People are often ignorant about personal finance, and despite strong planning, they tend to overlook some simple things that ultimately lead to lot of trouble in the longer run. So, here are 4 aspects that must never be snubbed in your personal finance plans, if you want to ensure a brighter tomorrow!
1. Planning a Very Low Retirement Corpus
What seems to be a handsome salary today may not even suffice to take care of your daily expenses 10-15 years down the line. Hence, when the discussion boils down to retirement planning, one must plan to save a big sum of money as the corpus, which would be good enough to take care of all the personal expenses after 25-30 years from now.
While doing the math, it’s always advisable to calculate inflation at a much higher rate, because nobody knows what future really holds for you! If you end up planning retirement corpus that doesn’t suffice to your needs after retirement, then you won’t have peace of mind even after slogging all throughout your life!
2. Investing Too Much in Equities in Later Years of Career
Sure thing, equities can fetch great returns and debt funds and fixed bank deposits can never match the, but when you advance into your later stages of career; it’s not the time to take bigger risks.
Investing into equities and stocks aggressively can be a great strategy during the 20s, and mid-30s, but when you advance into 40s, you need to convert your investment portfolio mainly into debt funds and safer options like fixed bank deposits.
When you enter the 50s, it’s time to use only safe investment options, and rule out all the investments into stocks and equity markets, because it’s not a gamble worth taking at that point of time.
One market upset can totally ruin all your financial planning and land into serious trouble at a time when you won’t have too many years in your career left out, to earn back the money that you lose with a stock market crisis, or poor performance of equity funds.
3. Playing it Too Safe All Your Life
Having said all of that, it’s not a wise idea to play safe all your life, for bank deposits and debt funds will never give you more than 8-9% returns on your investment, and the net profits after taxes would always be in the range of merely 6-7% in most of the cases.
Therefore, a well-sought financial plan needs to be formulated during early days of the career to develop a balanced investment portfolio comprising of 20-30% equities, 30-35% stocks, bonds, and high risk investments, and about one third of debt funds that ensure that at least 30% of your investment is always safe, irrespective of the market conditions.
It may not be that bad idea to even play with 50% equities in the late 20s, but as your approach your 30s, it’s time to plan for retirement, and fine-tune your investment portfolio to bring down the risk factor.
In a Nutshell
Personal finance involves lot of planning and meticulous execution of all those plans, keeping sufficient margin for risk. Remember not to plan only keeping your regular income into consideration; you must always have some reserve funds for emergencies, and bad days, in case you meet with an accident, or lose your job for some reason.
Last but definitely not the least; it’s always a wise idea to pre-close all your loans when you approach your 40s, and be totally debt free by the time you enter your 50s, otherwise you’d end up paying too much interest on home loans, and other mortgages.
James Hargreeves is an experienced finance advisor who has been working in the field of personal finance for over 6 years now. He gives free advisory to amateurs on stock investments, payday loans UK, and helps them in all aspects of personal finance.