Don't forget you will also grow old

Capitalstars Investment Advisor

Money management and budgeting assume the importance of gigantic proportion in times when pension benefits are all but over.

From changing smartphones frequently to actively shopping online on EMIs, 35-year-old Sudhir does not mind swiping his credit card for every little purchase. Employed with an IT major, he strongly advocates and embraces the "You Only Live Once" (YOLO) philosophy.

Sounds familiar? That is because he is not alone. There are many like him, especially millennials, who believe in instant gratification, even if it comes at the cost of addressing essential life goals. Technological advances coupled with the easy availability of credit has changed the dynamics of personal finance, and what was considered irresponsible yesterday is looked upon as a way of living today.

However, some things do not change, and one among them is the fact that "You Also Grow Old" (YAGO). There comes a point in everyone's life when with age not being on your side, taking a break from work becomes imperative, resulting in drying up of active income. It is then when your splurging habits in your yesteryears comes back to haunt you. This is the time when you wished you had been more prudent with money. Alas, that time is lost.

Why YAGO deserve attention?

According to the Economic Survey 2018-19, India's population is expected to rise under 0.5 percent during 2031-41. The reason for this rise will be an increase in life expectancy and a decline in fertility rate. The life expectancy in the country has risen by 11 years since 1990, a lot of which has to do with advancement in medical science.

All of this means a longer retired life, which calls for investing money in prudent financial instruments to build a retirement corpus large enough to see you through the golden years of your life. Simultaneously, it is essential to keep a hawk's eye on inflation, the biggest roadblock in wealth creation. Did you know that if your current monthly expenses are Rs 30,000, even modest inflation of 4 percent will push it to over Rs 97,000, 30 years down the line?

This is why money management and budgeting assume the importance of gigantic proportion in times when pension benefits are all but over. It would not be an understatement that what you splurge today is an opportunity lost to add to your wealth and build a sizeable retirement corpus by the time you hang up your boots.

Keep the specter of old-age poverty at bay

Attention to YAGO today will help you keep the specter of old-age poverty at bay tomorrow. At the same time, it will help you maintain financial freedom and be in charge of your life, without having to depend on children for support.

There is hardly a better feeling than to lead a life on your terms on retirement and pursue things you have missed out. For these to happen, it is crucial to building a large reservoir of funds for the sunset years of life.

How to curb, splurge and be retirement-ready?

A grip on investing basics coupled with curbing the need for instant gratification goes a long way in stemming discretionary expenses. At the same time, early investments in inflation-beating instruments such as equities can hold you in good stead.

For instance, a systematic investment plan (SIP) in equity mutual fund not only helps you to be disciplined with investment, but it also aids you in benefitting from the inflation-trouncing ability of equities as an asset class. At the same time, SIPs help you gain from the power of compounding in the long run that has a multiplier effect on wealth.

Monetary cap on credit and debit card usage can bring much-needed fiscal discipline and ensure you do not end up paying unnecessary EMIs, which can strain finances and impinge on essential life goals. Also, it is in your best interest to keep away from short-term borrowings for meeting lifestyle-related expenses.

Such borrowings, on a frequent basis, accompany a high rate of interest and paint you as a credit-hungry borrower. The twin disadvantages include a dent in credit score and procrastination of retirement planning.

The final word

While choices differ across individuals and there is nothing wrong in celebrating the present, waking up to the reality of growing old and saving up for it can ensure a secure dusk of life. Being an early bird in the journey can reap rich dividends in the future.