Photo: iStock
Photo: iStock

Opinion | Things you can do to stay true to your money plan

Automating investments is a good way to guarantee that you continue them

It is not easy to understand personal finances. It is even more difficult to stay true to your financial plan. Take the case of Amit. He worked with a financial planner a couple of years back, and started investing based on his financial plan. He met us at a session and was upset at his planner. On probing further, we got to know that along the way, he had lost track of the plan and had not invested as per the suggestions. I often find that investors are excited to create a financial plan but don’t follow it through.

Why investors don’t follow a plan

Being overwhelmed by numbers: A financial plan gives you the amounts to be invested for your goals. However, in a majority of cases, there is a difference between the amount needed and the amount available for investment. Also, in many cases, the investments suggested are not the ones that were done earlier. For example, investors may not have bought debt funds or have had sizeable investments in equity funds and find it difficult to reconcile to the fact that traditional investments won’t work for them.

Inertia: In our ultra busy lives, money management is low on the priority list. Add to that our bias to choose known products and the unwillingness to change and one ends up not investing.

Near-term expenses: This is also a reason to digress. A lot of individuals budget for vacation but not for things like a new high-end phone or sudden expenses. Even when people account for vacation expenses, they do not stick to the budget. Also, events like a family function become more important than continuing to invest. In fact, individuals tend to withdraw from their investments for the above expenses.

Faulty tax-saving: For decades, investment choices have been driven by tax deduction benefits. To choose products which do not come with tax benefits, like mutual funds, becomes difficult. I routinely observe that people take loans to save some tax without realizing they are paying interest to save tax.

Thinking only of the short term: A little impatience spoils great plans. Most people find it tough to stay invested for the long term, especially when markets are volatile. Thinking only for the short term does not allow investors to remain invested as per their financial plan.

What can help you be on track

The key is to be able to go through the middle overs without succumbing to the temptation of short-term needs. Life is made up of a series of tests, trials and opportunities. Some are momentary but most take endurance. It is the same while investing. You need to be committed to your purpose of being financially independent so that you can live a comfortable life on your terms.

Automating investments is a good way to guarantee that you continue them. Making financial independence a part of your bucket list could help keep you from excessive spending like buying the latest phone or new clothes for every wedding you attend.

Review portfolios yearly to assess the performance of investments and to check how much closer you are getting to your financial goals. Do not get influenced by short-term predictions or comparisons with indices alone. Of course, diversifying portfolios across asset classes is another way to make sure that your entire portfolio is not underperforming.

Irrespective of the tax structures or benefits available, it is the persistency that you show during boring middle periods, which will take you through a successful financial journey.

Mrin Agarwal is a financial educator, founder director of Finsafe India Pvt. Ltd and co-founder of Womantra

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