Saturday, May 8, 2010

Saving for long term goals

Secret to save for long term goals, like retirement, kids studies etc, is simple. Start early, be disciplined in savings, increase the saving amount as your income increases and adjust savings allocation periodically.

Start early because it gives lots of freedom. First you have abundant time in your side and hence you can use power of compounding for you. Also, because you will be starting early, you can start with small amounts.

Being disciplined is important because you are trying to save for long term goal and it might happen that short term goals sweeps away all of your money. Hence, automate the savings as much as possible and then set short term goals based on leftover money.

Adjust your allocation as time passes. For example if you started to save 10% of your monthly income, increase it every time you get a hike.

Last but not the least, review your allocations periodically say once every year and do necessary changes. As and when you are approaching your goal, reduce risk in your portfolio. If you started with 70-30, 70% in equity and 30% in debt market, with age change this allocation to 50-50 and then to 30-70 eventually.

These all simple steps will make sure that you can save for any long term goal without much of pain.

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