You are the Biggest Enemy of Your Financial Life

If you leave your money in the bank’s saving account without giving it a strong investment purpose. Then the today’s modern lifestyle is such that no amount of money is enough to meet your short term goals and desires.

Life will throw all kind of requirements at you and if your money is available in front of you, you will keep trying to handle those requirements without much more analysis.

Justifying the expenses becomes very easy when you have the money available in front of you, and you are waiting to spend it . Investors are generally over-confident about their saving abilities. So over period of time with increasing life style unnecessary expenses become liabilities, which leads to diminishing of your saving and investment pattern. That will ultimately result into you facing financial instability in coming future. So in simple term “ You are the biggest enemy of your financial life”

So how to overcome this problem, Here is the rule – “Lesser the money available in front of you, higher the chances that one will restrict their useless spending.”

Take out the manual mode of investing from your life

One needs to take out the manual mode of investing from their life and take the help of automation. There are many ways, where some part of your salary leaves your bank account and gets invested on its own in different investment avenues. Because the more you leave the decision making to yourself, it’s not going to happen on consistent basis. Humans are tend to select those options which are easy to implement without any obstacle and automation removes those obstacles for investment decision making.

Lets understand some automated way to save your money, and it will happen consistently, without fail.

The best example of this is your EPF

Your company deducts a part of your salary as EPF which gets accumulated over the years. That small deduction becomes a very big amount, if you leave it just like that and don’t disturb it. EPF does not earn a very high interest, but still it accumulates a decent amount.

Now just imagine this, Your company tells you that they will not deduct that amount and you have to save money each month. It’s fully in your control now.

You should feel great that you have EPF and some form of automatic saving. If you were given the freedom to choose the EPF, it would be a bad thing. Believe me, if your were given the freedom you would not be able to save every month.

So continuing the EPF example, Will you be able to save money equal to your EPF each month, if no automatically deduction system exist?

Are you really confident that you have the commitment and control over yourself to save that money without fail ? The thing is that , YOU are your own enemy when it comes to saving. Take out your manual decision making power from saving each month. Let it happen on its own i.e. automatic viz SIP, RD, EPF etc.

For most of us, the default equation for saving is “Income – Expenses = Saving” . This equation looks very natural and logical. First you take care of expenses because it needs to be handled NOW, and then if something is left out of income, you will be able to save it. This is how we normal people think. But this is the real root of the problem.

If you are not saving enough each month, it will destroy your financial health.The easy availability of money in your bank account is such a dangerous thing.

So what do you do NOW ?  

Keep it Simple :

Change the equation to Income – Saving = Expenses”

Few changes in your life may give a new direction to the life. Everything gets change, if you simply decide to change your saving equation to “Income – Saving = Expenses”.It can drastically impact your financial life in positive way.

Here is how you implement it.

  1. First you have to find out what is the minimum amount you think can be saved each month. Is it 10%, 20% or 30%. Take a lower amount in the start, else it won’t be sustainable in a long run.
  2. If your salary arrives in your saving bank account on date X, then, setup a SIP in mutual funds on date X+2 or X+3
  3. Trust automation, it will do wonders for you
  4. And in worst case, if you really need the money, you can redeem it back and use it or even can stopyour

If you can take this first step, then you have already won the big part of the battle. Other things like great returns, advice, controlling risk, finding best financial product and all that will be later taken care off. But the first step is this – changing the equation.

According to me in today’s modern era one of the best example of Autonomous Investment is  SIP(Systematic Investment Plan) in mutual fund.

It is said that “You don’t have to start wealthy to become wealthy !” SIP in mutual fund proved this,

Systematic Investment Plan (SIP)

“SIP is a strategy whereby an investor commit to invest a fixed amount at specified intervals. This ensures that he buys more unit when prices are lower and fewer units when prices are rising”

Why SIP???

  • Allows you to invest fixed sum of money at regular interval –light on the wallet
  • SIP makes volatility work in favor – reduces risk
  • Benefit of Rupee Cost Averaging – get more unit at lower NAV, less units at higher NAV
  • Power of compounding comesinto play – the early you start higher are the returns
  • Impart time – tested discipline to investing – key to financial success

Advantages of Mutual Funds SIPs

  • Diversification
  • Return potential
  • Liquidity
  • Transparency
  • Flexibility
  • Choice of schemes
  • Well regulated
  • Tax benefits

Example of SIP if you invest 10000/month then the value of SIP :

Picture1

This is how SIP Work “ It is like a Small Step to Big Return”

                                                                                                                                                                           

 Bhavesh Rana       

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