Let me first pay off all my loans
This is a normal tendency in Indian society where debt is frowned upon. But there are some loans that actually add value. For example, a home loan is available at a low rate of interest and helps you create a long term asset. In addition, it offers tax benefits under Section 24 and Section 80C of the Income Tax Act, which improves the yield on your home. Your statement needs to be appropriately qualified in the sense that you don’t need to repay all loans but you must repay high cost loans. For example, if you are paying 35% on your credit card and 20% on your personal loan, you are never going to create serious wealth in the long run.
You cannot afford to take on higher risk
The general argument is that since you are salaried and come from a middle class background, you cannot take on higher risk. That is a big myth. You need to take on calibrated risk. For example, investing in equity mutual funds is more risky than investing in liquid or debt funds. But the biggest risk is not taking on adequate risk. Over the long run, equity has a better way of managing your risk and ensures wealth creation with minimal risk. If you shun equities thinking they are risky, you lose out on a powerful instrument of wealth creation.
I can time the market, so SIPs are not for me
Even the best of traders cannot and do not consistently get the market cycles right. In fact, studies in India and abroad have proved that even if you miss 2 or 3 important crests and troughs over 20 years, your return would be lesser than a systematic investment plan. The moral of the story is to stick to a disciplined approach and commit funds to a SIP. The rupee cost averaging will automatically work in your favour.
I am just 25, so retirement planning can wait
You will never realize when your children grow up and when you will be close to retirement. But that is not the point. The point is that, the sooner you start out on your financial planning journey, the longer you get to save and invest your money. The longer you invest, the more your principal compounds and the more your returns also compound. For example, an SIP of Rs10,000 per month at 15% CAGR in 10 years can only grow to Rs28 lakhs. Instead, a similar SIP of just Rs4,000 per month for 20 years can grow to Rs61 lakhs. That is how powerful compounding is as time works in your favour. So, start as early as possible.
My expenses are fixed so I have limited savings
Don’t look at savings as a residual. That way, you will never be able to save anything meaningful. Instead target monthly savings and then rework your budget accordingly. When you sit down to review your budget, you will be surprised at the amount of leakages in your budget. But for that you need to start with a plan and target monthly savings. Then squeeze your budget to reach that level of savings.
I will think about an emergency fund when I have surplus money
Ideally, you must prioritize the emergency fund creation. The last thing you want to see is your precious investments dwindling because you need money in an emergency. The thumb rule is to set aside at least 4-6 months of your monthly income as an emergency fund and invest the money in a liquid fund so that you can easily access the money. The sooner you create the emergency fund, the better it is for you.
My financial advisor will take care of my financial goals
Your financial planning expert is a professional who can assist in your journey. Your total buy-in and cooperation is absolutely essential for your financial plan to be successful. Don’t expect your financial advisor to work wonders for you; it does not work that way. The ideation can come from the advisor but the discipline and the execution has to come from you; and you alone.