Most young Indians are ill-educated or usually, do not have any idea about financial planning, retirement and preparing for a life after work. Even if several 20-somethings don’t openly think or say that it’s too early to contemplate about retirement, most act as though retirement is something to worry about later in life. Nonetheless, if millennials learn to make the most of their earning potential, pay down debts sensibly and build good saving habits, it’s conceivable to live a well thought out financial life – and maybe even retire a little early.
Retirement Planning in Your 20s
Young professionals don’t know what kind of retirement they want or need, and even fewer recognize their saving opportunities. Most 20-somethings don’t make a load of money and are perceptively busy with their social life or trying to start a family. Gradually, the great expense of higher education, especially if they choose to study abroad, is leaving young students/professionals under massive student loan debt.All the same, this is exactly the time to start planning and saving. The power of compounding interest on an investment over years, specifically decades, can mean that investors don’t have to wager as much in the stock market when they get older. A steady savings rate also prevents younger professionals from collapsing in debt, advances their creditworthiness and sanctions for a rainy day fund to pay for unexpected or inadvertent costs or emergencies.
Becoming a Young Investor
There are two connected concepts that every ambitious young investor should acquaint themselves with: the time values of money and compound interest and perhaps, also the value of time. Time is truly everything!
The time value of money is an economic theory that basically means money is worth more today than it will be in the future. Increasein Prices (Inflation) eats away at the real acquiring power of the rupee over time. The other reason is people prefer present money to future money. Think about it this way: would you rather have INR 1,000 today or a voucher guaranteeing access to INR 1,000 in three years? After all, INR 1,000 today could be saved or invested and interest could be earned over the next three years.
Compounding interest is the singularity of interest earned on formerly accumulated interest. For example, if you have an INR 10,000 investment account and earn INR 500 in interest, you can earn the INR 500 back, so that the subsequent round of interest is calculated on an INR 10,500 base.
Think of compound interest as an accelerator on future interest earnings. If you pooled compound interest with the time value of money, you realize that INR 1,000 saved at present might be worth tens of thousands of rupees by the time you retire.
The next acute step you need imbibe some discipline into one’s self to start planning for your retirement. If you can only save a little now because of a limited income, that is totally acceptable. One only builds something huge a little by little. But as your income grows, your savings should upsurge along with it – not your spending.
Planning for life after work starts with developing good habits. Discipline is important and when you have it, it’s time to focus on the details. You can start filtering your estimations, once you figure out how to get to that amount.
Consider what your future goals are. Know how you would like to spend your life after retirement. What kind of lifestyle would you want to uphold and maintain at that time? At what age do you want to stop relying on work for your income and switch to living off your investments?
Your answers for these questions may change, so revisit them on regular intervals. Remember, it’s never too early to start planning for retirement. When you have a plan, you know you are prepared – and when you know what you need to do, you are already halfway there to making your retirement dream into a reality.