Mutual Fund Guide: Know How Delaying Financial Decisions Can Cost You
We have grown up listening to the invaluable teaching of our parents. They often taught us to avoid procrastinating any work as there will be no tomorrow to complete today’s pending tasks. We might have more things to do tomorrow, so it’s always better to take back control of your day! Let’s see how this rule impacts our financial life.
On a close look at the financial cycle of your entire life, you will notice that it is based on a pyramid having three levels. One who prepares for these three levels of the financial pyramid can achieve the financial stability efficiently in life. The three levels are:
The first level, at the bottom of the pyramid, is the protection or risk management. It means to get rid of all the current financial hindrances and stay prepared for the uncertain requirements. In the next level, i.e., the second level, its time to wealth accumulation. It means, when you are done with the first step, you can save money and create wealth by investing them in some instruments like mutual funds. The final level of the financial life cycle is to distribute the wealth. Don’t worry! It doesn’t mean to give all your money to someone else, but to distribute your wealth among all your expenses adequately. Let’s understand how a delay in financial planning can cost you dearly:
Protection Against Current Financial Issues:
Everyone spend money to fulfil their day to day requirements and keep their lives going on. There are certain things which are beyond our control, and we must have a plan B for such uncertain future. But, many people don’t even have plan A. Let’s know about both of them so that you can prepare yourself to achieve better financial stability:
Plan A: According to plan A, you ensure that everything goes well and you are able to meet all your current financial needs successfully from your income and short-term investments.
Plan B: It helps you to ensure the flow of Plan A in case of any uncertainty happen in future or any financial emergency. Suppose you are going well with your plan A, without having any protection for future emergencies. Unfortunately, if any incident happens, then you will not be able to tackle the situation until and unless you have plan B, which includes investment in liquid or emergency funds, short term funds, insurance, etc.
Moving on to the next level of the pyramid of the financial life, you need to think about long-term stability now. It is similar to the situation when you learn to ride a bike where initially you cover only a shorter distance. But, as you become a pro, you automatically start planning for longer rides. Similarly, in the first level, you have ensured the short-term financial stability, and now it’s time to think about the long-term stability. Also, it is very important to start planning early for the long-term financial stability else it costs more than you think! Let’s take the example of retirement planning to understand this point more clearly:
Suppose, you are at the age of 30 and have decided to retire at the age of 60. By choosing the way of mutual fund investments, which is the best and one of the most trending investing zones of the mass, you can easily reach your target, thus accumulating a good amount of money. But, one thing matters a lot here that is how early you started! Yes, an early start matters a lot when you dream of creating millions.
For instance, you wish to acquire Rs. 2 crores at the time of your retirement
If you start investing at the age of 30 itself, you will have to invest Rs. 3,551 monthly which will grow at an expected rate of return at 15% till the next 30 years to attain the figure of Rs. 2 crores.
If you do not start your investment at this age and plan to start after ten years, i.e., at the age of 40, then you will have only 20 years to attain the target of accumulating Rs. 2 crores. For that, you will need to invest Rs. 15,071 monthly which will grow at an expected rate of returns at 15% till the next 20 years to attain the approximate figure of Rs. 2 crores.
In the third case, if you delay it even further and start at the age of 50 years, then the burden of investing will become bulkier on you. You need to invest Rs. 76,040 monthly to reach your target in the remaining ten years.
So, what do you want to do, bear the burden of high payments by starting late, or enjoy the easy process by initiating early?
This is the last level of your financial planning. When you are done with the previous levels, you need to think about the distribution part; it means to plan how your total wealth will be used! You must have planned for your retirement, so you need to think that how you will spend the retirement amount. However, planning these are a part of this level, but the most important one is to write the will. Most of the people forget writing their will for their wealth. It is very good that we always think from a long-term perspective, but no one can guarantee a tomorrow. A sudden demise can bring miserable situations in the life of one’s family. So, a smooth and successful planning is very important for all.
In the end note, we will suggest to plan all the financial decisions as early as possible and consult experts if needed. You can also plan your financial stability by investing in the best mutual funds provided here at MySIPonline.
- LTCG Tax Is Not As Negative As it Seems; Here’s Why?40834 min read Jan 01, 1970
- Sensex Plunges Over 1000 Points; Should You Buy or Hold Your Investments for Correction?41663 min read Jan 01, 1970
- Sensex Dives Nearly 840 Points: Things to Consider and Experts’ Take42723 min read Jan 01, 1970