No matter what stage of your life you are at, it is never too late to start planning or re-examining your finances afresh.
As we step into the new year-2017, it is quite likely that most of us have not been able to follow our resolutions last year; in fact, we may have broken them in the first month of the year itself. However, where financial resolutions are concerned, no matter what stage of your life you are at, it is never too late to start planning or re-examining your finances afresh. Even if one tends to break those resolutions, they still act as a reminder that you need to plan.
According to us, there are three different stages of an individual’s financial life:
1.) Foundation Stage (Single and earning)
2.) Accumulation Stage (Married with kids)
3.) Maintenance Stage (Retired)
Let us see what financial resolutions one can look at during these different stages of life:
Foundation Stage (Single and earning):
This is the stage where most youngsters are not dependent on their parents for their expenses. With a regular flow of income comes the independence to spend on technology products, entertainment, shopping, etc. There is a tendency to spend on discretionary items without thinking even once. This leads to no savings at the end of the month. And having little or no savings at the end of the month, on a regular basis, could develop into a bad financial habit that stays with us for life.
Avoid unnecessary expenses. Let’s say, for example, that you are spending Rs. 100 per day on a coffee at a cafe. When you pick up that cup, an amount of Rs.100 may not seem like much. But over a month it amounts to Rs. 3000 and becomes a whopping Rs. 36,000 for the year. We are not saying it is a wrong thing to do, but rather than spending your money on coffee, if you invest Rs 3000 per month through a SIP, it could become approx. Rs. 7 lakh after 10 years (assuming returns @12% p.a.).
Financial Resolution: SPEND LESS, SAVE MORE.
Accumulation Stage (Married with kids):
This is the stage to accumulate enough assets for your future retirement and plan for financial goals like your children’s education and marriage, purchase a home, etc. But have you created a plan that enables you to build a corpus for each of these goals? And more importantly, do you follow that plan which you have created? In addition to your plan for each goal, you should have a life insurance cover, which will be helpful to your dependents in case of an unfortunate event.
To achieve these goals, you should start investing in investment products which can generate good and reasonable returns over the long term.
Financial Resolution: CREATE A CORPUS FOR EACH FINANCIAL GOAL.
Maintenance Stage (Retired):
After retirement, most of us invest in fixed income instruments, like bank fixed deposit, for safety. However, we end up earning low returns on such products and still pay taxes on what we earn from them.
In order to ensure that a retirement corpus stays robust, one should consider a combination of fixed income instruments, such as Debt mutual funds which offer high returns along with tax efficiency.
Financial Resolution: PROTECT CAPITAL AND BEAT INFLATION.
After you invest, just follow Kevin O’Leary’s rule of thumb, “NEVER SPEND THE PRINCIPAL, ONLY THE INTEREST”.