Don’t delay, start investing today!
It’s a job that’s never started that takes the longest to finish.” – J. R. R. Tolkien
- Beware of the changes taking place. High life expectancy, higher job uncertainty and absence of guaranteed inflation-linked pension puts the onus of secure financial future on you. Your actions today can be the difference between a comfortable financial life and financially insecure life.
- Delaying investments is not an option. The more you delay, the more financial sacrifices you may have to make later on in the life.
- Start saving early, invest regularly and prudently for a secure financial future. Invest in a tax efficient manner, in the right investment options.
Now when I started writing my blog on this website, I decided to write at least one article on personal finance every week. At this rate, I would be able to write around 52 articles in every financial year (between April 2018 and March 2019). However, between April and July, I did not write much. Now, for the rest of period between now and March 2019, I really need to write more than one article every week to be just able to keep my promise of one personal finance pose every week.
Recently, I met a working professional in mid 30s. He is working in a reputed company. He is drawing a good salary. He wanted some help with tax saving investments. As we were talking, he casually mentioned about his inability to save much. I was surprised! I told him that at his age, with no other obligation, he should increase his savings rate. Key to achieving financial freedom is to start early, save aggressively and then invest prudently. Then he said that his salary is too low. Now, I am yet to find a person who thinks his salary is high. A SUV, foreign vacation, branded clothes, eating out and weekend getaways have now become essential expenses. In fact, a recent Times of India article indicated the rising trend of taking loans for overseas vacation.
“If you buy things you do not need, soon you will have to sell things you need.” – Warren Buffett
Why saving is important, especially in India and especially now?
Most of the people I meet, are influenced by the consumption culture of America and other western countries. Most of us have been to US or other western country. Now the saving rate in US has been in the range of 5% most of the time. While that may be OK in American context, that is not OK in India. In most western countries, there is a good social safety net. Most people have access to free or very cheap health care and education. That is not the case in India. One has to have enough savings and insurance for a secure financial future. Furthermore, we are observing some major changes:
- Life expectancy is rising. Japan is now adjusting for 100 years average life. The trend of increasing life expectancy is global. Average life expectancy in India is certainly going to rise.
- Job uncertainty is rising. In last few years, we have heard about automation and robots taking away jobs. People losing jobs is no longer a rare phenomenon. Furthermore, in many cases, the salary hike is less than the rate of inflation.
- No longer guaranteed inflation linked pension. My father retired from his government job 15 years ago. Since then, he has been getting an inflation-linked pension from government. This is a source of financial security and independence for him. However, this is a thing of past. Irrespective of whether you are employed in private sector or government sector, you have to plan and take care of your financial future. Now, your income during retirement will depend on how much you have contributed to NPS/PPF/EPF or mutual funds and how they have performed. This means your financial future is in your hand. Your financial well being will depend on your financial actions today.
Why not saving enough and not saving early is dangerous?
Let’s assume you have to reach a place at 10 AM. It taken an hour to reach there. If you start at 8.50, you will reach there well in time. If you start at 9.30 AM, you will possibly be late unless you drive really fast. Driving really fast means assuming additional risks. If you start at 9.50, no matter how fast you go, you won’t reach there in time. So, the most important factor that will decide whether you reach on time or not depends on when you start and how much time you have. The same is the case with investments. The more time your investments have, the more likely is the possibility of you achieving your financial goals.
Beware of inflation!
If you are 30 years old, whatever if your annual expenditure now, you are likely to spend ~5.7 times of that when you retire at 60 years. This will be needed to maintain the same standard of living.
The cost of procrastination
Let’s assume your monthly expenses are 50,000, i.e., 6 lacs per annum. If you are 40 years of age, your annual expenditure when you retire at 60 years will be 19 lacs (the left chart). To maintain the same life style, you will have to start a SIP of around 44000 (right chart below). Note that you will have to invest almost 88% of how much you spend now. Now if you are 30 years old and spend 50000 per month, your annual expenses when you retire will be 34 lacs. However, to create a corpus that will provide you this much income (inflation linked) up to 90 years of age, you just need to invest 18,604/month. You can read more here- How much is enough?
Note: Assume 6% inflation, post-tax return on investment during retirement year is equal to inflation. Life expectancy has been assumed to be 90 years. Return on investment prior to retirement has been assumed @14%.
The key takeaway is that the more you delay, the more aggressively you will need to save. If you delay too much, you may not be able to save enough.
काल करे सो आज कर, आज करे सो अब । पल में प्रलय होएगी,बहुरि करेगा कब ॥ – Kabirdas
What you have to do tomorrow, do today, what you to do today, do now. The time to do is now and if it is lost when will you do it?
Disclaimer: The above content is just for information and should not be construed as an offer to buy or sell or recommendation. Contact your financial advisor for guidance on any investment related query.
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