While everyone dreams of a comfortable retirement life, not all of us fulfill this dream. To ensure that the absence of multiple sources of income do not undermine your finances during your retirement years, you must have a clear long-term retirement plan in place coupled with lots of financial discipline. Besides, you also need to maintain unwavering focus to build an adequate retirement corpus by not getting distracted by other important financial goals in your pre-retirement life.
A key pointer is to start the process of building an adequate retirement fund early in your career so that your investments get ample time to grow and meet your target. Once you have a goal, you must make smart investment decisions(like investing in a mix of FDs, PPF, equity mutual funds and NPS) and ensure you invest regularly by keeping other expenses under control. That being said, not everyone can manage their finances in such a way that all their important financial commitments, including regular investments to build a retirement fund, are met. In order to do so, month after month and year after year, a few financial habits are bound to come in handy. You’ll be well-advised to know these money habits which will hold you in good stead while you execute your plans to retire with an adequate corpus.
SPENDING IN A DISCIPLINED MANNER
You can never create wealth by spending more money than your income. So, it is essential to keep a strict tab on your spending. Top tips in this regard include creating a budget, minimising unplanned spends and controlling wasteful expenses. These will ensure you’re left with sufficient funds every month to meet all your important financial commitments like rent, utilities, food, EMIs, investments, insurance premiums, kid’s education, etc., while also being on track to meet your financial goals. Disciplined spending will not just help you retire with an adequate fund, but also enable managing your expenses better in the likelihood of your income going down after retirement.
SAVING AND INVESTING REGULARLY TO MEET YOUR FINANCIAL GOALS
It’s important to be aware of your financial goals. If you know about your short and long-term goals, you can channelise your savings and investment returns accordingly to meet your goals on time. But, being in the habit of saving and investing regularly is the key. Regular savings and investments will not just help meet your targets but also ensure you borrow only to build appreciating assets that will make your retirement easier. Simultaneously, you must borrow in a controlled manner for consumption and for depreciating assets so that the interest paid there does not slow down your retirement fund plans.
Say, for example, if you’ve set a short-term goal to arrange Rs 3 lakh to fund an international vacation after 12 months and are saving and investing regularly to meet your goal on time, you won’t have to take a last-minute personal loan to pay for your holiday. Smart borrowing, coupled with regular savings and investments, can therefore work in your favour to create assets that can help you retire early, become debt-free sooner, retire with no liabilities, and therefore be in a better position to enjoy a higher standard of living. But, it all begins with smart and consistent savings and investments.
MANAGING DEBT EFFICIENTLY
Well, truth be told, not all financial targets can be met without taking a loan. In fact, loans often help us realise our biggest financial dreams like buying a home. However, to manage your debt efficiently, you must take steps to improve your credit score and choose the option with the best repayment terms (like a lower interest rate) to begin with. Then you also need to devise ways to prioritise clearing your loans without missing a single EMI. This would mean you always have sufficient funds, thanks to smart money management exercises, to clear your debts without compromising on other important financial commitments. Timely clearing of your debts will not just help you improve your credit score (which will ensure you to get the best loan offers throughout your life) but will also help you enter your retirement life debt-free so that your retirement funds can be used to fulfill your post-retirement life goals.
Managing your debt efficiently also involves having complete clarity on how your chosen loan product works. Say, for example, when you know the best thing you can do with occasional windfalls like your annual bonus or tax refunds is to use it to prepay your home loan. Doing so would not just accelerate the loan-clearing process but also ensure you don’t use all your surplus funds on lesser important things.
TAKING STEPS TO PROTECT YOUR FINANCIAL GOALS
Life’s uncertainties can derail the best of financial plans. But, if you’ve already taken a few steps to tackle life’s vagaries, you’re more likely to achieve your goal of retiring with an adequate corpus. These steps include:
- Having in place an adequate emergency fund worth at least six months of your expenses to tackle any financial emergency like a sudden job loss or a family emergency.
- Buying a comprehensive health insurance plan with adequate coverage to prevent draining of precious savings and investment returns to tackle a medical emergency.
- Maintaining a life insurance policy with sum assured of at least 10 times your annual income so that your dependents are not left in the lurch if something untoward happens to you.
- Buying adequate home insurance if you stay in a place that’s frequented with natural calamities like floods, landslides and forest fires.
These habits will go a long way to keep you on track to achieve your goal of building an adequate retirement corpus, while not effecting other financial commitments. Apart from these, ensure you walk the extra mile to get complete clarity on the risks and rewards associated with your chosen investment instruments to build your retirement fund. This would typically involve researching investment products to find the best matches to your financial goals, strike the right risk-reward balance and explore new investment avenues. When in doubt, don’t hesitate to consult your financial advisor to help you in this regard. Wish you all the very best!
The author is CEO, BankBazaar.com