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9 Tips to Build Your Nest Egg | Koustubh Joshi

9 Tips to Build Your Nest Egg


A brief guide on how to save and invest wisely.

In an age ridden with unlimited wants and limited resources, retirement planning can prove to be quite a difficult task. However, it must certainly be a serious consideration. The average Indian makes enough money to meet their desires and wants, but does that leave them with enough for long rainy days? Not necessarily.

Our financial calculations are based not only on age but also on the income earned at different life stages. Both financial and retirement planning are grossly misunderstood, and people are usually misinformed. This article will help you understand retirement financial planning.

Let’s start with the most basic question: When should one start planning for one’s retirement?

The simple answer: From the moment you start earning an assured income. I’ll explain how to go about this further below.

1. Prioritise your needs

Expenses can be divided into three categories: a) Expenses that cannot be compromised on, i.e., food, house, clothes, education, and health. b) Expenses for our comfort, i.e., amenities, home decor, appliances – things that essentially make life easier. c) Luxury – things that add luxury to our lifestyle – shopping, eating out, leisure travel, etc.

2. Let’s do some math

Several apps can help you estimate your monthly average expenditure. All you need to do is add the above three categories to the app and record every single transaction made across the month. Once you start monitoring and recording your transactions, this has to become a regular exercise for at least 6 months. It will give you a clear picture of your average monthly expenditure.

The next step is to ensure that you have a contingency reserve fund. This will be manageable only once you have calculated your expenses for 6 months. The thumb rule is that every family must have a reserve fund of at least 6 months of average income. For example, if ABC requires Rs. 50,000 per month for their expenses, then they must keep Rs. 3,00,000 as an emergency reserve fund, which can ideally be invested in a nationalised bank or post office fixed deposit scheme. This helps in several ways. For instance, if ABC loses their job or is not able to earn for a short or medium duration, then this reserve fund is a great backup! But it doesn’t come without its risks.

This table shows you different options for investment and the level of risk involved. The risk-return relationship depends on time. The ratio between risk and return is directly proportional – the higher the risk, the higher the return; the lower the risk, the lower the return.

Instrument  |  Risk Level

Post Office  >>   Lowest


Bank FDs

(Nationalised banks)

Company FDs  |  Moderate

Equity Mutual   >>   High


Equity Shares High

When to start?

Start your retirement financial planning before you reach your 40s, which gives you ample time to generate a retirement corpus (assuming that you intend to retire at age 60). So, 15 to 20 years is a moderately safe amount of time to make sure that your money will be invested continuously in equity and balance mutual funds over a period of time. Yes, you read right. Therefore, start considering mutual fund equity schemes for your retirement savings.

3. Time is actual money

Here’s the scenario. X – aged 40 – continuously invests Rs. 5,000 per month in diversified equity mutual funds through a systematic investment plan (SIP) for 20 years. If we assume annual returns of 11%, they will have Rs. 75 to 78 lakh as a retirement corpus at the age of 60. On the other hand, Y invests Rs. 10,000 per month, but they start late – in their 50s. The investment duration will be 10 years. Assuming the same 11% annual returns, Y will get around Rs. 22 lakhs, which is much less than X. The moral of the story is to start early to get more returns.

The equation is simple:

100–your age = Total investment required. If you are 45 years old, then 100–45 = 55. 55% of your total investments must be in equity shares or mutual funds to get more returns. When you cross age 50, your risky investment will gradually shift to fixed-income security, which will ensure that you will have an assurance of income. With increasing age, you can also consider debt mutual fund schemes and balance advantage funds, which are more safe and less risky than equity funds.

4. Don’t hesitate to spend on insurance

Work stress, a high-end lifestyle, occupational structures, etc., ensure that hospital visits and medical expenses are inevitable. As a result, purchase enough health insurance at an early age. Every family member must have health insurance of at least Rs. 10 lakhs. Your health insurance coverage will increase with the increasing cost of medical expenses.

5. ‘Term’ is the only life insurance

Many schemes offer attractive returns on insurance, but you must buy only pure term insurance, which is available at a very negligible rate as compared to traditional insurance plans. For example, if your annual income is Rs. 5,00,000 then you must have a Rs. 1 crore cover from a pure term plan – ideally 20 times your annual income.

6. Retirement and share trading

Share trading requires regular market study, fundamental and technical analysis, and financial sector analysis. If you are not confident doing it on your own, it’s better to avoid this.

7. Real estate and retirement

Real estate gives you rental income as well as asset creation. You have to think about various factors before investing in real estate – the locality and future scope of constant rental income are two crucial points.

8. Credit card and credit score

Before signing up for a credit card, make sure to understand the working model of one. Learn about your credit period and how much credit limit you have. If you do sign up for one, ensure you pay the bill before the due date. Credit card companies charge a heavy penalty and rate of interest on the amount due; a post-retirement credit card should be your last option.

If you have invested well in your retirement using the above methods, it becomes much easier when you retire. Avoid Ponzi schemes. Do not invest in any scheme/plan that offers 2x more returns than post offices and nationalised banks. Invest your money with the help of a certified financial planner.

The earlier you start retirement planning, the bigger your nest egg. Happy Investing! 

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» Koustubh Joshi

(The author is a financial planner and market analyst and teaches economics.)

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