Finance seems to scare many of us and we always struggle with personal finance. Simply, personal finance relates to our personal income, expenses & savings.
Time is MONEY! Theoretically, there is time value of money.
Say, you're now 30 years of age and you have decided to save 1,000 per month in a pension scheme giving 10% annual return. You continue to save till 40 years' of age and stop saving. But you kept the money in bank giving 10% annual return for next 10 years.
On other hand, your friend, wants to enjoy life to the fullest. So he doesn’t bother to save when he is 30. Instead, he has planned to save 2,000 per month when he will reach 40 (double than your saving amount) in similar pension scheme giving 10% annual return for 10 years.
So, whose savings at 50 years of age would be higher? As your friend saved double amount, you might think your friend will have more money at 50 years of age.
Your money would be higher than your friend’s by 30.8%
Let’s start saving now and let time multiply your savings.
What should be the size of retirement pot?
Simply, it depends on your preferred lifestyle. But there is a thumb rule, that is: you’ll need 25 times of your annual expense. Surely you can know your annual expenses depending on your life style.
Why 25 times?
25 times of your annual expense is enough money which can generate enough returns to carry you through in perpetuity (till you start for next world).
Say, you'll need BDT 50,000 per month when you retire to maintain your lifestyle, starting from buying rice to toothpaste to weekend parties to medical, vacation trip, gift etc.
So, your Retirement pot = 50,000 X 12 X 25 = 1.5 crore.
As you know how much you need for retirement, you have few options for saving.
The most reliable and least risky option is saving in pension fund or monthly pension scheme of a Bank. You can take some risk for higher return in stock market, real estate etc.
So, what do you think? How will you prepare for retirement? Please share in comments.