Three words that have been said countless times before. And you might even get irritated by them: ‘start saving early.’
That is good advice, no doubt. But what if you realized this a little late? Or your life circumstances didn’t allow you to start saving early.
That is, what if you have already missed the ‘start saving early’ bus?
There really isn’t any point worrying over it or playing the victim card. There is no point in judging past decisions now.
Changing your mindset
Luckily, you can still salvage things. You just need to change the mindset and take necessary actions. It may not be easy. But what other option do you have?
-If you are in late 30s, it is still not late. You have almost 2 decades to manage things. But don’t let that get to you.
-If you are in your 40s, it’s still fine. But you need to change courses soon. You cannot waste any more time.
-If you are in your 50s and haven’t been able to save much, then no doubt it is high time. It won’t be easy. In some cases, it might be very tough too. But you can’t give up. You need to take corrective action to the best of your abilities.
For most people, the problem is generally retirement savings. And those in their late-40s and early-50s need to take immediate action. Waking up one day and realizing you haven’t saved enough for retirement can be worrying. That too when only a few years of working life remain.
But there is a silver lining to the ‘starting-late dark clouds’ too.
More often than not (and hopefully), your earnings will be pretty high in your later ages. Also, depending on your life situation, it’s possible that some (or part) of a few financial responsibilities would be over by then.
So, luckily, you might have a higher possibility of saving more regularly (due to higher income / surplus) than what was possible in the initial years.
And this ability to ‘save more’ might just work very well. People don’t realize, but ‘saving more’ is more important than getting high investment returns.
Saving more is important
In fact, in the initial years, doubling investment returns may result in a much smaller bump to your portfolio size than a doubling of your savings rate.
So what should you do?
-First accept that you are late and something needs to be done. Acknowledge the problem first.
-Next, assess your financial situation objectively. Given that you have been unable to save much till now, you need help from someone who can look at your situation in an objective and unbiased manner. DIY investing is not for everyone.
-The assessment will help first align investments to goals and then, help figure out how much to save regularly for goals going forward.
-Or if the surplus isn’t sufficient for all the goals, then how to prioritize / rationalize goals or, more importantly, rationalize expenses to increase the investible surplus. Given your lack of savings till now, it would be necessary to increase your savings rate at the earliest.
-Very important: It’s criminally wrong to assume that provident fund alone would be sufficient for retirement. Get a reality check. You need to save for retirement separately.
As an advisor, I often deal with people who are neither young not very old, but somehow don’t have much savings to show for several years of their work lives. They are worried and rue the fact that they have lost almost half their earning age.
But I tell them that it’s never too late to streamline their finances. We just need to try and do our best with whatever resources (remaining working age, surplus, etc.) we have.
In an ideal world, everyone would have started early to take advantage of compounding. But we are humans. We are where we are because of our decisions and, at times, our circumstances. So, don’t spend time on why you are late. Just focus on what you can do now and how to best utilize the remaining years.
Indian parents also need to understand that their children cannot be their retirement plan. They should carefully balance their investments between children’s education vs own retirement.
And if you haven’t started yet, but belong to the ‘Will Save More Tomorrow,’ then please wake up. Don’t test your fate too much. And you cannot keep postponing because you also need to have enough tomorrows left for saving.
(The writer is the founder of StableInvestor.com)