Experience teaches you the most important lessons in life. That said, it is not impossible to mend your ways when you are younger on the basis of experiences of elderly people, specifically on the subject of personal finance.
It is often found that youngsters today do not pay adequate attention to saving for their sunset years. When you eventually reach retirement, you would have either saved enough for a comfortable life or you won’t. But one thing for certain is that you would definitely wish that you had saved more than you actually did!
The increase in inflation and reduction in interest rates offered by financial instruments, such as fixed deposits, that were earlier considered to be judicious investment devices only cement the necessity of a robust investment strategy. And the earlier you start, the better it is for your retirement corpus.
Some people are of the opinion that their expenditure would be lower after retirement, as their children would be grown and all loans would be paid off. But in reality, you will find that you would be spending as much as you always did. The only difference is that your expenses would be on other things, such as healthcare, travel, etc. Here, we take a look at some dos and don’ts, as far as retirement planning is concerned.
Dos for your retirement saving
1. Invest wisely - It is crucial to have a sound investment plan for your retirement years. You should look to invest early, so that the power of compounding provides you handsome payouts at the time you actually retire. In line with this, you can look to invest in equity and debt instruments based on your risk appetite. In case you are not capable of making prudent investment decisions on your own, you can buy a life insurance policy that provides protection and market-linked savings under the same product. Most leading insurance companies offer such annuity plans that provide payouts on an immediate or deferred basis.
2. Understand debts - Living a credit-free life is possible, but it is not really the smartest thing to do. Very few people actually earn enough for the significant events in their life, such as buying a car, purchasing a home, or funding one’s child’s future education. The most important thing to consider when taking a loan is whether it is a good debt or a bad one
a. Good debt - A good loan is an investment that increments in value over time or generates an income for the long term. Buying a house through a home loan or applying for a personal loan to fund your education are examples of good debts. A house is an asset that always grows in value; similarly education only improves your value as an employee in the organisation and paves way for a raise in your future income.
b. Bad debt - A bad debt is incurred for purchasing things that lose their value over time and those that do not generate long-term income. Usually such debts also carry high interest rates. Examples of bad loans are credit card debts and cash advance loans.
3.Review your investments regularly - It is crucial to review your investments two to four times each year. Look to invest in funds that have outperformed their peers in the past five years. You can also take the assistance of a qualified financial advisor to help you make the right choices. Remember that it is necessary to re-adjust your portfolio so that your investments are on par with your desired level of risk. It will be useful to take some time off from your busy schedule and educate yourself about investing for your retirement.
4. Review your insurance needs - Insurance is a prominent savings tool in the arsenal of a seasoned investor. If you have a family, it is necessary to financially secure their future by taking health insurance. However, it is also important to periodically review your insurance needs and make the necessary adjustments in the coverage.
This is not only applicable to life or health insurance policies, it is also relevant to motor insurance which is a mandatory requirement if you own a vehicle. The premium for car insurance is determined by a wide range of factors that are prone to changes. When you start a family, you may be eligible for a lower car insurance premium. Similarly, when you have been a diligent driver for an extended period of time, you may be eligible for some benefits under your car insurance. So, check with the insurer about the benefits you are eligible for and save on insurance premium. You should also review the add-on covers opted for and see if they are still relevant.
Don’ts for your retirement saving
1. Maintaining a limited portfolio - Do not pool all your money into funds that performed well last year. This plan can be hit-or-miss and it would increase your overall risk. It is best to maintain a diversified portfolio for better returns.
2. Focusing on immediate savings - When setting aside money for your retirement, you should focus on long-term investments, as opposed to trading several times a day. This will assure you better returns on your investment.
3. Taking no risks - If you are only few years away from retirement, you should ideally have some exposure to equity-based funds that have higher risk profiles. This way, you can participate in the stock market growth experience at a time when you need it the most.
In conclusion, analyse your financial stand early in life and take strategic investment decisions from the time you land your first job, find more information in https://www.bankbazaar.com/ . This goes a long way in assuring you great returns when your regular income ceases.
This article has been produced by TNM Marquee in association with BankBazaar.