The New Year is here and with that is the arrival of several New Year resolutions which usually revolve around health and personal growth, maybe it’s time we add healthy financial practices to the list too.

The world is becoming even more geo-politically volatile which has in turn resulted in rising living costs, job uncertainty and the ever increasing need to have a safety net.

Let’s look at some healthy and safety practices you should ideally adhere to from this year onwards.

Plan for your Retirement

Pick out any business related newspaper or website in the month of February or March of each year and the words ‘’Tax Season’’ will be mentioned without fail several times.

This is sadly a testament to a larger issue of poor planning on the part of investors when it comes to their taxes. Planning is not restricted to any season, in fact no matter when you begin you will always be late but the earlier you start, the better.

Another issue this mindset of making tax saving investments at the last moment is that it welcomes a sense of panic that could be avoided. Never underestimate the frailties of human behavior under stress, a student under-prepared would use the calculator to cross check what is 4 plus 3 because that’s just how pressure works.

Under stress and a strict deadline, investors often tend to take the wrong call for the fear of missing out on saving taxes for the current financial year.

With regards to tax saving (ELSS) mutual funds, these wrong decisions could include:

Wrong choice of elss fund
Over Diversification
Making Lump Sum investments
Not attaching tax saving fund to a goal

Click Here to read How to create wealth via equity investing

The solution to get over these manifold issues is to:

Start tax planning on 1^st April of the financial year and not 31^st March.
Move on from tax saving mindset to tax planning mindset.

How to save for a retirement fund?

Start early

The earlier you start investing, the better it is.

There are many advantages to starting early.

The earlier you start, you have a longer time horizon to achieve your goal.

This also means you can begin with a small amount and compounding has a much bigger impact.

The above image does not imply guarantee of returns and should not be considered as advice.

The above table clearly shows that delaying your investment by merely 5 years almost halves your final amount.

This is the cost you pay for delaying your investment.

Remember, you cannot outpace or recover time.

Do not be bogged down by the big numbers initially, start early and stay disciplined.

Have a plan

This seems like such a basic rule to follow but sadly the reality is quite different.

Having a plan would involve various factors from your personal financial situation, flow of income to an emergency fund in place.

Not adhering to one can have a negative effect to a point from which it would be quite exhausting to recover from in every sense and not just financially.

Imagine having to dip into your retirement corpus because you did not plan for an emergency fund beforehand.

Or you were not disciplined enough that you could not resist from making an impulsive purchase that has an adverse effect on your retirement.

All other factors like the choice of mutual fund schemes, their performance, etc. becomes secondary.

Click Here to read why you must increase your SIPs annually

Have adequate insurance

Make sure to have adequate health and term insurance.

Term insurance is all the more important if you have financial dependents.

Most of us are only one health crisis away from having our finances disturbed to the core.

Do not underestimate how hefty hospital bills can accumulate up to.

Do not be merely dependent on your emergency fund to get you out of trouble, that should be kept separate.

Avoid falling in to the trap of ULIPs and other low yielding instruments that on paper claim to provide a mix of both investment and insurance but in reality struggle to provide either of those in sufficient terms.

Always keep your insurance and investments apart, they both serve different purposes and should not be mixed.

Lemon and milk both have their benefits but we never mix them.

Do not Trade with your Investments

The belief that one should be invested in the equity markets as long as possible is a tale as old as time and yet it is very rarely followed.

Let’s look at data to back this claim, according to a study by Axis Mutual Fund 48.70% of equity investors redeem their portfolio within 2 years or less.

So much for long term investments !

A major cause of such behavior is the inability to stay inactive and keep your ears shut from unnecessary noise.

Far too often retail investors are influenced by friends, family, relatives, colleagues, social media, etc.

This is precisely why it’s not surprising to hear investors redeeming at a high assuming the markets are going to crash while simultaneously deciding to stay out when the markets are volatile assuming the markets to go even lower.

We are living in an era of easy dissemination of information, this is often misinterpreted as knowledge.

No one can predict the markets, not even YOU !

The easiest solution to such a problem would be to resort to goal based investing but despite that if you can be easily influenced by non-qualified professionals then there’s not much hope.

For portfolio enquiries, email us with your doubts at info@themutualfundguide.com

Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.

Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing