People find it difficult to invest their savings optimally and arrange money for their financial goals. Your financial life and in turn your personal life is largely dependent on your approach towards money management, your interest to learn the nitty-gritty of investment and your ability to use it to your advantage.
One has to make the right financial decisions with changing risk profiles and conflicting priorities across various stages of life.
In their twenties, people have less knowledge about personal finance but they explore various ways to make quick money. The investment is largely ad-hoc (not aligned to any financial goal) and primarily based on hearsay. They ignore risk and focus on higher return. Since time is on their side, they can afford to make mistakes and learn.
In the thirties, the majority of the people are on the family way with spouse and kids and the reality of managing personal finances dawns on them. The focus is on ensuring a good life and saving money beyond daily expenses. The need for Term Life insurance to protect dependents in case of any eventuality becomes important. The decision to purchase a house for nesting or to invest in Equity for higher return is a tough choice. Spending on life experiences today versus securing your own retirement is a balancing game easier said than done.
In the forties, with the limited number of remaining working years, financial planning takes a serious turn as this could be the last opportunity to do any catch up in accumulating financial assets faster. With lifestyle diseases creeping in early, the purchase of the right health insurance becomes a necessity. Money needs to be arranged for some of the important goals such as retirement and kid’s higher education.
The fifties is all about ensuring that one stays employed as long as one can and does not eat into the retirement money early on. The decision to spend on a kid’s marriage versus keeping money for your rainy days creates a moral dilemma. It is important to keep emotions in control and stay objective while prioritizing your goals. Before the start of retirement, re-align your investments to a conservative risk profile.
Retirement (i.e. age 60 onwards) is all about living a relaxed life with the freedom to spend time the way you want without fear of running out of money. Since you have used a methodical approach to achieve this financial goal, you will have a reasonable cushion to sail through.
Working with the clients over the years, I have realized the following to be the key to a successful financial life:
- Self-education on personal Finance could be the biggest differentiator in your financial journey because only when you know you will act and will be able to make the right financial decisions.
- Laying the roadmap for a financial journey (or creating a Financial Plan) at an early age will be helpful because the earlier you know about your financial goals and the ways to achieve them, the better would be your chances of achieving those goals.
- Avoid procrastination and act as soon as possible because if you do not, you would lose precious time and your ability to make amends.
You may also like to read Why is it risky to have adhoc approach for financial planning?
The writer is a SEBI Registered Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services.
He has advised many clients in India, the US, Europe, Middle East, South East Asia and Australia.
To know more about him, click on https://finmyn.com/about/.