Let me start with a short story about investments. This story will help you understand why one is not able to save enough money by the end of the month.
In the story of almost every investor, there is one common mistake, which investors underestimate and don’t know how to handle.
A Story of two me and my friend
Friend - For how long have you been eating chips?
Me- Since my college days.
Friend - How many packets of chips do you consume in a day?
Me - 2
Friend - And what is the price of each pack?
Me - Per pack Rs.70.
Friend - And you buy this daily?
Me - Yes
Friend - So one pack is 70 and daily you buy 2 packets, which means monthly you spend Rs. 4,200 on chips packets?
Me - Yes
Friends - if you invest your money monthly for 15 years in sip, after 15 years, even with a conservative estimate you could have more than Rs. 20 lakhs in your hand. And with that amount, you can buy anything that you want.
Me- do you eat chips?
Friend- yes but sometimes.
Me - So this would mean that you are able to save regularly for a big amount in the future?
But the truth is that both friends couldn’t save regularly
The story is not about buying chips daily or not. The main point is that both friends don’t save money. And saving depends on disciplined investment. Investment is not fiction, it is for real. Savings and investments should be an integral part of our lives. How much money and how we save is essential as the money forms an integral part of our life.
Who is the biggest enemy of your financial life?
- Undisciplined and Unplanned Approach
This is a matter of psychology and behavior in how you treat your finances. Lack of planning, discipline, and commitment to your money will cost you big. If you do not treat it well today, it will not treat you well tomorrow. If you wish to keep your money for the long-term and want to sustain the corpus that you make and grow while you are still earning, consider following a disciplined approach towards your money. Have a budget and follow it honestly.
In other words, you have a bad day-to-day routine in your life, ones that add up to a whole lot of unnecessary expenses. The bad routines may not stall your financial progress by themselves, but they tend to slow down the progress. This makes it easier for the other enemies to take you down.
These bad habits and bad routines wear a number of different masks. They could take on different forms such as your utility bills – some are overinflated (like your electricity bill), while others are quite unnecessary or avoidable (like your daily packet of chips). It could also be something extravagant like skipping over the branded stores that you’ve always wanted to try even though you know you cannot afford it.
Lack of Knowledge
One obstacle that stands in the way of financial success is a simple lack of knowledge. One may manage to understand that there’s a financial problem, but are unsure of the fix. Not only that, most individual investors do not have the knowhow to avoid something similar in the future.
Generally, financial solutions are fairly simple. However, if one hasn’t ever been exposed to a similar problem, solving it can feel like a tremendous hurdle. This is where education plays a critical role – it helps by taking an unsolved complicated problem and breaking it down into something simple which is easy not only to understand, but also to handle and put into action.
- Investment mistakes
The next hard thing is a bad investment plan. Incorrectly managed high-performing assets cause a lot of damage compared to low performers. It is very important that you take care of the nuances and timing of the market properly when allocating your money. Also, never make an investment decision based on your feelings. You should aim to create the right balance when selecting and allocating assets.
- No Auto Investing
When it comes to investing, a disciplined approach is one of the best ways of doing this. One must do away with the habit of investing manually. The reason for this is fairly simple - “ Out of sight, out of mind”. When your money has been automatically invested, the chances that you will spend on unnecessary things also reduces. The second reason why auto-investing works better than the manual model is that the complacency doesn’t tend to set in.
Auto Invest - SIP
A SIP or a Systematic Investment Plan is a way of investing, whereby the investor can invest a fixed amount regularly at predefined periods in a mutual fund scheme. This has 2 specific benefits. To start with, it brings financial discipline into the investor’s life. Secondly, it helps one to invest regularly without worrying about the market dynamics on a day-to-day basis, such as the index level or company performance. For example, if you are supposed to put a fixed amount every month in a mutual fund scheme, you need to find time to do it. When you have the time, you might be worried about market conditions and think of postponing your investments. Or you might be thinking of investing more if the mood is optimistic. SIP puts an end to all these predicaments. The money is automatically invested regularly in a scheme without any effort on your part.
Money Flows like Water
I’m sure you’ve wondered many times, why you have not been able to save enough. This, even though your salary has been increasing year after year. The primary reason for this is the lack of discipline in controlling expenses and making savings. It is essential to budget one’s expenses and to invest in a disciplined manner. As they say, just like water, money also finds a way to flow. If you have excess disposable money, you would find a way to spend it too.