of your salary this
exercise should help you to save at least 15 percent of your salary and
added to your retirement nest after this exercise it is necessary to automate our
investments money lying in the bank account is a liquid cash which can be
spent very easily automating investment helps pay for the financial track and in
ensures that you don’t miss the monthly investment schedule once you have built
this process it is relatively easier to grow your money you can start investing
systematically to join the Millionaires Club


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