Wealth Guide: How to create robust retirement plan in your 20s? Expert suggests this

Wealth Guide: When we are in our 20s and stepping into our first jobs, we dream of a big house and foreign vacations, however, we hardly ponder upon the idea of retirement. The zeal to pursue and earn is so high that the idea of managing our finances often slips our minds. Fast forward to when we are 40, going through a mid-life crisis and regretting not having to start saving early. Akhilesh Gupta, Chief Investment Officer, Aviva India, shares his knowledge on how to create robust retirement plan in your 20s. He says, "When I was young, I used to think that money was the most important thing in life; now that I am old, I know it is” - Oscar Wilde, The FIRE movement, which is an acronym for Financial Independent and Retire Early, has created a buzz not only in the USA but also in India. For the uninitiated, the famous movement aims to be financially independent as early as possible so that you do not have to worry about money even in your old age. Despite this, in a recent survey, 64% of young Indians are hesitant to invest."

"Undoubtedly, it is easier to save for retirement when you are younger and have lesser responsibilities. Just investing a little money at a young age can help you retire earlier than you expected. And who does not want an easy retirement? Wondering how this is possible? Here are some ways to start sooner and retire better," he suggests.

Steps to create a robust retirement plan in your 20s

Talk money

"According to the popular Chinese proverb, “The best time to plant a tree was 20 years ago. The second-best time is now”. To make meaningful investments, you should have enough knowledge about it. For this, the first and foremost step is to read and talk money. For a step towards being financially literate for a better future, it is of utmost importance to start exploring and understanding the financial jargon and the procedures from an early age," Gupta said.

Track and Save

"To understand the nature and pattern of the spending, you must track your expenses. This could be done through budgeting. Bucket your expense category and budget it accordingly. This will not only help to track your expenses but also cut down the unnecessary ones and help you to save more money," he added.

Save to invest

He further explained, "As Warren Buffet once said, “Do not save what is left after spending, but spend what is left after saving.” If you invest a portion of your pay regularly, you will know exactly how much money you have left for other expenses. This will also help you in becoming financially disciplined. The saved money could help you for a better future, by investing it in ULIP, SIP, etc. Savings also make you feel more secure and keep you out of financial trouble.

Power of Compounding

"Once you have gained financial knowledge, you will realize the power of compounding. Compound interest is the interest on a balance that is reinvested, as a result, you earn more interest. It is the money-multiplier formula. In the book “Financial Freedom,” the author Grant Sabatier explains that the younger you are, the more time you have for your money to grow. “If you keep saving and investing, your net worth will keep growing, and because of compounding, the growth will accelerate,” he says. Hence, if you start saving early, you give your money time to grow and compound," he added.

SIP as you sip

"Once you have saved your money, it is a better option to invest in market-linked investment instruments like SIP (Systematic Investment Plan) or ULIP. For the uninitiated, SIP is an investment mode through which you can invest in mutual funds monthly, quarterly, or semi-annual. On the other hand, ULIP (Unit Linked Insurance Plan) is an investment as well as an insurance plan where you invest in stocks and bonds, and it generates returns closely linked to prevailing market conditions. One of the significant differences between the two is that ULIP offers life cover whereas SIP does not. As Albert Einstein has profoundly summarized, “Compounding interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pay it. Thanks to the power of compounding, with investment instruments like SIP and ULIP, you can insure as well as generate additional income which will help you in creating a robust retirement plan in your 20s. But the first and foremost step is to understand the language of money and save it. Are you visualizing the whole staircase, just take the first step?," he concluded.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)