5 myths keeping you from a life of financial independence

There are just some myths that are holding you back to achieve your financial independence. And we are going to demystify it for you.

I am too young for financial planning

You are never too early or too old to start financial planning. It is often said, invest early and earn higher returns. The same goes for, planning. Start early and achieve your goals sooner. From a young age, you can begin a smart budget and save for big events in your life. When you invest early in any financial instrument, the interest that you earn on the invested income increases by compounding which will result in a much huger amount. So, plan early. In fact, some same say, it is necessary.

Pay long-duration loans first

Many believe paying long-duration loans quickly can save on interest costs. This does seem logical; however, the problem lies in not taking into account time value of money. Their rationale being, you are saving on interest. And that in most cases is true. However, it would make more sense to pay off your high-cost short-term loans first like personal loans. You need to consider the high net cost of borrowing. It doesn’t matter how long the tenure is, consider paying the most expensive loan first.

Retirement planning is all about corpus creation

When we talk about retirement, most conversations revolve around creating a retirement corpus. After all, you will not be earning after retiring, so you must save as much money as possible. But that should never be your goal; it should be to sustain a lifestyle. Most of the times, we fail to take into account longevity. After all, it could exhaust your retirement corpus.

Things to consider when retiring

Remember it is called retirement planning for a reason.

Real Estate is an important asset

Over the last five years, cities such as Mumbai, Delhi and Bangalore, returns on real estate has been around 3-4%, while other major markets, they did not even get that*. Many see this as a positive, citing if returns have been weak, they will be better going forward. However, this is not necessarily true. Firstly, buying a house in India is an expensive proposition. In fact, residential house prices, are 6 to 10 times higher as compared to other Asian economies. Additionally, as Indian residential rental yields are around 2-3%, the cost of a home loan is around 7.5%. This proves that currently the Indian residential real estate sector still needs to correct before it is deemed attractive.

Financial planning is a one-time exercise

It never is and never should be. Financial planning is a strategic and systematic exercise to achieve one’s financial goals. And your goals will change according to your life stage and circumstance. Do not see it as a one-time thing and plan for it regularly. Additionally, even if your goals remain the same, economic situations, government policies, taxation norms could change. So, you need to review your plan accordingly and regularly to achieve your financial goals.