Five Financial Mistakes that can Cost You Big

by Bhuvan Gupta

“Retirement is wonderful if you have two essentials — much to live on and much to live for.” 

The quote is perhaps the most accurate way to describe a satisfied retired life. We work extremely hard throughout our lives to build a substantial amount of wealth that can last us our retirement and we can live comfortably. We also want to be able to provide for our children and leave them with some form of a legacy to remember us by.

There is a lot of planning involved for this situation to become a reality, but there are ways that you can plan smartly and invest so that you can build your wealth a lot faster. If you are wondering how to invest for retirement, you have come to the right place. Read on further to know more about the five most important things to avoid when you are preparing for your retirement.

“Never depend on a single income, make investment to create a second source.”

Warren Buffet

The king of investment is absolutely right in making this statement. You need to be able to build your wealth even while you are not working and that is perhaps the most important point you need to remember. A lot of people go through various processes when they are building their budget and planning their retirement, but they have a singular source of income. This means that once that income source dies out, they will only have their savings and assets to rely on in their retirement. 

Having a singular source of income is perhaps the biggest financial mistake you can make when you are planning your retirement. It limits your chances of building your wealth greatly because you do not have access to more than what your salary is.

This is where investments come in.

You have to be very careful about the type of investments you are making because the rewards you get are based on them. Some investments give you short term returns whereas others will only give you gains if you hold it for the long term. 

How to prepare for retirement by making the right investments and avoiding these mistakes

  • Don’t keep all your eggs in one basket:
    This is an important reminder. You can invest in real estate, bonds, fixed deposits, stocks, gold, bonds, companies… the list goes on. Since there are so many opportunities for investment, you should diversify your portfolio and focus on building one that can give you varied returns. This will help you diversify your risks.

    For example, if you invest only in real estate, and you need to liquidate your assets for a reason, it will become extremely difficult to find a buyer for your property at a short notice. And if the market crashes, like it did in the last year due to the COVID-19 pandemic, you stand to make a loss on your investment. On the other hand, if you had diversified your investments and invested in gold and the stock market as well, it would be a lot easier for you to liquidate your assets and the chances of you making a loss on your investment would be a lot lower. 
  • Don’t make the mistake of not creating an extensive budget:
    Details are key when it comes to planning your retirement. A lot of people end up creating a vague plan of action when it comes to their retirement fund and not putting in enough time to do proper research and planning before they start saving. It creates discrepancies and inaccuracies in your plan for the future and it might result in you not having enough to last you your retirement, or reduce the amount of money you have to leave behind for your children.

    If you are wondering about how to make a budget for your retirement, you need to start by calculating your daily, monthly and annual expenses. Based on that you will get a clear account of how much money you will be spending during your retirement and it will help you build a better plan of action for your future. Another thing to keep in mind when you are making your budget is inflation. Your expenses are only going to grow in time even if you are not spending on anything more than you normally do because of the rising inflation rates so you have to account for it in your budget.
  • Forgetting to build an emergency fund:
    You cannot guarantee what the future will hold. There could be a lot of reasons why you might incur a large unplanned expense, and you do not want to deplete your savings while trying to pay for it. It could be unexpected medical bills or a sudden loss of one of your investment options, or anything really. You have to be prepared for it, and you can do this by planning in advance. Your emergency fund will come in handy if you need it and even if you do not end up using it, it’s an added source of income that you can leave for your children.
  • Redeeming your provident fund:
    After you retire, you will have the option of redeeming your provident fund from all the years you spent employed. It would be a big mistake to redeem this fund even though it might seem like a good idea at the time. You might think that you would get higher interest rates or a bigger payout if you reinvest it, but your provident fund can be a guaranteed source of money that you can use later. You can keep it as a part of your emergency fund as well so you won’t have to break into your savings if you do not have enough saved for an emergency. Once you retire, just forget about the provident fund and let it mature over time. It will come in handy later.
  • Miscalculating your life expectancy:
    You and your partner may not live for a hundred years but you should ideally plan for it when you are building your retirement budget. Ideally, investments should last you for much longer than you stay alive and your investment plan should account for it. You do not want to wake up one day and realize that you do not have enough for your future because after you retire, you won’t even be able to take up a personal loan to meet your needs. You should not rely on your children to support you either because it is an added expense for them and it might put a strain on their finances as well as your relationship with them. When you are making your retirement plan and your investments, you should always plan in a way that will leave you with excess, never less than what you expect.

Final Thoughts

A good financial advisor will guide you through the entire process of building a strong investment plan and portfolio and help you avoid making these mistakes. Always consult with a professional when you are preparing for retirement because there can be many scenarios you may overlook when you are making your plan. Financial advisors will also be able to use their expertise and develop data-driven insights that will help you make the most beneficial investments, so it is always a good idea to work with them when you want to safeguard your future.

Thank you for reading.

Bhuvan Gupta

About the Author

     Bhuvan Gupta                                     
     ( Founder and CEO – CFMC, CFCL )

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