Let’s be honest. The young generation isn’t saving sufficiently for their future. Call it a downside of sticking to the ideology of “carpe diem” to the letter. If you are in the spring of life, it is only natural to focus on today and tomorrow over a decade down the road. However, when you are near 30, your financial goals and aspirations will differ from today’s. As you establish a career path, you might plan to buy a new car or house. You might want to save up to tie the knot or save up for your dream foreign tour!
If you like the image floating in your mind, remember that it is never too early to start saving. Millennials as well as Gen Z, manage to hold on to less than a quarter of their savings today. Sure, they are more aware about the latest investment trends, but does it align with their future plans? Do you even have a proper plan chalked out? Here’s how much you should have saved up when you are entering your 30s to be able to fund all your short and long-term plans.
A recent debate that has been taking the internet by storm has centred around this question – how much to save by your 30s? To answer this, financial experts present two goals. Firstly, you should have saved the equal amount of your annual income at the age of thirty. Secondly, you should aim to increase this savings to twice your annual income by the time you cut your 35th birthday cake! Acing the first goal will automatically create a financial base that will see your savings compound rapidly in the next 5 years. This, in turn, will give you the ideal corpus for a moderately lavish retirement, besides leaving enough financial capability for any curveball life throws at you.
On paper, this seems straightforward enough, but when we get down to plan our finances, the roadblock arrives. Is it possible? How to save? How to invest? These are the questions that leave you scratching your head. Beyond reading up on expert opinions and anecdotes, remember that your future plans and present expenses might not be the same for others. What you can do is plan out your short-term income and expenditure to see how much you can save. Set a savings target, suppose 15% of your annual income, and stick to it. As your income increases, increase this target to see your savings grow. With the correct mindset, planned expenses, and correct investments, you will be on the right track to reaching the milestone of equating your income with your savings!
Effectively saving up as much as you earn by the age of 30 leaves you with a total fund twice the size of your income. Whoa! Wondering if it is even possible? Yes, it is! The key practices are to start early, maintain financial discipline, avoid a spendthrift attitude, and invest for the long term. For starters, choose a smart and comprehensive investment plan along with a secure savings scheme. This twofold approach will make sure that your savings grow sizably over time with moderate risks.
Let’s consider a scenario. Suppose your income will grow at a steady rate of 10% each year from the age of 23. How much you earn is secondary, as long as the amount keeps gaining like this annually. This means that you have 8 years before you step into your thirties. For starters, you should aim to save invest and/or save at least 15% of your yearly income. This number is vital if you want to see your savings and annual income at par by 30. If you fall short of this target, you will find it hard to reach the savings goal.
Once you decide how much you need to save at your current age, it all boils down to disciplining yourself. As bad as it might feel, the best way to ensure that you end up saving is to deduct a fixed sum from your salary account at the beginning of each month. You can do this by simply instructing your bank to divert a fixed amount of the monthly incoming amount to some savings account or investment/savings scheme of your choosing. Once you get accustomed to the idea that you effectively earn 15% less than your credited salary, it will also help to keep your extravagant expenses in check.
This also helps you clear the line between what you want and what you need. Once you manage to set this sum aside, try to find the best way to grow your savings. One beneficial savings tool that you can easily explore is fixed deposits. Investing your money in FDs allows you to save and earn simultaneously. Depending on the deposit account’s tenor, you can save money over a long time with FDs. Often these have a lock-in period during which you cannot withdraw the sum without incurring penalties. This makes sure you continue to save and earn returns, instead of cashing out your savings now and then.
As you save every month, don’t forget that your end-goal is not just storing money but growing a future fund. As such, it is imperative to take a portion of this money you keep aside and invest it wisely. It is important to choose the correct investment instruments from an early age. This gives you a larger exposure to a varied range of investment schemes down the line. For a diverse portfolio, go beyond the traditional saving and insurance tools and boost your savings’ growth with equity mutual funds. To align with your monthly income, you can start a Systematic Investment Plan (SIP) with a scheme that delivers between 10-15% annually over a long-term period.
Beyond this, be sure to also utilise your Employees’ Provident Fund (EPF) to keep you on track. EPFs take away 24% of your total cost to the company (CTC) and save that money for your retirement along with a percent of interest. The critical thing about investing is that if you start late, you have to invest more to reach your savings target by 30. For example, if you don’t save any money till you are 28, you will have to invest 30% of your annual income or even more if you want to have a savings fund double your salary by the age of 35.
Beginning your savings and investment journey in your 20s gives your money time to grow without you having to count every outgoing penny. This ensures that you don’t wake up at the brink of turning 30 and find that you only have a meagre amount put away. Whether early or late, the best way to start planning your future is by setting an attainable goal. This need not start from “I will have thrice my income saved by the time I turn 40.” Instead, it’s okay to aim with something like “I will do whatever is needed to have twice my income saved in my 30s.”
It’s only natural to be unsure of where to start. But don’t let that put you off your goal. Don’t think “I will start saving tomorrow.” That tomorrow never comes. Start exploring ways to save your money while gaining returns, along with various investment tools for increasing your savings at a higher pace. Depending on how much you have initially stored up, choose a plan tenor and interest rate, and plug your savings into a Fixed Deposit account. Support your savings scheme with best saving and investment tools on Bajaj Markets.