Nobody would want to spend their senior years in a nursing home, fighting diseases that restrict their mobility and living without the will to live life ‘king size’. Retirement doesn’t mean saying goodbye to public life. You can continue following your passions, travelling the world and continuing to live a fulfilled life. Here is how you can make some smart decisions to ensure that your retirement dreams come true.
Save at least 10% of your income
As soon as you start earning, make sure that you save at least 10% of your pre-tax dollars. If you are still a student, start even earlier and save 1/10th of your allowance from today. This will create good saving habits for a lifetime. You will have a big chunk of emergency savings if anything goes wrong. Moreover, choosing a bank with high interest rates will help you even further. As time passes, your money will keep earning interest for you, helping you become richer by the year.
Enter stock markets early
There is no other way your savings could grow by as much as they can in the stock markets. Getting double digit yearly returns is not uncommon here. However, if you have no previous experience in the world of finance and don’t understand a company deeply, you could make wrong decisions and lose all your money. A simple way to be a part of the stock markets without actively engaging in them would be through index funds.
Vanguard founder John Bogle’s index fund investment policy has stood the test of time and proven to be one of the soundest investment philosophy in the world. Index funds track the entire market. The chances of a particular fund or industry sector falling apart are higher than the entire market losing its sheen. Index funds, therefore, help in preserving your capital and providing better returns over the years.
Keep your expenses low
Though tracking expenses is not a classic ‘investment advice’ it is one of the pillars of good financial life. Decide what are the bare necessities you would need to live a comfortable add. Add a few affordable ‘luxuries’ to the mix. Make sure that you don’t run behind products and services designed for people who earn 10x as much as you. Finally, add some overheads and you will get the amount you can spend during the month.
Anything you earn over this amount goes directly into your savings account. If you get a promotion, start a side hustle or your income increases dramatically, ensure that everything goes into your savings account or investments.
It would be vital to maintain different accounts for regular savings, emergency savings and retirement savings. This will help you in keeping track of your financial health. Create goals for each type of account. For example, your emergency savings could be 6-months’ worth of expenses to begin with. Similarly, your initial retirement savings account should aspire to have 5 years’ worth of expenses to begin with. As you reach you goals, keep increasing the amount and find financial freedom when you retire.
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