When asked in a TV show about ‘the biggest mistake we make when it comes to money’, this is what Warren Buffet had to say:
“Well, I think the biggest mistake is not learning the habits of saving properly early. Because saving is a habit. And then, trying to get rich quick. It’s pretty easy to get well-to-do slowly.
But it’s not easy to get rich quick.”When it comes to saving there cannot be a bigger mistake than postponing investing.Individuals often underestimate the importance of time in amassing wealth. They assume wrongly that they can always make up for lost time in the future.
So if you are looking for financial planning tips, look no further than these three ideas.
Get a Head Start in Saving
To understand how important a head start can be – take two friends – Raj and Rahul – in their first jobs. They earn approximately the same salary –Rs 25,000 a month.
Raj, the carefree type, cannot be bothered about saving money. Needless to say – he spends about everything he earns.
Rahul is the more conservative one, always saving for the rainy day. As part of his savings plan for the future, he sets aside 20% of his salary (or Rs 5,000) towards an investment plan. This he proposes to sustain over 30 years.
Looking at Rahul’s investments blossoming over the years Raj – the happy go lucky one – realizes rather belatedly that pursuing a high consumption lifestyle was a mistake.
He should have begun investing like Rahul. He decides to begin saving towards an investment plan with a commitment of Rs 5,000 per month.
Worth noting is that Raj begins investing 10 years later than Rahul, so his is a 20-year investment time frame.
Early bird gets the worm
(Rate of return on the investment plan is assumed to be 12% CAGR)
Clearly, Raj’s 10-year delay proves very expensive –to be precise it costs him over Rs 1.25 crores.
Early Life Insurance
Taking life insurance at the earliest is another financial planning tip for the family breadwinner. Anyone with a family needs to make sure his loved ones are secure – at least in a financial sense – when he is gone.
The best way to achieve this is through a protection plan, also known as a term plan. The earlier one opts for life insurance, lower the premium.
As you age, insurance premiums get expensive and if you are beset with health problems, you could end up paying even higher premiums.
Early Health Cover
Equally prudent is to opt for a health planor mediclaim at the earliest.
As you grow older medical policies get expensive and if there is a medical condition, you may struggle to get a policy, at competitive premiums, if at all.
Curated from Financial Planning Tips for Beginners