A few years ago young people seldom thought about retirement. Stereo typically retirement meant old age. The Govt. jobs with job security till sixty and then an indexed pension endorsed that. Now things are changing and people have started thinking about an early retirement, especially with the corporate grind leaving people burnt out. To me retirement is financial freedom; that is, a state of having sufficient personal wealth to live indefinitely without having to work for basic necessities. How big a retirement nest one needs differs from person to person, depending upon individual life goals and financial circumstances, however the way forward remains the same.
Here are the elementary steps to financial freedom.
Save at least 10% of your net take home salary in the first year of your job and plan to increase it to 50% in next five years. The sooner you start the better it is. Compound interest is a beast; use it to your advantage.
2. Mind your EMIs
Do not fall prey to fancy loan offers. Your EMIs should never be more than 30% of your net take home pay. Learn to differentiate between a good and a bad loan. A home loan and an education loan are considered good loans while a personal loan and a credit card loan are bad ones. Once you get into these its hell to get out. They rip you apart. Try not to borrow money for anything whose value depreciates. Keep your needs in mind while taking a loan rather than wants. Hint - big cars, swanky mobiles, electronic toys, tablets and fancy TV are all BAD LOANS.
3. Have an Emergency Fund
Create an emergency fund which would cater to your household expenses for six months. Keep this money in a liquid fund.
4. Buy Medical and Term Insurance
Even if your company provides, buy a personal medical insurance plan you and your family so that you enjoy protection even when you stop working and do not have to dig into your savings in case of an illness. And if you have dependants buy term insurance, approximately 15-20 times your annual income. That will give you the peace of mind.
5. Create a Discretionary Spending Fund
Splurge once or twice a year on big holidays or purchases, but not on loans. Start saving from the beginning of the year with a Systematic Investment Plan (SIP) or a Recurring Deposit. Doing this will ensure you don’t dig into your monthly saving plan to fund such expenses and you would also earn higher return than a savings account. Happy retirement planning!! Stay Blessed!!