Provident Fund is something that many working people may overlook. Many people are not interested and see it as useless. But little do they know that this can help us reach our retirement goals easier and faster than before.
The top concern for salaried workers these days is not having enough money to spend in retirement. This is because society has changed a lot. People are living longer, but most people do not have enough money to spend in retirement.
The main problem is
“Most people start saving for retirement too late.”
Because we think it’s still too far away. If we start saving money since we started working, we might have enough money to use in retirement. But in reality, we don’t really know how to start saving when we’re in our 30s or almost 40s. There’s very little time left for saving until retirement. That’s why we don’t have enough money to use in retirement.
“Most people start saving too little for retirement.”
It may be due to not understanding or misestimating the expenses required in retirement, such as forgetting to consider medical expenses, etc., or lacking discipline in saving money.
The result is not having enough money to spend in retirement.
“Most people lack knowledge and understanding about investing.”
Ignorance also causes missed opportunities. Many people still think that investing is like depositing money in a bank. In fact, depositing money in a bank is like “saving money”, like keeping money in a safe place. The return is interest, but the interest may not grow as fast as inflation, and the return from deposit interest alone will definitely not allow us to achieve our retirement goals.
“Investment” means making money grow or taking money to make it grow continuously. There are many types.
1. Invest in businesses or tangible assets such as real estate and gold.
2. Invest in financial assets. You can invest by yourself, such as investing in stocks, bonds, or through experts by investing in mutual funds.
If we allocate some of our money to investments for higher returns, it is a good option that will help us achieve our retirement goals faster.
But investment comes with risks, so you should choose to invest in something that is appropriate for your risk tolerance.
Financial and investment knowledge is therefore very important for those who want to retire without suffering or retire happily.
“Provident funds are a great helper to ensure that we have enough money to use during retirement.”
Why is it called a provident fund? It’s because it has a contribution from the employer.
Let’s take a look at the concept of provident funds in another simple way.
Provident Fund is a fund jointly established by employers and employees for the purpose of saving money for employees to use after retirement. It is considered a part of the welfare that employers provide to employees.
But now, by law, it is not mandatory for every company to set up a provident fund. Therefore, the provident fund is a welfare that depends on the policy of each company whether to have it or not.
The principles of the Provident Fund are:
Employees or members who have a portion of their monthly salary deducted into the fund, also known as “savings”.
As for employers, they will pay another portion into the fund on a monthly basis in addition to paying regular wages to employees. This amount is called “contributions”.
The savings that will be deducted every month, the amount that will be deducted depends on the willingness of the employee and the rules of each employer’s fund, such as at a rate of not less than 2% but not more than 15% of the salary.
The contribution that the employer will pay to us depends on the regulations of each employer’s fund, such as a rate of not less than 2% but not more than 15% of the salary, etc.
How can the Provident Fund help us ?
It promotes discipline in saving and investing because we deduct the same amount of money into the provident fund every month.
And if our company has a provident fund welfare, we are lucky to have a kind employer. It is a bonus for us because we invest in our part and the kind employer will add more money to us.
The more we save, or the maximum (15%), the better for us.
Have you ever received money with compound interest? The more we save, the more chances we have to receive a return in the form of a monetary amount. At the end of the year, the return will be combined with the principal, becoming a new principal.
The more we save and the longer we save, the more money we will accumulate and the more the returns will increase. As for the company’s contribution, it will depend on the company’s policy.
So, save up our side to the fullest extent, or gradually increase the % when your salary increases.
Both of these funds will be invested in funds that provide high or low returns. It depends on us which investment plan we choose. First, we should explore the level of risk we can accept and choose a plan that suits us and meets our retirement goals.
While the money is in the fund, it is not deposited in the bank to get just a small interest rate. But this provident fund has professionals called fund management companies (AMCs) to help us. They will take our fund money and invest it in various types of assets such as deposits, bonds, debentures, common stocks or other financial instruments. The goal is to create returns for the fund.
By taking the resulting returns and returning them to members of the fund in proportion to our investment, the benefits from this investment are called savings and contribution benefits .
What do employees get from being a member of the provident fund?
Provident funds are a benefit that employers provide to their employees. Employees can apply or not. The benefits of being a member of the fund are that it creates discipline in saving for retirement continuously. It is like receiving an additional salary from the employer through additional contributions from the employer, and receiving tax deduction benefits. It can be said that being a member of the fund really gives you a lot more.
“Working people can also have millions in savings by saving through the Provident Fund.”
Therefore, if the company asks us to do it but we don’t do it, it is a big mistake. What we should do next is to go back and look at our company’s provident fund policy to see how many percent of our salary they currently allow us to deduct and how many percent the company will match.
In any case, you should not miss out on this welfare that the company provides to its employees. Another important thing is that the longer we work, the more benefits we will receive from the contributions. For example, from 5 years onwards, we will receive 100% of the contributions from the company. Therefore, anyone who has been with the company longer than this but is not a member of the provident fund, it is a great pity.
Provident Fund is a good opportunity and a good choice for employees whose companies have provident fund benefits to accumulate more provident funds as a reward for themselves.
For more information on what are the benefits of a provident fund? You can watch this video.
In the next episode, we will continue with the topic of additional conditions or issues that salaried employees still misunderstand about provident funds
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