Why are you saving money?
Everybody wants to be ‘rich’ but very few have actually sat and thought through how rich they really want to be and what they need to do, to achieve financial freedom.
Circumstances and needs are constantly changing. A sound financial situation today does not necessarily foretell an equally rosy future.
- A loss of income, even temporary can deplete your savings or leave you in debt.
- An uninsured loss can wipe out your accumulated wealth.
- Insufficient savings can force you into a reduced lifestyle post retirement.
- Frequent or unplanned borrowings can leave negative money i.e. debts for future.
- Poor tax planning can result in higher taxes, payable separately.
All this, combined with changes in your life cycle, needs and/ or external economic changes can make you and your future generations financially vulnerable.
You need to plan and manage your current and future income to meet your current and future needs / wants. These are also known as your goals or dreams.
People who write their goals are much more likely to achieve them. Sit down by yourself or with loved ones and try to imagine your future. Consider what drives you in your life and how that has changed over the years.
While I can’t tell you what you should want in life, the list of questions below can provide you with a fair idea of how you should start thinking about the future.
- What milestones do you foresee in the future? – starting a family, sending kids to college, buying a new home etc.
- When would you want to retire? And with how large a corpus?
- What are some of the other things that you may want to do in life?
Once you have a timeline of your goals, you will need to estimate how much money will be needed to meet them.
A portion of your current savings will need to be invested appropriately so that it grows to meet your future goals’ cost.
Make a list of all key expenses you foresee in the future. This will give you an idea of how to invest your savings.