Are Your Savings on Track?


A few years ago, Dina struggled with trying to lose weight and the problem was that she could not even get started!

After much contemplation, Dina realized that a big part of the problem was that she was looking at the end goal –losing 15 kilos– and thinking to herself, "That is way too difficult. I will never get there."

So she tried something different.

Dina first tried to lose two kilos. Once she succeeded doing that, Dina targeted to lose five kilos.

Then another five.

Guess what? Within a year, Dina had lost 15 kilos!

The key was setting smaller targets and feeling good about herself. This kept her motivated and on track. The same principle applies to saving.

Assuming You Starting to Work at 22...

So how much should one target to save by 25, 35, 45 and 55?

                                    Target Savings

By 25 years old           11 months of salary

By 30 years old           2.5 year of salary

By 35 years old           5 years of salary        

By 45 years old           12 years of salary      

By 55 years old           27 years of salary      

Here's how one can achieve these levels:

  • Set aside at least 20% of salary or income every month. Yes, it may not be possible initially, but work towards this level
  • Out of your yearly bonus, set aside at least 50%, the rest you can use to reward yourself
  • Investments need to yield 15% per year

Here are some more guidelines to consider:

  • By 25 years old –or when you have about 6 months of your income set aside, you should consider investing by directly buying stocks and shares or using instruments like mutual funds or unit-linked products. Focus on blue chip companies that you buy and keep for 10 or more years.
     
  • By 30 years old, consider purchasing a property. This will most likely not be your dream home, but will mainly serve as an investment to protect against inflation. Use part of the money you have invested in equities as a down payment and then borrow the rest.  Look for apartments or home at up and coming areas, as city-center properties may not affordable at this stage.
     
  • By 35 years old, you can upgrade property by selling the one you already have, or consider buying another one –either to stay in, or as an investment, e.g. for rental. Continue investing in blue chip stocks either directly or through mutual funds or unit linked products.
     
  • By 45 years old, start considering investments that will give you cash flow for retirement i.e. bonds, property, stocks and shares that pay out dividends.
     
  • By 55 years old, you can happily leave your job and not worry about money. Your 25 or so years of savings will fund you through this.

“Yikes! I am 35 years old and I am way behind!” Not to worry. There are always ways to catch up:

  1. Increase your savings monthly. Instead of 20%, you may need to set aside 30% or more.
  2. Save more of your bonus. Instead of spending 50% or more, you may need to defer rewarding yourself and save/ invest maybe up to 70% of your bonus.
  3. Keep yourself motivated. Keep your eye on the smaller targets and don't worry if you have set-back. It is also important to have and emergency fund and adequate insurance, so that in case something happens, your cash flow and savings do not get affected.

Read more: How to Invest If You Earn Rp 5 Million

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