One thing we hope to answer with our wealth calculator is understanding the question we get asked so often: how much should I save for my future?
The future may feel like a long time away, but decisions that you make now can have a big impact on your financial future. Our calculator demonstrates what your current savings profile might look on retirement – and thus a good indicator , but here are 4 factors you should consider when deciding how much money you should save for your financial future.
One important factor that no doubt you’ve seen with your calculator results is compounding. Compounding is the concept that your interest and gains from your investments are able to be used to investment more and more each year. The reason than your wealth grows significantly more over the course of 20+ years in stocks versus savings is because compounding.
Not as clearly reflected in our calculator, one thing you need to have a generally appreciation of is inflation. Inflation is the concept that things get more expensive in the future. For example, 1 million dollars today will not buy quite as much 30 years in the future, because things will likely be more expensive in the future. When you’re looking at your wealth calculator results, keep in mind you’ll want your outcomes to be a little more generous than you were planning to take into account inflation.
Most financial investment products have fees associated with them. This could be your transaction fees for trading a stock, annual management fees from a mutual fund, or bank fees for savings products. It’s very important to ensure that you know how much you are paying in fees – these can affect your wealth outcomes as they impact you negatively when it comes to compounding, as each year you’ll have slightly less money going forward due to fees.
Last but not least – but perhaps the most obvious point – you should take a moment to consider what lifestyle you aspire to in the future. This will change, so don’t feel like you have to have a clear picture right away, but you might want to consider things like: where will you live? will you have hobbies (expensive, or maybe a revenue generating hobby)? When you check-in on your financial investments, its also good to check-in on the vision you have for your future lifestyle and make sure that you are aimed towards your goals.
I encourage you to go try our wealth calculator and play around with the scenarios to see how different numbers will impact your potential retirement outcome.