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Want to Retire Early? Learn How to Plan Your Finances

Published On Oct 09, 2021 10:00 AM By InsuranceDekho

When you start investing at an early age, you open the door for multiple benefits. Be it building a massive corpus over a longer period or rectifying if invested at the wrong place, one gets more time to do what they want as a main profit of early investment. Proper planning is of massive importance if one plans to retire at an early age. Why? Because as good as it may sound to retire early, it comes with all financial obligations and no regular income at the same time. 

How to Plan Finances If You Want to Retire Early?

Do you also wish to retire early? If so, it is advisable for you to plan your retirement at the beginning of your career. Do not forget that retirement is a long-term financial goal. Many people do not follow a proper approach and miss the right time to start investing, i.e., the start of their career. 

If you wish to lead a comfortable retired life, start planning and saving the right manner right away. Let us study an example to understand. If you would start saving for your retirement in your 20s, you will find yourself doing better due to the fact that at this age, you will have less financial responsibilities in comparison to your 30s and 40s. When you will start investing early, you will get a significant time to generate a corpus and benefit from the advantage of compounding. Rest assured, this way, you would have enough to retire in your 40s. 

One of the key aspects that a person who wishes to retire early must have is using only as much money as is necessary. Doing so can play a significant role in helping you retire early while ensuring that your finances are stable. If you think you can create a massive corpus by the age of 40 and would be able to meet all your needs for the rest of your life, you can easily stop working and whatever you want to do after you turn 40. The thing here to keep in mind would be that you would not be able to achieve the same by investing in RDs, bank FDs, and other ways of traditional investment. 

If you want to live a financially peaceful life after you retire, it is advised to choose a diversified investment portfolio. For instance, you can plan to diversify your investments in mutual funds through SIPs. Experts suggest that an individual can begin a SIP with as low as Rs. 100, while in the 20s. Later, the amount to be invested can increase as the earnings increase. When you start saving quite early, you gain advantages like compounding benefits and money growth. 

Are you a 25-year-old who wants to retire by the age of 45? You can begin with Rs. 10,000 SIP. By the time you turn 45, you would have invested Rs. 24 Lakh. With an assumed 15% interest rate, you would easily get around Rs. 1 Crore when you turn 45.

You can also choose to go with PPF along with SIPs. The PPF option may come with an initial lock-in period of 15 years, but you would get it fully guaranteed by the Central government with long-term returns at a 7 to 8% interest rate, compounded annually. According to your needs, you can also extend the investment with a period of 5 years, after the initial 15-year lock-in period has ended. Let us suppose that you deposited Rs. 1 Lakh per year in your PPF account for 15 years with an interest rate of 7.1%. Once the lock-in period is over, you would get a maturity amount of around Rs. 27 Lakh. A big amount like such would be extremely helpful for you in meeting your long-term financial goals. 

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