The mantra, as most financial advisors say, to build a good corpus, is to start saving early, for a long term and on a systematic basis. In doing so, you will manage to accumulate wealth that will not only help you fund your financial requirement but also will give you the much needed financial support that can help you during your post retirement life.
The main reason why savings for a short term is not encouraged is because we live in inflation ridden times, where the phenomena of price-rise takes place very often. What you could buy in Rs10 is now available for Rs 15 or more. In such situations if you save for a short term without factoring in the current inflation rate and its forecast as to what can be the rates in the years to come, your investments will hold no value. You may need to opt for personal loans or a car loan to bridge your finances since your investments were to fund your requirements were inadequate.
It is great if you are enjoying a stable professional life. That ensures you regular income and plays a role in boosting your morale for saving more as your income increases. But for how much time are you planning to do this? There are investors who wish to work mainly because of their joy for working whereas some want to retire early and enjoy their rest of their life. If you belong to the second category, gear yourself up, since there is a lot of work that needs to be done!
Considering that you might have accumulated wealth for your retirement only after setting aside your finances for completing your financial responsibilities, the following advices have been given. Responsibilities can include, building yourself a house, saving for your child’s / children higher education and marriage, planning for your vacations abroad, medical expenses and most importantly insurance.
The first step is to factor in the current cost of living expenses that you and your family incur. If you have managed to construct a house for yourself, then a major portion of your finances can be invested. If not it is better to first start investing for completing that goal and then plan for your retirement, mainly because you need to secure a shelter for yourself before moving onto anything else. Assuming that you may want to retire early say by early 40s and with the life expectancy assumed to be 80 years, you have to save for about 4 decades and depend on your savings and returns for providing you with finances for the rest of your life span. For this reason it is important that you factor in current and future expected inflation rates and rigorously save so that your estimated monthly expenses can be covered over the period of 4 decades.
This can be a lot of saving and can cause some financial strain during the course of your employed term. So what you can do is, if your job is quite hectic, you can exit from that particular job and opt for a less hectic one or even better, invest in a business that can give you returns for a few more years. This will ensure that you constantly get an income. This income, a major part of it should be reinvested back into funds that provide good returns. If you have enough investments and are waiting for their tenors to get completed, you can utilize the current income for financing your expenses and let your previous investments grow.
Once you factor in the monthly expenses with the inflation rates, you need to choose funds that can provide you robust returns along with the right kind of diversification and stability. It is better to choose 4-5 mutual funds and invest in them through the SIPs. Opting for pure term life cover and a comprehensive medical insurance plan is also advised.