“Early bird gets the worm” is an adage you’ve probably been hearing since your childhood. But did you know it applies to meeting your life goals too?

When you start earning, you have lesser liabilities and higher disposable income. Spending on life’s little pleasures act as an incentive to keep working hard, facing the stress of day-to-day work-life.

However, over the years, you might want to buy a house. Then provide your children with the best education. Saving for retirement is crucial too, to spend your old age in comfort. But arranging funds for such life events need meticulous planning and savings.

According to Anarock research, the average property prices in Indian metro cities escalated by 38% in the past decade.

As for education, the Consumer Price Index reached 152.5 in June 2019, a 52.5% increase since 2012.
This means that a typical family has to spend 52.5% more money to maintain the same standard of living as they did in 2012 to meet the general necessities.

Also, consider the average inflation rate of 6.05% from 2012 till 2020. So, the fee for educational institutions and cost of other common utilities that your child uses has been increasing as well.

 At this rate, the fee and other expenses of your child may sky rocket by the time he/she reaches university.

Thus, the earlier you start saving, the better are your chances of fulfilling your financial goals. Here’s how.

Grow your wealth with the power of compounding

With the power of compound interest, your money works for you to make more money.

When you buy a savings plan, your capital earns interest. This interest gets added to the money you initially put it, increasing your invested sum. The accrued sum generates more interest, continuing the cycle. And as you contribute to the plan regularly, the capital appreciates further. Thus, over the years, you can amass a considerable corpus.

The table below brings out the magic of compounding:

 

Details	Starting age: 25 years	Starting age: 30 years
Amount invested	₹ 4,000 per month	₹ 6,000 per month
Number of years in savings	20	15
Total capital	₹ 9,60,000	₹ 10,80,000
Assumed annual rate of return	8%	8%
Payout at the age of 45	₹ 23,71,789	₹ 20,90,071

 

Therefore, just by starting early, you can extend the period through which your money grows with compounding. Thus, even with a smaller investment, you can gain higher returns, enough to finance your life’s milestones.

Stay afloat in a crisis.

The current pandemic has underscored how uncertain life can be. Hence, to stop emergencies from snowballing into a crisis, you need to plan and stay prepared. And disciplined, systematic savings can help create a nest egg that comes in handy in financial contingencies.

Also, the earlier you start, the higher the sum you can stow away to cover unforeseen expenses.

Do more than “make do” in retirement.

When you are young, retirement seems like a distant future, almost unreal. But the wise fabulist Aesop pointed out, “It is thrifty to prepare today for the wants of tomorrow.”

Your earning cycle varies with age. In the early years of your career, your income increases swiftly. By middle age, you transcend onto a path of steady growth and reach the peak of your pay towards the end of your carreer. And after 60, when you retire, your income eventually stops. Also, with advancing age, infirmities increase, and medical expenses skyrocket. The bills can put a severe strain on your funds.

Hence, unless you save money when your earnings are on a positive scale, your resources can dwindle later in life. By starting to save right after you start earning, you can build up the funds for financial stability in retirement.

Reduce your tax burden

As soon as you start earning, your income tax liability sets off, bringing in the need for tax planning. And with the tax benefits available from savings plans, why pass up the chance to reduce your tax burden? 

For example, the premiums for a life insurance product that couples life cover with savings are eligible for tax benefits^. You can deduct up to ₹ 1.5 lakhs for the premiums from your taxable income, under Section 80C of the Income Tax Act, 1961 and as per Section 10(10D) of the Income Tax Act, 1961 the amount of sum assured plus any bonus (i.e. the policy proceeds) paid  to you on maturity or surrender of policy or on death of the insured are completely tax free, subject to certain conditions.

Saving on your income tax leaves you with more funds for your long-term life goals.

^Tax Benefits are as per existing tax laws which are subject to change

How do you choose the ideal savings plan?

Crucial learning from the recent pandemic has been the importance of capital protection. Economies can come to a halt without any fore-warning. Jobs can be lost. Markets can crash, turning your profits to negative. Hence, it would be best if you spread your savings over different investment avenues to minimize the effect of volatilities. 

Moreover, the world has also woken up to the fragility of human life. Who could have anticipated the shocking fatality rate of COVID-19 even in November 2019? 

Keeping such factors in consideration, think of parking a part of your capital in life insurance products that act as savings instruments too. Aviva New Wealth Builder is one such non-linked, non-participating, Individual savings Life Insurance plan that offers complete security to your finances by letting you know the maturity amount at the time of buying the policy.

 The advantages include:

• Guaranteed  payout at the end of the policy period, provided all due premiums are paid, leaving no uncertainty about what you can expect at the end of your policy term
• Assured payout to your nominee in case of an unfortunate event, shielding your loved ones against financial hardships
• Option of an additional cover with Accidental Death Benefit add- on cover, offering higher payouts in case of a fatal accident
• The policy can be bought for a child as young as 6 years of age, making it suitable as a child plan to secure your children’s education costs
• Choose to get the payout in 12, 14 or 20 years to align your savings horizon with the time you need funds for your life goals
• Option to pay a single premium, upto 6 years, or upto 10 years to help you invest as per your financial situation

Thus, this plan ensures your loved one's dreams don’t get derailed due to lack of funds in your absence. Also, the assurance of fail-safe returns helps you plan for your life’s milestones effectively. And the longer the policy period, the higher are the returns you can get. Thus, by entering this savings plan early and for a longer period, you can create sufficient wealth for the time when your need for funds arises so that when your little ones are ready for college, they don’t have to think before they leap to follow their dreams and passions.

As Benjamin Franklin said, “If you would be wealthy, think of saving as well as getting.” Considering all the advantages of implementing a savings plan early, you should start today. You can then achieve the capacity to finance all your life’s milestones on time. 

 

AN Nov 43/20

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