31st October was celebrated as World Savings Day and we are known to be one of the biggest savers primarily because of large middle class. Although, most of our savings still goes to the physical assets such as gold or real estate, we do have a very high savings ratio. But change is happening where we are not hesitating to avail credits now. In fact the use of credit in personal life is increasing. Housing loans, vehicle loans, personal loans and many others are now part of our lifestyle. The easy availability of credit is becoming a means to reach our financial objectives. This is severely impacting our savings ability, especially at middle age, since most of our income is going towards servicing these loans.
The achievement of our financial goals rest on our savings ability since it provides the needed surplus for investing. If savings are not happening then it’s an alarming situation since the contribution to our life goals will be missing. Hence we need to ensure that while moving across various life stages we have a savings plan to provide enough resources for our life goals which we desire to achieve.
This is an early stage of your life where you move to the corporate world. There will be nil or very few responsibilities on your shoulder. Since your expenses will be low you will be able to save most part of your income. Ideally, at this stage you will be able to save 30-40% of your income or may be higher. Even if you salary is low still you should be able to save 15-20%. It may get lower if you have liabilities at this stage, but you need to ensure that at least 12% of your income is saved for your goals. Avoid availing high credit at start of your career as it will reduce your savings ability and will impact your future savings. If you are not able to save enough then you should review your expenses which may be for lifestyle more than your actual needs.
This is a life stage where you have high responsibilities. Children’s education, Loans, house rent, and many others such expenses towards which you have a high commitment. So your savings ability will be reduced to a great extent. However, your life goals have increased which will demand continued generation of savings. Ideally, when you have two working members, you should be able to save 15-20% of your income else you will face difficulties in meeting your life goals investments. But even with a sole working member, the savings should be at least 10-12%.
When you are nearing retirement, you are free or about to get free from your liabilities. You are reaching a stage where you would have repaid all your liabilities and your children’s would have started entering their working careers. The biggest factor to count in this stage is your income which will be at peak and so your savings ability will also be quite high. Ideally at this stage when you are relieved from your liabilities your savings should reach at around 30-40%. If you still have liabilities running then it may shrink to 15%. But if your savings are even lower then it will be a great worry for you as this will be the last opportunity for you to contribute for your retirement years.
All the measures discussed above are not any rules but check to ensure you are generating enough savings for future planning. There is also a second measure to analyze whether you have been savings enough. Your assets should increase as you move to different life stages. Ideally-
- At age 35 your assets should be equivalent to 2 times of your gross annual income
- At age 45 this should grow up to 4-5 times
- At age 55 you should be able to accumulate 8-10 times
- And at age 65 your assets should grow to 10-12 times of your income
Savings is the one of the most critical element of your financial planning as it provides you the needed resource for achieving your life goals. You should plan at early stage of your life and aim to have a debt free life by age 65. Your loan liabilities should be restricted and wiser not to exceed them 2 times of your income. For a good financial health at least 10-12% savings from your income should be kept as a benchmark at all stages of your life.
If you are not able to save enough, analyze where your money is going and take corrective measures to ensure the soundness of your financial health.
What’s your ideal savings now? Do Share your views..