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Buying your home, buying your first car, ensuring your children get the best education, and having an adequate retirement corpus are some very common financial goals that nearly everyone aims to achieve. Planning and saving diligently can help you check off all these financial goals successfully.
However, before you get started, you may be confused about how much you should save. Knowing this can help you invest the necessary portion of your income in different investment schemes periodically. Some investment schemes and savings plans also offer life insurance coverage, providing security for you family.
So, let’s check out the finer details of the answer to a very fundamental question — How much should you save?
The most common technique that people use to start saving up is to redirect a portion of their income to their savings. You can also begin your savings journey in this manner. If you do, the immediate question you need to answer is how much of your monthly income you should save. You can rely on various general rules and strategies to determine this percentage.
Here are some common solutions that may help.
Keep in mind that these are merely benchmarks. You can always save more money than what these rules suggest, depending on how much of your income is disposable.
Another easy way to calculate the amount you need to save is to focus on building an emergency fund. Experts recommend having at least six months’ worth of income saved up for emergencies. So, in case there’s an unexpected medical illness in your family or if you lose your job temporarily, you have adequate funds to meet your family’s financial requirements without taking on additional debt.
For example, if you earn Rs. 50,000 a month, your emergency fund should amount to at least Rs. 3,00,000. You can choose different short-term investment schemes to build your emergency fund. The important thing is that these schemes must be quite liquid, so you can easily access the funds in case of an emergency.
Apart from saving up for emergencies, you also need to save up to meet your various short-term, medium-term and long-term life goals. To achieve these targets, you need to ensure that your savings and investments are aligned with your financial goals. More specifically, you need to be mindful of 3 key aspects:
Once you know the amount that you need to achieve a certain financial target, the time within which you need to achieve it and the amount of risk you can tolerate, you can use an online Investment Calculator to determine how much you need to save each month to achieve that goal. For example, if you want to build a corpus of Rs. 5 lakhs in 48 months by investing in a scheme at the rate of 9% per annum, you need to save around Rs. 8,600 per month.
The fact of the matter is that the ideal amount of savings for your portfolio depends entirely on your financial goals. It is important to choose savings and investment schemes that align with the timelines of your financial targets. Furthermore, the risk-reward ratio should also be convenient for you, so you can achieve your goals without taking on more risk than you’re comfortable with.
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