How Much Money Should You Have In Savings By Age 35?
A reason young working adults fixate on how much they should have saved when they turn 35 is they want to know how they compare to their peers.
Your savings should not be considered a competition over your earning power or success upon your peers. Rather, it should be the stepping stones towards leading a prudent lifestyle, investing for that long-term future and having financial freedom.
Leading A Prudent Financial Lifestyle
How much you both have in savings will largely be considered a function of the salary you get and the lifestyle you lead. This is also why there should not be any fixed number based on how much you ought to have in savings.
Firstly, leading a prudent financial lifestyle means always living within your means. Should you spend less than you earn, you will also have the ability to save.
Next, as you progress in your career from the fresh graduate, you will start to rise the organization ladder and earn a bigger salary. This is when you need to understand the difference between necessary increases in bills versus lifestyle inflation.
An increase in necessary expenses occurs when you receive married and transfer to your personal place. This will mean handling your monthly housing loans, household bills, food shopping. This will continue to rise as you add new, and incredibly cute, members to your family. You do not have much of a choice when it comes to these expenses.
On the other hand, lifestyle inflation happens when you begin spending more after each salary increment. What this means is likely to restaurants more often, taking more frequent holidays to exotic locations, getting a car as well as upgrading to some condominium.
It's ok to want nicer things – as long as you're not sacrificing your retirement amount of money.
Investing For The Long-Term Future
The initial step to securing your long-term future is to secure your short-term future. This occurs by creating an urgent situation fund to cover for any unexpected costs that arise, including spending money on broken essential household appliances, losing a job or using a medical emergency. It is recommended that you have between six months and 12 months of the monthly expenses set aside as your emergency savings.
After setting this aside, you need to start saving for that long-term. What this means is making your money work for you by investing it. While your savings will typically pay you a meagre interest return, your investment funds are meant to significantly compound over time. There are a variety of investments that you can select from, including stocks, bonds, savings products as well as commodities.
What you ultimately invest in depends upon the type of risk that you would like to take and corresponding returns that you want to earn. AIA Smart Pro Saver is an endowment plan that delivers potentially attractive returns while providing protection at the same time. This savings plan provides you with the flexibleness to repay your premiums within five years, while continuing to savor coverage in addition to receiving your lump sum payment payout after Ten years.
In addition, should an accidental death occur, your loved ones will receive 101% payout from the total premiums paid plus bonuses.
You can also consider growing your savings with other savings products, for example AIA Smart Wealth Builder, which supplies policyholders having a 100% capital guarantee after the 15th policy year, insurance protection against death, total and permanent disability and terminal illness, as well as provide you with the flexibleness to accumulate savings up to age 125.
Moreover, you still retain the flexibility to cover the policy within 5, 10, 15 or 20 years, but still be able to withdraw your savings to cover key goals, such as your child's education or your own retirement, if your require.
When investing in stocks and bonds, you need to consider the risk-return trade-off as they are investments that carry risks, with it, the risk of losing your returns and/or principal amount.
How much you invest will be a function of how much you are able to save each month. Again, instead of attaching a specific figure that you need to have invested by the time you turn 35, you should just make an effort to maximise this amount. This is simply because each of you will earn another amount, climb the organization ladder in a different pace and also have to increase your monthly expenses at varying times in your lives.
Achieving Financial Freedom
The eventual objective of striving to save and maximising the number you can invest is to achieve financial freedom. This is when the returns you obtain out of your investments can pay off your monthly expenses. Thus, you've achieved the ability to retire if you wish to do so.
At this juncture, you should not simply retire since you can afford it. There are many reasons why:
1. You may encounter a household medical emergency that wipes your savings/ investments
2. Working for a longer time of your time means you may either set aside a greater amount to spend every month when you eventually retire, or it can afford you a way to gradually take on less work and earn less
3. You might not be fulfilled leading a retired lifestyle. You still need to do things that you're passionate about
The equation to achieving financial freedom is quite simple – you just have to minimise your monthly expenses and keep lifestyle inflation low, while maximising the amount you can invest as well as your investment returns.