Are your saving to your lifestyle?
One factor that is often ignored while charting out financial goals is a consistent improvement in lifestyle. As human beings, we are inherently averse to accepting change. This is more so the case when it is a scale down, instead of a scale up. For e.g. the kind of house that you may want to live in when you are 45 will be very different from when you are 25. Moreover, there will always be additional lifestyle expenses that come with age than you may think of as necessary now.
If there’s one activity that we all tend to postpone and defer, it’s retirement planning. Most of us tend to underestimate the perils of poor retirement planning or the lack of a meaningful corpus at the time of retirement. The key step in financial planning is estimating post-retirement expenses. One mistake that most people make in projecting cash-flow requirements post retirement is visualising a downsizing in lifestyle and consumption needs in post-retirement life. Consequently, they project lower ‘real cash’ flow needs. This is the biggest mistake most people tend to make. To arrive at a realistic retirement corpus, factor in lifestyle expenses, inflation, medical expenses and an emergency fund. Based on the above, back calculate and arrive at a number. Once you’ve done this, you can start investing towards achieving this goal.
Don’t time the market. Time in the market is important.
₹1 lakh invested in the Sensex since inception (April 1979) and stayed invested for all days until September 30, 2019, is worth ₹3.1 crore.
Making an investment for the long term can be rewarding since the impact of near-term volatility fades over time. Investing over a longer period helps promote savings and enables you to achieve your financial goals - be it buying a Car/House, spending on your Child’s Education, Marriage and Retirement, apart from Creating Wealth to meet your growing needs. Besides, by staying invested over a long period of time you can also benefit from sudden market rallies or certain “Best Days” in a year. The above is an illustration of how staying invested over a longer period of time would have helped build wealth for you through the power of compounding.