8 habits of financially successful people you should imbibe

1.They make a plan

By failing to prepare, you are preparing to fail,’ said Benjamin Franklin. Planning is clearly the unstated commonality among winners and the first step to formulating a successful strategy. Next is framing of goals. The final step is to start saving for each goal by investing in the right instruments as per your risk appetite and time horizon

If you don’t, you suffer from: Temporal Construal

You perceive distant and short-term events in a different way. The long-term goals are seen as abstract and with more optimism than the closer ones. So, you have a vague image of, say, retirement or children’s marriage 20-30 years from now, while closer problems get more attention.

How to overcome it: Write down, not only your budget, but also the goals. Specify the exact time period for achieving these and the inflation-adjusted future value of goals. To stick to these, follow two rules: a) Save first, spend later. b) Automate your savings.

2.They don’t put off decisions

The cost of procrastination can dent your financial future by significantly reducing your corpus for long-term goals. For instance, if you start saving Rs 10,000 a month in an equity instrument that grows at 12 per cent when you are 25 years old, you will have a corpus of Rs 5.5 crore when you retire at 60. However, this amount will be pruned to only Rs 91.9 lakh if you start at 40.

If you do, you suffer from: Procrastination Bias

You like performing less urgent tasks on a priority instead of the more critical ones. You keep putting off pending tasks and difficult decisions till the last minute, often paying a heavy price for the delay.

How to overcome it: Make a list of important tasks and fix a time frame for each. Set alarms for reminders. Do the most unpleasant and difficult task first and leave the easier ones for later. As an incentive, promise yourself a reward for completing the task.

3.They are proactive

Riches are churned out by people who put in time, effort and money into research. They are not satisfied with being satisfied. They do not compromise on the quality or suitability of a product or service because it meets their basic needs.

If you are not, you suffer from: Satisficing

If you are confronted with an investing choice and decide as soon as an option appears satisfactory, you are satisficing. you aim for a choice that is ‘good enough’, not optimal or rational, because the latter would entail spending time, effort and money on research.

How to overcome it: In some investing options, it is better to approach a financial planner since he will take an objective and optimal decision for you. alternately, assess your needs in a more rational manner before taking a decision.

4.They don’t react impulsively

Knee-jerk reactions are not good either for your emotional or financial well-being. Discipline is at the core of any aspect of financial planning. But how do you inculcate it? Stick to your decision, strictly follow your budget, and don’t digress from your asset allocation.

If you do, you suffer from affect: Heuristic

If feelings dictate your financial decisions instead of logic, you are a victim of this bias. You want to take a quick decision and analysis takes time, so you fall back on the prevailing emotion—joy, fear, shock. Inevitably, you live to regret it.

How to overcome it: Instead of taking a decision during an emotional high or low, write it down and keep it away. Return to the scrap of paper after a couple of days or a week, analyse the pros and cons, and then decide. Better still, research.

5.They review their portfolio

In terms of criticality, this habit is at par with planning. Your job is only half done if you draft a spectacular plan because, in the absence of a periodic review of your finances, you may never reach your goals. Monitoring the portfolio has a three-pronged impact: it helps weed out non-performing assets, recalibrate investments if the goal seems out of reach, and maintain asset allocation. It is essential to review every 3-4 months for short-term goals and on an annual basis for long -term goals.

If you don’t, you suffer from: Status Quo Bias

If you refuse to alter your portfolio despite a drastic change in circumstances and the fact that it could adversely impact your finances, you are a status quo investor. You are afflicted by inertia and potential gains are not incentive enough.

How to overcome it: Follow a disciplined investment approach or seek professional help. You are not only losing out in terms of the opportunity cost but may even face a financial crisis.

6.They diversify their investments

Given the unmitigated obsession Indians have for real estate and gold, it’s a wonder that they spare any thought or funds for other assets. So far, these investments have stood them in good stead, but the developments of the past few years have turned many of these into shibboleths.

Diversification is key to a healthy portfolio because it not only helps protect your assets but also ensures their growth. Since all asset classes do not move in the same direction at all times and you can never predict how a particular asset will perform, diversifying mitigates the risk by spreading it.

If you don’t, you suffer from Familiarity Bias

If you are obsessive about a particular asset, say real estate or gold, and refuse to consider any other investment option, you suffer from this bias. This is because you feel secure with that asset despite the risk of putting all eggs in one basket.

How to overcome it: A methodical and holistic approach to your finances is possibly the only way to get over this bias. Frame your goals and invest in assets that help you reach these. Talk to a planner about the options in the market and calculate the optimal allocation to each.

7.They avoid bad debts

Living in the present is an infinitely prudent outlook to life, but when it comes to your finances, you may need to alter this vision. To secure your future, it is important to learn the art of delaying gratification and considering the impact of your actions. So make sure you never roll over your credit and avoid paying the minimum due amount. Take a loan against your existing investments instead of a personal loan, if you must.

If you don’t, you suffer from: Self-Control Bias

As the name suggests, you lack discipline, which is the reason you spend excessively on your credit card or overlook the long term goals in favour of your current needs and pleasures. You prefer smaller gains now to bigger pay-offs in the future.

How to overcome it: The best way to conquer this bias is to take the decision out of your hands. So if credit card is your weakness, get rid of it. If you cannot save for long-term goals, automate payments so that you save before spending. It will also help to strictly follow a budget by writing down your expenses, savings as well as investments.

8.They Cover Risks

You may not be able to predict misfortune, but you can have the right tools—insurance and contingency corpus—in place to counter it. Most people with robust finances ensure that they cover their risks adequately. However, there’s a vast under insured population that considers it a wasteful expenditure, confident in its ability to never fall sick or die.

If you don’t, you suffer from: Optimism Bias

This bias will force you into building a rosy picture about your future and financial situation. You firmly believe that you are less likely to be impacted by anything negative in life, be it health issues or monetary losses. So you do not take corrective or preventive measures to avoid such a situation.
How to overcome it: The only solution is to pore through the existing data, research well and conduct an analysis about the financial service or product in question in order to arrive at a true picture. Consult a planner and take preventive measures.

(Article Inspiration source:Economic Times)

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