Saving from younger age could derive more benefits. Employment at an early age is appreciable; however, the absence of savings habit depreciates the credibility. Hence, one should start saving as early as possible. There is no thumb rule for savings. However, the goal should be on how to maximise the savings.
If an individual starts saving from an older age, he/she needs to contribute more but will get lesser interest than a person saving from a younger age. Accordingly, one can subdivide the age segment into the 20s, 30s, 40s, and beyond to set a tentative goal.
How Much Money Should You Save?
Savings entirely depend on the lifestyle and financial commitments of an individual. To plan it, one should at first calculate cost of living. It will help plan a better expenditure that ensures more savings. Another way of savings can be by putting some amount of the monthly income to their zero balance savings account. It leaves more room for systematic savings.
At the age of 20 years, savings can be 20%, 30 years 30%, 40 years 40%, i.e., save according to the numeric value of your age. Another of the popular studies suggests that one should save one time of the salary at the age of 20-30 years. And then increase savings after every five years considering the salary increase. However, it depends on individuals and varies accordingly.
For example, a person starts saving at the age of 25 years, where that individual is 35 years away from retirement. At the same time, another person at 40 years of age starts savings when he is 20 years away from retirement. Now both of them set a goal of saving Rs1 crore for the post-retirement period.
In that case, the person in 20s has to save Rs.58,000 per annum. On the other hand, the person in the 40s has to save Rs.2.19 Lakh annum.
Savings for Retirement by Age
Savings is important in every stage of time to address the sudden economic downturn. However, savings for the post-retirement period is most important.
To understand how one should save for retirement age, here is an example. A person starts saving at the age of 30s when his income is Rs.10 lakh per annum. He saves 30% of his income. Now let’s assume that his salary increases by 10% every year.
Therefore, his savings amount will also increase. By the time he retires, he would have saved Rs.13.48 crore. After retirement, that individual will have a considerable interest earning from the amount saved.
Based on the age of retirement, the savings requirement changes. So, for example, if anybody is retiring at the age of 60, he would require more to save than the person planning to retire in the 70s.
The Power of Retirement Investing
Investing for retirement is a big deal. One needs to know the right instrument for investment as the market is volatile. It is suggested to invest in bigger equity at a younger age and scale down at older age.
Savings for Emergencies by Age
Emergency funds are among the most required savings that should have three to six months of living expenses. One needs as much money in the bank that makes one feel secure. Credit cards are not a solution for all emergency requirements. It is better to save expenses of a year in the emergency fund.
One can contribute and grow an emergency fund every month by curbing unnecessary monthly expenses and saving more.
Savings is important to secure financial well-being both for present and past. Therefore, more savings more security is the watchword of financial planning.