The need to feel secure is a basic human tendency. All of us worry about the time when we’re old and our body is too frail to work and earn for survival. This is where retirement planning plays its role. We shed a light on how to map your dream future through budgeting by explaining some small steps to achieve your big goals.
Define your goal
Before starting the whole process of planning your retirement, calculate your desired retirement corpus. Estimate how much money will suffice if you plan to retire by a coveted age (60 for most people) and how many years you have till you reach that age. Accordingly, plan and set a goal.
Make sure that your goal is realistic and achievable. Inculcate factors such as the expected inflation rate through the accumulation and post-retirement phase- in your calculation.
Your goal should be unique to you and be set to sustain the lifestyle you want to continue after your retirement. Financial advisors generally advise that retirement corpus should equal at least 10 times your annual income. Once you set your goal, it will give you direction and act as a source of motivation throughout your working years.
It is never too early to start planning for your retirement. Starting early has innumerable benefits and your savings and investment have a wide potential to grow in an extended period of time. Make a provision for savings in your budget and the earlier you start, the less monthly contribution you will have to make towards your pre-planned retirement reserve.
In addition, by starting early, you can enjoy the perks of the “power of compounding” on certain investments, a huge part of which would otherwise be forgiven with each passing year.
No matter how cliché it may sound, consistency is the most effective habit to realize a goal. Saving consistently is the key to leading a financially disciplined life. In case an emergency comes up and you are not able to save for a month or a particular span of time it is advisable to try to fill the rift as soon as your finances are stable else procrastination will be burdening and lead to pressure.
Even small savings bear a return in the long term. Suppose you save ₹500 every month from when you’re 30 till you retire. At a 12% interest rate every year, you’ll have accumulated ₹17,64,957 till you’re 60 years old.
Unless you earn a handsome salary that is considerably higher than your expenses or own a huge business, you will need to invest in financial instruments or schemes to gather a retirement fund. So it is imperative to take out a certain proportion from your income for investments regularly.
While choosing the investment scheme that is right for you take into account your risk appetite and the tax burden the investment bears. There are numerous retirement schemes offered by the government in India that are backed by a sovereign guarantee.
If you work in a corporation your employer is required to deposit a part of your salary in a provident fund mandated by the Government of India. So confirm to take that into account while making your retirement plans.
Pay off your debt before retiring
When you retire, it is undesirable to have the weight of paying off a loan as you do not have an active revenue stream. This includes car loans, home loans, student debt, etc. Paying off debt should be a financial priority and should be a part of the “necessities” category of your budget.
Don’t be afraid to seek professional help for financial management
If you’re having trouble figuring out an efficient plan it is economical to spend money to seek professional help rather than hit and trial. This is recommended especially if you are just starting and have no prior experience or financial knowledge.
Financial security ensures a stress-free life. These strategies will help you to build your foundation and start your planning on the right terms.