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Financial Planning

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Investor Traits Affecting Retirement Planning

Well, the majority of individuals understand the necessity of retirement planning. Still, many of them fail because there are a few common traits that affect retirement planning. They are: 

i. Procrastination

Procrastination means delaying your initiatives/work. It is bad for your retirement because You lose out on time, value of money and power of compounding both. For example, let's look at how the cost of delay works.

Mr. A is 25 and invests ₹5,000 per month. He is investing into equity mutual funds and will likely earn about 15% per annum over the next 25 years, until he turns 50. Mr. B is 35, and invests ₹15,000 per month. He is also investing into equity mutual funds and expects the same rate of return for the remaining 15 years, until he turns 50. 

Mr. A achieves a corpus of ₹1.62 crores. 

Mr. B achieves a corpus of  ₹1 crore. 

The solution is simple. You want to be an investor as early as possible, even if the amount is small. You must save, invest, and save some more and invest some more, and in doing so, you will build up your wealth. 

ii. Overconfidence and Ignorance

Don't underestimate inflation. 

Don't underestimate the benefit of saving taxes. 

Don't overestimate your ability to deal with financial goals 'later'. 

Don't overestimate your health, as you get older, it will get weaker. 

These things might seem unrelated, but they all point towards one quality - your confidence, or overconfidence, as the case may be.

If you start investing, you will know how much you need to retire, and you can start planning for it right away. You will suddenly realize the importance of dealing with goals immediately, saving taxes, and also of being adequately insured. 

iii. Constant Tracking and Monitoring

Once you realize that you need to invest, and you identify the right amounts, the right schemes, the right asset allocation, you will be able to begin your investments.

After this, the one thing you must NOT do, is track your investments every day, or every week, or every fortnight. 

If you track your investments on a daily basis, your emotions will go on the same ride as the markets - up one day and down the next. 

Human beings aren't built to handle this kind of emotional volatility. So invest in the right schemes, for the right amounts, for a particular goal, and monitor once a quarter or once in 6 months. 

If markets are crashing - excellent! Buy more - it's cheaper now! Don't follow the herd - eventually it might run off a cliff. 

iv. Investing Alone Instead of Doing it As a Family

No man is an island. We all have families, and our financial decisions will affect them. 

The best way to go about building a retirement plan is to first sit down with your spouse and figure out exactly what you're spending now - you have to consider household expense inflation, medical expenses inflation, travel expense inflation, and the kind of lifestyle you want to maintain in your retired years.

Will you do more charity work after you retire? Will you travel more? Will you both take up hobbies? 

Together, you both should sit down with your financial planner and work out your retirement plan. 

The habits you built as a child dealing with your money can be modified, tweaked and bettered. You can, right now, stop procrastinating, realize the cost of delay, and start planning for your retirement. 

After all, who doesn't want to retire young and rich? 

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