Disciplined financial planning serves as the prerequisite of leading a financially secured retirement life. However, this hardly gets followed in most of the cases. Although retirement planning sounds a bit scary and confusing to most people, this anxiety can be entirely removed by avoiding the most common retirement planning mistakes committed by people. Today we are going to take a look at the biggest retirement planning blunders so that you can be well-braced while deciding on your retirement plan.
- Starting Late
Instances are not rare when people start planning for their retirement after reaching their 40s. However, at such a stage they also have other things to take care of like children, elderly parents, paying for a home loan and even maintaining a certain standard of living. Staring early in the track of retirement planning can provide you with more time to ensure the proper growth of your investments which in turn leads to greater corpus accumulation.
A 35-year-old planning to accumulate a retirement corpus of 1.5 crore INR needs to opt for a monthly SIP of 8000 INR at 12% annual returns. Whereas a 25-year-old would just need to invest 2300 INR in monthly SIP for attaining the same corpus. Thus, you can very well understand that starting early is not just a choice, it’s an absolute must.
- Inadequate Health Coverage
Growing age is synonymous with increasing medical expenses making it vital to opt for an adequate health cover which can cater to the sudden requirements you might face during the golden years of your life. Failure in procuring an optimum health cover meant for your post retirement phase can cause you to lose a major chunk of the retirement corpus in treating unforeseen medical expenses.
In many cases, employers provide group health policies but they remain active only till the time of employment. This is why it becomes imperative to opt for an adequate health insurance plan early and keep on renewing the same with timely payment of premium. Insurance companies usually extend their coverage up to 65-70 years in many cases and advise thorough medical check-ups once you cross over the age barrier of 55. It becomes imperative to opt for health coverage prior to the same and keep on increasing it on a yearly basis for catering to all medical costs.
- Overlooking Inflation Metrics
We often make the mistake of calculating our retirement corpus based on our current income and price level. Our income keeps on increasing till the date of retirement to keep in sync with the growing cost of living. However, the amount retirement corpus remains fixed based on certain decisions we take during the early stages of our life.
Inflation has a tendency of decreasing the purchasing power of money over time and hence it is necessary to consider the same while getting the retirement planning done. You can consider the expected and current inflation rate at the time of calculating your retirement corpus. Various online retirement calculators are available to assist you with the same on a monthly basis so that your accumulated corpus can easily sustain the wrath of inflation.
- Buying More Policies Than Actual Requirement
Several people end up buying around 14 to 15 insurance policies to safeguard them during retirement. But in reality, being a policy collector will not make things easier in your golden age. As an alternative, you need to learn in detail about the concept of life insurance and get a term life cover. This cover can be enough for taking care of the financial expenses of your dependants unless someone else in the family starts earning.
- Sporadic Reviewing Of Retirement Plan
A retirement plan might not be of much help if it is not reviewed and implemented properly. It is definitely not a one time activity given the long time span of the goal. In reality, changing times require changes in the plan and hence sticking to one single plan can result in faltered output. All major life events be it marriage, childbirth, taking a home loan or sending children abroad for education significantly affects your savings pattern making it mandatory to alter the investment strategy.
- Inappropriate Asset Distribution
Asset allocation has an extremely important role in deciding on the type of investment which can serve you in post-retirement stage. Asset distribution usually concerns the allocation of funds amongst different investment tools like bonds, stocks, real estate etc. Your individual needs and financial standing can significantly affect your asset allocation. Various factors like changing lifestyle, decreasing income and risk taking ability also alter significantly with increasing age.
Younger people having high risk bearing capability are usually advised to opt for equity investments as they can provide higher returns and are perfect for the long-term horizon. Your asset allocation needs to be periodically revisited for ensuring that it is appropriately aligned with your end goals. Acting otherwise might leave you with insufficient corpus which might not be able to beat the rising inflation metrics.
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The spread of financial literacy amongst Indian people have made them conscious about the requirement of retirement planning from an early age. Maybe this is why it is not rare to come across job fresher’s belonging to the 20 something age category seeking the assistance of financial experts in planning the golden days of their life.
With more and more youngsters opting to work under the private sector, a proper retirement planning is slowly turning into the need of the hour. Job insecurity and lack of government pension can be sighted as the biggest causes of the same. But if you are aware of the mistakes lined out above, then you can definitely attain your retirement goals in due course and with minimal obstacles.Download Minty app App store & Play store and chat with experts and know the best retirement planning strategies.
Seeking out the assistance of financial advisors seems like the easy way out while dealing with financial troubles. However, the real problem starts while gauging whether your advisor is actually taking care of your corpus. You might face several questions while dealing with the same. Are your friends and relatives doing better than you? Has your portfolio showcased much growth? These are some common questions which might trouble you while thinking about the viability of experts handling your finances.
Financial markets do not perform equally well every year and the current year is one such year which reported record losses for most investors. However, if you are facing difficulty in accepting the loss experienced, then your advisor might not have correctly gauged your risk bearing capability. This is why you ended up taking more risk than what you could normally accept.
The blunders committed by financial experts become less prominent in those years when the financial market showcases a booming pattern. Investors also do not scrutinize the performance of advisors as long as they keep on making money every year. Today we are going to talk about some common pointers which you need to consider for determining the efficacy of investment advice imparted by your advisor.
- Risk Bearing Capacity
Investors usually get to gauge their risk bearing capacity only when the markets crash. Such downfalls cause most of the investors to report loss figures. But the ones who are left stunned by the rhetoric decline in their portfolio are the ones who had been taking more risk than what they ideally should.
It is the duty of your financial advisor to assess your risk bearing capability on a yearly basis. This needs to form an extremely crucial part of the annual review of your portfolio carried out by your financial advisor. Such a review can either take the shape of a short quiz or discussions conducted regarding the changes in financial standing during a particular financial fiscal.
Childbirth, marriage, death, divorce, job loss and higher education of children are some such factors which deeply impact the risk bearing ability of an investor. Although as an investor, it is your duty to educate your financial advisor about such developments, the reverse also holds true.
Various mutual fund companies have started operating as investment advisors and in most cases, they refer to their own products while designing a client portfolio. Such forms of conflicted advice might be detrimental for clients in the long run. You should thus ensure that you are working with an advisor whose core business is just investment advisory services and not asset management, banking, accounting or insurance.
- Acting As A Fiduciary
Your financial advisor should actually act as a fiduciary thus taking all decisions on your behalf and for your betterment. But in most cases, investors do not have a clear understanding about the concept of fiduciary. Such advisors are under obligation of law to pay greater importance to your interests. Advisors working as representatives of banks, brokerage firms and insurance companies do not act as fiduciaries while advising their clients. This is why they provide advice which might even prove to be detrimental for their clients.
Non-fiduciary advisors on the other hand might recommend proprietary investment products which may not always be in the best interest of end customers. Thus, it becomes very difficult to analyse whether or not your financial advisor is acting as a fiduciary. In such a scenario, you can easily confirm the same by mailing a written request to your advisor. You should accept just written responses as vocal explanations to such complex topics are regarded as null and void. Your financial advisor is also under obligation to specifically spell out his or her fiduciary responsibilities in the contract signed at the very beginning of the investment tenure.
- All Inclusive Advice
Your financial advisor should consider all the other investments held by you as well as your spouse before recommending any particular addition to and deletion from your portfolio. The main intent behind this is avoiding over or under allocation of a particular asset class in your portfolio. Having a balanced mix helps an investor in making the most of his accumulated funds by effectively buffering from all associated risks. If you decide to have separate advisors for dealing with your and your spouse’s finances, then it is necessary to have effective communication amongst them.
- Clear Illustration Of The Process
It becomes easy for investors if a prudent, thorough and easily understandable process is demonstrated by the investment advisor before surfacing the various forms of investment options. The reports sent to them should contain a clear picture of the performance analysis and risk involved in the same. This needs to be prepared in an easily understandable manner which can be gauged easily by end customers and in the way in which it was intended by the financial advisor in the first place.
You can enquire your financial consultant about the viability of recommendations made by them and whether or not they are receiving any additional commission for referring the same. The purchase and sale of investment made by you should not be processed under any form of urgency and you can take as much time as required for evaluating the recommendations.
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At the end of the day, a certain level of trust needs to develop on your advisor. In spite of that, you should also exercise prudence in every single step to determine the efficacy of the funds suggested by these advisors for betterment of your financial standing. Getting the backing of a financial advisor who possesses adequate degrees in the fields of economics, finance and investment can also be of great help in such a scenario.
Financial planning paves the way to achieve financial independence and plan a smooth retired life while one is still earning. Early planning provides a long horizon to multiply the investment. People of different age groups have different priorities, hence, each of them needs to plan accordingly to achieve their financial goal. Financial planning can have varied horizons and purposes for varied individuals; say, X is planning for his retirement by 40 while he is still 26 and Y is planning his child’s MBA program abroad after 16 years. Financial planning is a very thrifty affair. Proper financial decisions can result in amass disposable income.
Everybody has a desire to earn high, spend high and live a lavish life, but only a few can actually make that happen. Seriously, living a lavish and elegant life is not just a matter of destiny, but a result of proper financial planning and effort made to make it possible. Financial planning is very much necessary for an individual in a similar fashion as much it is for any business. It is simply about analysing where one is currently standing and then determining how he would like his future financial condition to look like. It is simply because of unending financial obligations and unpredictable journey of life, financial planning is required to be set in priority.
Why must Financial planning be taken as a need not a choice?
Financial planning is crucially required as there are limited sources of funds that need to be diligently allocated towards necessities and luxuries, also setting aside savings and paying off the debts from the same source. Since sources are finite, thus, financial independence can be achieved through routing the idle or accumulated funds into a proper channel which can help it multiply. It is always better to start early so that the benefit of compounding can be availed which acts as a driver in enhancing the investments with multiplying the effect.
One needs to be fully disciplined towards the financial planning mechanism. Developing a habit of regular savings and investment through proper planning is very essential for building a strong financial foundation.
Financial planning must be done with the view of achieving social security and financial independence even after retirement. Since nobody is aware or has the least hint of what is going to happen in the future, hence, financial planning can prove to be a favorable tool for tackling such unpredictable and dynamic phases of life. Proper planning can help one make provision for contingencies and build a sturdy financial status for oneself and family.
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How to start planning?
While planning for a delightful financial future, it is advisable to take help of a professional financial planner who has handsome experience and expertise in providing such services. Proper consultancy can lead to an effective plan. Financial planning can be done by making an investment in mutual funds, fixed deposits, endowment policies, equity and debt securities etc. Foremost thing in financial planning is setting the financial goal in accordance with the purpose and investment horizon; then comes the most critical part which is the risk profile of an investment; then choosing the investment avenues which can serve the purpose of such a plan. It is always safe to develop a diversified investment portfolio which can provide balanced risk and return. The financial objectives and investments need to be perfectly synchronised to avoid any financial distress.
Save yourself from manipulators- Do a reliability check
Financial planning, nowadays, is becoming popular among the younger generation who have just started earning with the vision of gaining independence and a bright financial future. The crowd of daydreamers has also resulted in an evolution of self-proclaimed financial planners who seek the most prominent opportunity to quench their unethical thirst. An investor shall use his discretion while hiring his financial planner who can keep his investments safe and secured. He should not fall easy prey to the mean-minded vultures that set up a pompous financial consultancy business to attract innocent investors. Most of them just turn out to be salesmen or agents who have the least knowledge about what they are selling and aim to earn part-time income. An investor should try to discriminate between a real and a fake financial planner by comparing the way each of them interacts with him; their counselling attributes; manner of gathering data; clarity in concept about financial planning; how prominently they are able to present the technical comparison between various financial plans, etc. Efficient and effective counselling can be done by market research and understanding the financial goals and requirements of a particular investor.
In a growing and rapidly evolving economy like India; financial planning by its citizens can be an aid to economic development. At least it is better that the economy receive funds internally than borrowing funds from foreign investors. Financial planning by people from all walks of life should be encouraged so that even the person who has the minimum can also feel the vibes of financial independence and security. A persisting myth among the masses today is that financial planning is only for those people with higher income or who have wealth in abundance. People from generations have been a victim of this misconception and grow older with the same mindset. Financial planning has nothing to do with the rich or the poor, one who has a surplus or one who has minimal; it’s all about managing what you have. Financial planning provides an opportunity to take control of your financial life, make diligent decisions and achieve desired financial goals.
Money management for kids? Really? Yeah, they are growing up in a very high paced and global environment, where they would need to manage their every penny. This is not an easy task as you know it, so why not start early? Good habits die hard and this money management habit will really help them a lot in future. So let’s start!
Pocket money or monthly allowances can effectively be used as a method to make kids understand about money management. It will help kids learn about financial planning as below:
- Constraint on resource availability
Limited allowance or pocket money has to be effectively planned and applied for their various needs.
- Prioritizing the needs
The children understand and try to prioritize their money needs because there is a restriction on the allowance. For e.g. the kid will need to place either chocolate or ice cream first. And even toys may line up later.
- Expose them to decision making
When they are faced with any dilemma as to what to put as a priority, you can just encourage them to make a choice.
- Surplus or deficit management
When the children overspend the pocket money, then they may come to you for additional funds. At such times, you may inculcate budgeting habits which may stop them from spending on unnecessary things.
- Saving habit
Teach them how one rupee saved a day makes up Rs.30 at the end of the month. Seeing how much extra they would buy with such saved money may encourage saving habits.
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Piggy bank or bank account
If your child is below 10 years of age, you can always bring in a piggy bank for saving the money. This will encourage the kids to save more rather than spend impulsively on unnecessary items.
If your child is above 10 years of age, it is better if you introduce them to the banking system by opening a bank account in their name. For e.g. SBI has a specialized category of saving account for children above 10 years, which has no restriction with respect to minimum balance maintenance. Such accounts may be easily handled by the kids, which will introduce them to banking operations as well as inculcate saving habits (you can show the interest rate given by the bank to them so that additional income in the nature of interest will attract them to save more in the bank account).
Don’t feel guilty for saying no
There are some times when you need to refuse the demands or tantrums of your kids. There is no reason feeling guilty about it. Refusing expensive and recurrent unnecessary things like toys, clothes etc. will not make you a bad parent, but just the opposite. Your children will thank you for this when they grow up.
Teach them the importance of budgeting
While you are at it, teach them how to carry out budgeting by prioritizing the expenditure and recognizing necessary expenditure. Also, encourage them to earmark a particular amount of money for forthcoming bigger expenditure. This will also help root the saving habit in your children. Once they get used to budgeting, they will themselves find the ways to save more.
Shopping lets your decision making skills and bargaining power out. So next time, you make a trip to the local market or a shopping mall, please take your kids with you. They will understand the importance of price comparison and paying for its worth. Let them understand that expensive items are not necessarily better than others.
Also, they will be able to make their decision and make a choice when in the dilemma of facing a variety of alternatives. This will expose them to recognize, compare and select the best suited alternatives.
Be a role model yourself
Children are the best observers and they imitate their parents most of the time. This is both beneficial and disadvantageous in the sense that they will observe your behaviour and thinking pattern in financial matters and will replicate the same for them. So be careful while dealing with financial decision making matters when your kids are around. For e.g. If you make an impulsive shopping at a mall with your kids paying close attention to you, next time they are sure to demand expensive or unnecessary items from you.
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Financial matters just don’t concern your financial health but also social contribution. Your kids need to understand a valuable lesson of humanity, for which they should donate or make charity. This is an important lesson in life, where your kids will also learn the importance of sharing and human values. So encourage them to make charity or donate for the underprivileged.
Financial planning is a continuous process of learning and implementation. If you start with your kids at an early age, your kids will definitely grow up to be a financially responsible person. This will not only help them to deal with financial decision making but also tackle financial crisis at any age.
Coronavirus outbreak has impacted the entire world in more than one way. Every human being has felt the effects of covid-19, be it socially, financially or on health. COVID-19 cases crossed 19 lakhs globally and around 1.25 lakhs turned fatal. In India, the number of cases is in control but still has in 3 weeks crossed 11,000 mark from just 550. The growth in covid-19 cases is increasing exponentially.
With the extension of the lockdown in India till 3rd May 2020, the lives of many have come to a stand still. It is now up to us how we make better use of this time and keep ourselves mentally stable. The impact will be long term and therefore in this post we will understand the impact of this pandemic on one of the long term goals i.e. Retirement.
Retirement planning is very crucial for every individual. The moment you start earning, you should start planning for your retirement. With people living longer, they need to plan well if they want to continue with the lifestyle they have before retirement. Let’s see how this pandemic impacts your retirement planning and what you should be doing.
Are you already retired?
If yes, then either your retirement plan would have already been made or you are making adhoc withdrawals from your investments. For ones’ who are retired, they must have some withdrawal strategy in place. Either, you are getting a pension from your employer, getting pension from annuity plans or an SWP strategy from your mutual funds. SWP is systematic withdrawal plan from mutual funds, where in a fixed amount can be withdrawn from your mutual fund investments and credited to your bank account. If you are using this strategy which is a good strategy to follow as it is tax friendly and provides good returns, it is time to review from which funds you should be withdrawing for coming 9 to 12 months. It is highly recommended that you consult a financial advisor for the same who will guide you basis your portfolio and your risk appetite.
Also, make sure that you write a will so that your assets are protected. Issue power of attorney to a confidante who can manage things on your behalf if you fall ill.
Are you planning to retire in next 12 years?
People falling under this category are still in the accumulation stage for their retirement. This means they are investing regularly to create a retirement corpus in next 12 years. Important thing to note here is that no need to panic because of the current market volatility. You may see your retirement corpus falling in value but do not redeem your investments in share market. As we have seen in past, after every virus outbreak, the markets have regained within a year. So this is the time to show patience. And remember you have been investing for a long term goal so redeeming looking at short term volatility is not advisable. If we talk about debt investment options, interest rates have fallen. Let’s have a quick look at it.
As you see lower interest rates, do not invest too much into these instruments as this will not help you to grow your wealth.
Another important point to note is that individuals should get rid of all loans before retirement so that it does not eat into the corpus. We understand that it might have become difficult for many to continue paying the EMIs amid COVID 19 because of pay cut or job loss or business losses. But it is strongly recommended that you give this the first priority to continue your EMIs. Try reducing unwanted expenses at this crucial time to keep float with your EMI payments.
Is your retirement more than 12 years away from now?
You have enough time in hand and in fact you should be looking at current market as an opportunity to invest more to create your retirement corpus. Always remember, early you start, better it is. As you need to invest small amounts which doesn’t hurt your pocket much owing to your other commitments. All in all, retirement planning is a long process. When you are young, your risk-taking capacity is high, which allows you to earn a higher rate of return. This is the time when you can start building a corpus for life after retirement. So for people in this stage, it is suggested that you invest more looking at the very sharp correction in the market.
I would also like to say whatever stage you are at, it is imperative to keep a contingency fund in place. Every retirement plan is incomplete without making provisions for contingencies. So make sure you have at-least an amount equal to 8-10 months of your expenses as an Emergency fund. You can park this money in Liquid Mutual Funds.
I hope that all your queries related to your retirement planning is answered here. I would further suggest you to get in touch with a financial advisor to get your retirement plan back on track in this current pandemic situation.
I still remember my childhood days, when my mother would give me pocket money only if I did the house chores. She would tell me that half of it, I could spend, while the other half, was put in to my piggy bank or should I say ‘KHAZANA’. Well of course, now we have banks for that. Yes, those were the good old days.
I think everyone knows how important it is to save and invest, given the current situations, where anything is possible. Though some people still think that, just because they save, they are investing, so the real question that needs to be asked is, ‘Are savings and Investment, the same thing?’
Savings and investment are 2 completely different meanings. Most of the times, people spend first and then save, so whatever remains from their income, they save it by keeping it in their bank accounts. Savings have to be the other way round. Look at the below 2 options:
- Income earned – your expenses = Savings
- Income earned – your savings = expenses
People always prefer the first option, sometimes no money is also left, after spending. Today everyone wants to live a lavish lifestyle and keep up with the current status, be it gadgets, clothes, accessories, etc. The logic behind the second option is, you get your income, you save it and then you can do whatever you want with the remaining money. So this way you are saving and not throwing away all of it.
Income earned –> savings made –> savings invested will give you wealth creation.
It is one thing to start saving, but what do you do with the money you save? That’s where investments come in. You can expect a 3.5% to 6% returns on your savings account, but do you think that’s enough?
Of course not!
Especially when you have goals that need to be achieved over a long period of time. When you have so many other options out there, why would you settle for such a low return. You have to invest your savings if you want your money to grow over a period of time. People have goals, it could be short or long term, they also have risk appetites which could be aggressive, conservative or even balanced, so depending on that, they have various investment options available to them, also keep in mind that savings is a type of investment. It is used to fund goals that come in the near future, we will look at some circumstances later.
So all your savings are not just meant to be kept in your account, if invested correctly, they can reduce the burden, of you worrying about reaching your future goals in time. And it also will help you create wealth. People have this very wrong idea, that financial planners can help them reach all their goals, which is not true, financial planners, help you create wealth, with the resources you have. Sometimes the resources that you have, may not be enough to fund your goals, that’s why you need to invest it, to create those funds.
Let us get a better understanding of this difference, by the help of some examples. We shall now take the examples where savings are concerned. The below points will help you understand, ‘WHEN’ it is important to save:
Buy a laptop or a phone or any gadget:
You do not need to save for 5 or 10 years, just to buy a laptop or a phone. You will obviously buy one if it falls in your budget. You may keep a certain amount of money aside every month, so you can collect enough funds within the next few months to buy that laptop or phone. That certain some of money that you’ve kept aside is known as ‘SAVINGS’.
This fund is a very important one. I would suggest that, all of you keep or maintain an emergency fund. This fund is maintained so that, people do not have to run about, asking for money or borrow or take a loan. You should ‘SAVE’ a certain amount every month (apart from your investments) and put it into your savings account, because in future, if any emergency occurs, like you met with an accident, or loose your job, or any such similar incident that could occur, you are going to need funds to help you cope with that loss. Now the main question is, why does an emergency fund need to be in a bank? This is because, when an emergency occurs, you need the money on the spot and it should be easily accessible. The emergency fund should contain at least 6 months of your monthly expenses. So a savings account is the right place for your emergency funds, as you can withdraw the money at any point of time.
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Your best friend’s birthday is coming up, what are you going to buy her?
Don’t have enough money?
Well you should have started saving up in advance to buy her/him a nice gift. This is just an example, but it is also a reality. That is why saving is equally important as investing. You never know when you might need it. It is not necessary to save for a purpose, except, in the case of an emergency fund, but having goals to save for, the better it is for you.
So now this is how you should handle your income:
Income earned – Savings – investments = Expenses
Now let us take examples of why people invest. Some people invest just to inculcate the habit of saving and some invest to reach a specific goal or invest for a specific purpose:
Buying A House
It is not easy to buy a house with one’s savings. Unless you are a millionaire or ‘Crorepati’ or a very rich man or woman, you cannot buy a house without taking a loan. Even while taking a loan, there is a down payment that you need to make. Where or how are you going to accumulate that amount. So if you are still young and want a house of your own, then start investing now, it will help build up a corpus to achieve that goal.
Let’s face the fact, education is not getting any cheaper, and I think all the parent’s of India will agree to that. They are your children after all and you will want what’s best for them, i.e. to give them the best education, but can you afford it? Of course you can! But you have to start investing now. Always remember the earlier you start, the bigger corpus you grow. So you can afford to take risks, as your goal is a long term goal, but you need to change your asset allocation, when your goals is near, i.e. shift your money more into debt, so as to keep your funds safe.
Here is another long term goal, that people don’t think about. You may feel that for reaching the retirement age, there’s a long way to go. But what about the retirement expenses?
Do you still think you have a long way to go before you start investing for your retirement corpus? Just think about this scenario, 10 years back what were your household expenses and compare it with your current household expenses. Do you see the difference? And that’s exactly why you should start investing for your retirement now.
As mentioned before, the earlier you start, the bigger your corpus will be. One has to also keep in mind, the inflation and you will not be earning any income, during your retirement period. Also ask yourself, what if you live longer? How are you going to fund those years of your life?
A lot to think about right?
That’s why the earlier you start to think about funds for your retirement, the better for you.
So, these are the differences in reasons, as to why you should ‘SAVE‘ as well as ‘INVEST‘. And for those of you, who are still searching for reasons to start saving or investing, I think you’ve got quite a few of them, that will boost you, to go ahead.
One important point to keep in mind that, for long term investments, you can invest in risky instruments, like equity funds, but remember that when you are nearing to your goal, the funds should be shifted from risky to safer investment instruments, like debt funds. For example, you want to achieve a goal in 10 years, So for the first 5 years, you can start with 80:20 in equity and debt, then shift to 60:40, then after 3 years, shift to 30:70 and in the 9th year, you can shift to 10:90. This way you are minimizing your risk, when you reach closer to your goal. So that’s how you need to plan for your investments.
For all you parents out there, instead of giving your children that hefty pocket money, save it and invest it for them or at least inculcate the saving habit in them. They may feel the pinch now or maybe too small to understand it, but will realize it and thank you later. This will also get the burden of their future off your shoulder and will also help you reach your goals in time. So save and make the savings work for you through investments. As you can see, savings and investments both are important, but knowing the difference is what matters more. So use your income wisely!