How to Save Money for Your Retirement in Your 40s?

The best way to save and grow one’s wealth is to invest it in different types of assets that generate additional income for you. However, we often find ourselves doing the opposite, by spending on goods and services that destroy our wealth instead of multiplying it. Whether it be the latest gadget or car model or fashion wear, I’m sure all of us regret buying some things that weren’t worth their cost. I personally found myself withdrawing money from my bank savings to buy new clothes as I felt bored with my old ones, now those bank savings are gone while the clothes have gotten old and boring as well.

Indeed, it is not without reason Warren Buffet has said “If you buy things you do not need, soon you will have to sell things you need”. In today’s world, mass-media advertising is prevalent at every corner, which leads to impulse-buying that can drain one’s finances and savings very quickly. There is a great lack of financial knowledge among today’s generation, and one needs to have disciplined financial habits to be able to save and invest money for a peaceful retirement.

There is no dearth of investment options for an investor in India. From mutual funds to fixed deposits to gold to real estate to business, an individual has a variety of investment options to choose from according to their funds and risk appetite. It is also beneficial to take up freelancing projects and have a side business. The internet is a great source to research about different investments and gain access to expert insights for planning your investments.

Therefore, the best way to save money for your retirement is to invest it. Keep in mind that you must not put all your eggs in one basket, and follow diversification to reduce risk to your investment portfolio. Additionally, if you are an impulse buyer, it would benefit you to make investments that have a lock-in period, such as fixed deposits and close-ended mutual funds, so that you don’t liquidate your investments to make expensive purchases. You must also develop a savings habit to be able to invest, because if you spend your entire income there will be no money left for investment purposes.

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Here are some tips to help you save money for investment:

Start as early as possible

The greatest magic of investment is the annual compounding of returns, which multiplies your wealth exponentially. To take advantage of this compounding, you must start investing as early as possible, so that you develop an additional stream of income that allows you to save and invest more money.

Avoid loans and overusing credit card

Debt is a very financially stressful instrument, and it drains your capital by its costly repayments and high interest rate. Unless absolutely necessary, one must avoid taking debt, as it provides negative returns. Similarly, overusing credit cards can lead to unchecked and excessive spending, hence one must use credit cards very sparingly and always remember to pay its bills on time.

Think of purchases in terms of wage hours

It is easy to buy some things when you have the money to afford them. However, thinking in terms of the number of hours you’ll have to work to earn the price of that good/service can help give you a new perspective. For example, a Rs. 5000 dress may seem worth it for an impulse-buyer who loves fashion, but working an entire week to buy the same dress? Most people would refuse the second option, even though it’s the same for someone with a salary of Rs.20,000.

Apart from these tips, we also recommend reading the article 10 ways to save from your salary for more tips regarding savings for salaried employees. However, it is not enough to merely save money in physical cash or in a bank account. If one wants to have a financially comfortable retirement, one must not only save, but also invest. So, how does one choose the right investment options for retirement?

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Here are our tips on how to choose the best investment options for retirement:

List out your long term goals

Before making investments for your future, you must list out your long-term goals and account for their expenses in your investment journey. Expenditures such as a new car, house or education requires prior financial planning, which can help synchronise the maturity of your investments with your expenses and help avoid taking debt to fund your life goals.

Invest according to your retirement expenses

When investing for retirement, it is very beneficial to calculate and estimate one’s retirement expenses and needs. Inflation can make living expenses much higher in retirement, and unexpected medical bills can rapidly drain your retirement corpus if you don’t have health or life insurance. When investing, you must aim for a return that exceeds inflation and will be sufficient for your cost of living in retirement.

Research all investment options

To build a diversified investment portfolio, it is highly beneficial to research all types of investment options and allocate capital according to one’s goals and risk appetite. There are a variety of investment avenues available for investors, each with their benefits and drawbacks. We provide you with a list of best investment options available, to help you with choosing the right investments for your goals.

Have some exposure to equities

Whether through a mutual fund or through direct investing, every investor must have some exposure to equities as they can give the best returns in the long-term. If one thoroughly researches and understands the best companies to invest in, one can significantly exceed fixed deposit returns in the long-term. To help you in your investment journey, we provide you with 12 tips to choose a fundamentally strong stock, and tips to choose the right mutual fund in India.

To summarize, one must not only save from their income but also invest their money wisely for obtaining a comfortable retirement. One must start investing as early as possible, avoid unnecessary debt and thoroughly research all prospective investment options in order to choose the right investments that can fulfill their long term goals and cover their retirement expenses after accounting for inflation. If you found this article helpful, please share and comment below.

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Dhruv

I am Dhruv Gupta, a student of Business Management at ISBF college in New Delhi. I have a passionate interest in investment and finance, and my favorite hobbies include listening to music and playing badminton.

Vishal

Simple guy with multifaceted theories. Interested in Market Gyan, short tricky tips, Small Fundas. DU Graduate, working in one of the Big 4 Auditing Firm.

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