Building the FUTURE starts NOW
The essence of taking actions now for life after retirement
Let me repeat myself here. You need to start saving for your retirement today and not later.
Disclaimer: All that will be written below is taking into account that you discontinue serving at an active occupation after a given age (the standard +/- 60years)
I started working as a full time employee when I was 22. New to the corporate world and new to having my own money, I would reach out to friends and senior coworkers for financial advice. The response was often bizarre and even with my limited knowledge on finances, they did not make much sense to me.
- Some would lecture me on the YOLO-mantra.
- A few would say I am too young to think about retirement and investing my money.
- Only a handful were really interested in understanding what happens with their money.
- The general lot would just crib and curse the system for deducting taxes but make zero effort into understanding the system.
Funny right?
Techies are NOT interested in finance, they’d say.
It is your hard earned money. Doesn’t matter if you are studying biology or literature or performing arts, you need money. So the interest should be inherent.
Being in tech has taught me one golden rule: every unknown or blocker your way, google the hell out on it.
And that’s what I did. (So wanted to add a wink here…. )
We all need to start building a corpus that will serve our financial needs when there is no/less income.
So how do we build a large corpus? How much should we aim for? By when should this be available?
I will be walking you through the whys and hows of it. Will do my best to keep it simple, short and crisp. Stay with me & you won’t regret investing the next 5minutes!
How do we build a large corpus?
It’s really simple. You need to put in the money consistently, give it time to grow and watch compounding do it’s magic.
Peek into the Magic of compounding: https://qr.ae/pNBJ1R
Method 1: The passive way
If you are an employed personnel, the organization you are working for already gets your Provident Fund setup and both the employer and the employee(i.e. you) contribute equal amounts to it on a monthly basis.
For self-employed or unemployed personnel, you can avail similar benefits from a sister scheme called Public Provident Fund https://en.wikipedia.org/wiki/Public_Provident_Fund_(India)
Governmental institutions and private organizations mandate a part of your salary be put aside into forming a retirement corpus.
There is good rational to it. It ensures that the employee has enough to sustain her/him-self and dependents with basic necessities even when shit hits the fan. Irrespective of the fact they saved on the side or not.
Additionally, that money has been growing at a average rate of 8% over these years. (with time there has been a decline in the interest rate but it is still beating inflation by ~3%)
Look at it this way:
You completed working for 35/40 years. You have invested thousands of hours and days of enormous effort to your job. Exchanged time for money to put food on the table and make all ends meet.
Your retirement is for you to do what your heart desires, stay laid back and let these years of hard-work take care of you.
That is exactly for this fund aims at. Allows you to take life at your own pace now. It’s the biggest bonus your job gives you. It helps create wealth and secure your post retirement years.
In India, your retirement corpus is kept with a government body called the EPFO (Employee Provident Fund Organization) http://www.epfindia.gov.in/site_en/index.php.
Method 2: Active contribution
The above PF contributions we discussed are capped at a percentage set by the government. Currently(2021), its capped at 12%.
So you and your employer, each contribute 12% of your basic pay.
There is another component that can be added called Voluntary PF or VPF. This is an additional contribution you can make over and above the mandatory contributions to your retirement corpus and bulk it up. There is no upper limit to it. Better safe than sorry right?
I contribute an extra 10% monthly as VPF and would suggest you to try doing the same. It is not a huge amount but the rewards are big.
Courtesy: compounding.
For people have mandatory expenses(critical items like keeping roof over your head or medical expenses), you may choose to ignore this segment. If not, try not to miss out on this opportunity. It’s not a big amount but that fact that it will get the opportunity to stay invested for a long time is where the difference is made.
Let me give you a visual what it is going to look like in 35 years.
(I am using https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php for getting these numbers)
No rational mind will/should lose out on this. Stable-above-average returns and your money couldn’t be more secure!
Method 3: Invest in Equity
Equity and stocks. For starters they can be scary. The unknown is what we are the most scared of.
You need to do some research. Understand the jargons. Understand your goals . Know your risk appetite. Now, there is no stopping you.
It’s all about being educated in the finance literature. If you and I and every Harry and Joe could understand finance and deal with it, we would be driving some of the white collar boys out of business. We do not want to become experts, but we can and should do our fair share of research. Enough to start with options like mutual funds. Mutual funds are managed by people called fund managers who understand the market and make informed decisions based on data and prior experience. You pay them a small amount of your profits as expense ratio. That’s all.
We will cover mutual funds separately. Meanwhile check out these graphs.
What are we looking at: In just a period of 5 years both NIFTY and Sensex have grown manifold and are on the way to double themselves.
Give equity time, it will give you value. Loads of it. Stay PATIENT and bag the perks of COMPOUNDING.
Method 4: Real estate
This option requires high initial capital investment so I would not recommend this for newbies. You can get started with as much as 10–15Lacs. I have close to no experience in this field so I’d leave you with the research.
If you are still keen on investing in this category, REITs can be a good option.
Personally I would not start with REITs because I like to go data driven when picking any investment option and in India these are relatively new with less performance history.
Why should I start now and not wait for my 30s?
Starting in your 20s, if you invest 1k every month in an element like PF that gives average of 8% returns, that makes it 12k per year.
Following this drill in 35 years you would have invested 12k * 35 = 420k
You start investing at 40 and go on till retirement at 60. Years in hand = 20.
You probably have much higher income now and can notch up your investment amount.
Say we put it 5k per month instead of 1k = 60k per month
Amount invested = 60k * 20 = 1200k
To get the same amount, you had to invest as much as 3times. Only because you lost out on the luxury of time.
TIME IS MONEY. ONLY A FOOL WOULD LOSE OUT ON IT.
Plan wisely. Happy investing!
Where can you find me:
- Twitter: https://twitter.com/Pronomita_Dey
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- Write to me: dey.pronomita@gmail.com
