Financial planning tips to save for your future

4 MinsApril 15, 2020

Saving for your future goals requires planning and patience. You may have to deal with short-term turbulences or disruptions such as a slump in the equities market, slowing down of the economy leading to job losses, and so on. In such circumstances, how should you manage your money, i.e. expenses, savings, and investments? Here are a few simple steps you should take:

save future

Start early: Just because you are in your 20s doesn't mean you shouldn't think about the future. The earlier you start, the sooner you can get the good things in life and retire. The magic of compounding works a lot better when you have more years to compound your money — an investment of Rs 15,000 thousand in a Systematic Investment Plan (SIP), every month at a return of 10%, will translate into Rs 1.13 crore in 20 years and into Rs 3.39 crore in 30 years , i.e. just 10 additional years of saving.

Make a budget and stick to it: It doesn’t matter if you are single and living with your parents or married, make a budget and don’t exceed it. Create an emergency fund for six months and use that only when all other sources of income have dried up. If you want to get married in five years, calculate your expenses and invest in SIPs (Systematic Investment Plan) accordingly.

List down your goals and investment horizon: Your goals may be short term or long term. Short-term goals could have a range of 3-5 years: a trip abroad, an expensive camera, an anniversary gift for your parents or buying a car. Long-term goals could include expenses for a wedding, buying a home, children’s education, and retirement.

Also Read: [Why should you build an Emergency Fund]

Find out how much you need to invest: Once you have listed down your goals, use tools such as a SIP calculator to find out how much you will need to invest every month.

Buy insurance: The first thing you do when you buy a vehicle is get it insured. Why wouldn’t you do the same for yourself and your family? Medical and life insurance are a must in today’s world. Simple hospitalisation can put you back by thousands of rupees if you are not insured. Get insurance!

Keep an eye on your investments: Remember one thing. It is your money. If you don't keep track of it, no one will. Actively monitor your investments. Research market trends and consult your financial advisor regularly. If a Black Swan event like Covid-19 occurs, you may need to re-allocate your funds. Do this only after you have taken expert advice.

Don’t break discipline: Utilise all the tax deductions and exemptions you can. If there is an option for you to save your money, take it. And most importantly, don’t let a frivolous expense come in the way of your wealth creation. Do not touch your retirement fund.

The debt trap: There is good debt and bad debt. Taking a home loan is a good debt since you are creating a long term asset. Credit card debt, where you only pay the minimum amount is bad debt. Ensure you don’t fall into the debt trap.

Understand taxes: Income tax can impact your savings. Always ensure that you are investing enough in tax-saving instruments provided under different sections in the Income Tax Act. House loan, PPFs, life insurance, NPS, Sukanya Samriddhi Yojana, Tax-saver Fixed Deposits and Equity Linked Savings Schemes are some of the tax-saving instruments you might want to consider. You can invest up to Rs 1.5 lakh by investing in these tax-saving instruments. Additionally, also utilise all your tax exemptions and reimbursements from your employer.

Disclaimer: This article has been authored by The Source, a Mumbai-based content creation firm. Axis Bank does not influence views of the author in any way. Axis Bank and The Source shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.