All of us know that savings are crucial for us, but how much should we save? Contrary to popular opinion, retirement saving starts at a very young age.
Typically you should start saving for retirement as soon as you begin earning, which means in our early 20s. Saving money as early as we can is crucial as it helps us reach our long term goals sooner.
Fidelity says that by the time you reach the age of 30, you should have approximately your annual earnings in your savings bank.
40-year-olds should have saved up to three times their original salary, and 50 years old should have saved 5-6 times their annual salary.
These figures can seem scary and unattainable to many people. However, it is essential to understand that these figures and these statements are just statements that are an approximation.
Your life is not like everyone else, and thus there is also no reason why your saving patterns should be like everyone else as well. Saving money is not a race or a competition, and you should always consider your financial situation when you’re thinking about saving.
Think Practical And Long Term
Since your situation is different from everyone else, your financial plans, and your saving plans, all should be different. What are your long term goals? At what age do you want to retire? What are the major upcoming expenses that you need to save for?
You need to make a practical plan that outlines how you are going to budget and save money. The plan should also include how much you should save for retirement and all your other goals.
There are a lot of resources available online and saving calculators available online that can help you calculate how much you need to save to fulfill your future needs. Additionally, you can also book a consultation with a financial advisor.
Why Should You Go To A Financial Advisor?
Many people don’t know this and unknowingly spend most of their money on things that they could have easily avoided.
Financial advisors can help you acquire a wealth of knowledge and experience that is bound to help you for a long time to come. Financial advisors have extensive experience over how the financial industry works and can help provide you with valuable insights and also help you multiply your money.
Your savings will depreciate over time if they are just left to sit in a bank. Investing your savings in stocks will help multiply your savings over time. Financial advisors can help you construct an active savings portfolio and help you increase your earnings.
What About Tax Consultants?
Tax consultants are people who have thoroughly been trained in tax laws, and they are also well aware of the loopholes and the ways through which you can end up saving tax legally.
There are often many ways through which we can end up saving much of our tax payments. Investing in shares helps us get a tax credit, which can help deduct our overall tax payments. Donating to a Non Profit organization entitles us to tax deductions.
Hiring a tax consultant is ultimately beneficial because they can help you shortlist and get all your deductions. Tax consultants can also advise you on your financial situation and help you find the best ways to pay the least amount of tax on your earnings.
In any case, having a professional eye over your exact current economic location is miles better than having a generic savings goal set for yourself. Tax consultants can also help you keep all your tax records in check to make sure that everything is safe and even legal.
How Much Should You Be Saving Each Month?
Ideally, your financial planner will help you come out with a figure, but if for some reason you are unable to hire a financial planner, you can set out a certain percentage of your monthly income aside to go into savings.
A good percentage of income to save is 20%, you should spend 80% of your monthly income and save 20%. The 20% you save should always be used in investments and in buying saving certificates.
Your money will do you no good by sitting there in a bank account, its best to put it to use so that you can generate a higher return. Simple interest can help make saving money easier for you as well.
Get Out Of Loans Strategically
Picture a scenario, you have a specific salary, and you can save a certain amount each month. You have student debt on you that charges you an interest rate of 6% per annum, and you also have an investment opportunity where you can get a return of 10% per annum.
What will you choose?
A financial advisor will always go with investing the money instead of paying back the loan installments sooner.
But an average person like me and you will be emotionally inclined to pay off all the loans they have accrued over time and then think about investing their money.
What I’m trying to say here is that having a loan isn’t bad, and it is okay first to invest and then repay the loan if you are getting a higher overall return from taking out the loan. Investors do this all the time; they often even take out loans so that they can invest in stocks and capitalize on the return.
Getting into investments before you’ve paid off all your loans can be an excellent strategy and can help you achieve and even surpass your saving targets and improve your quality of life.
Invest By Looking At The Long Term Goals
Sure short term profit is cool, and all, but you sometimes need to invest long term as well.
Short term investments can take up a lot of your time and effort, and the results of short term investments average out over time. Short term investments are also more often volatile.
You, as an investor, have long term goals and want stable investments that can help you generate an average return each year. It is, therefore, better to invest in long term investments that take up less time and give you a good profit.
In truth, there is no actual rule or guidebook that anyone follows to save money, and you should not feel overwhelmed if you are unable to save. As long as you are making dedicated efforts to protect and staying loyal to your goals, you will be fine.
There is no how-to- life rule book, and you are free to make financial decisions that you think are the best for you and for the ones you love.
There is no need to put yourself in constant comparison with others because everyone’s financial situation is different, and everyone’s priorities are also different.
Take your savings goals at your own pace and try to cut down on unnecessary expenses as much as you can. There will come months and even years where you will be under a financial crunch and won’t be able to contribute as much as you can generally do. It is important not to panic in those situations and stay calm.