Start saving early and save regularly
Beginning to save is the first step towards setting up yourself for a comfortable future. Saving regularly is a habit and unless you are lucky, this is something you will need to cultivate over time. Begin by clearing all debts that you have and then live well below your means. This doesn’t mean that you compromise on things important in your life, but be cognizant that just because you can afford something doesn’t mean you must spend on it. Evaluating before you spend will often lead you to defer or even cancel your spends and over time you will automatically be saving consistently. Ideally you should set a goal to save at least 20% of your post-tax salary every month. Be regular about making this happen and soon in a few years you can see your stash growing thanks to the power of compounding and consistency. This will further motivate you to be more disciplined about saving.
Have a financial plan
The role of a financial plan in creating long term wealth cannot be emphasised enough, yet people often do not get down to making one. A financial plan is like a map and outlines where you want to go from where you are. In context of retirement it will have specific details of your retirement aspirations, how much should you target to save and an outline for you on how to get there. This may seem theoretical initially, but over time proves to be of tremendous value to keep you focused and committed to your goal. Humans are easily distracted by temptations, and hencehaving a map that tells you where you're goingis very useful. Having said that, a financial plan is not set in stone but a flexible guide that should be reviewed and updated regularly.
Keep your savings away at an arms distance
Well started is half done, however it is important that you set yourself up such that temptations do not get the better of you. As your savings grow it is natural to often consider spending on costly items/services that you can afford. While this may appear as innocuous, overtime such leaks can amount to a large sum. The most effective way to counter this is to invest your money before you can access it (i.e. gets into your salary savings account) through pre-set monthly investment (SIPs) into instruments such as mutual funds, and invest in instruments that have lock-ins (e.g. PPF, ELSS) which will help ensure that you cannot readily withdraw your money whenever you feel tempted.
Conclusion: To quote Warren Buffet, “If you don’t find a way to make money while you sleep, you will work until you die.” One will eventually stop earning, and most people actually want to stop working earlier if possible. But to achieve that, it is important to start early, have a plan and maintain discipline. If you do that, you will have a dream retirement. If not, then best of luck!
The author, Mohit Singh is CBO, Finaskus.