Personal loan, home loan, or car loan and credit card debts must be kept to a minimum by middle age group
If you are in your mid-career, you would often be burdened with huge financial responsibilities. While on the one hand you would have to take care of the needs of your immediate family including wife and children, there could be your aging parents to take care, too. You are sandwich between the two ends and often referred to as the ‘Sandwich Generation’. On top of all this you have to set money aside to invest for your retirement!
Often you would have to provide for sudden needs that send your financial planning for a toss. People in ‘sandwich generation’ should know these common pitfalls to avoid while making their financial plans.
Pitfall 1: Saying ‘Yes’ to everything
Often bread earner says ‘Yes’ to each demand from family due to the emotional connect with parents and children. “This can lead to a drain on finances. It is important to keep overall goals in mind and avoid unnecessary expenditure just because parents/kids asked for something,” said Patanjali Somayaji, CEO and Co-Founder, The Walnut App.
Pitfall 2: Acquiring high debt
Persons in the age group of 30-60 years have multiple loans. Amar Pandit, CFA is the Founder & Chief Happyness Officer at HappynessFactory.in said, “Personal loan, home loan or car loan and credit card debts must be kept to a minimum by middle age group. A person cannot make any progress towards achieving goals for the parents as well as children if he is simultaneously paying 16-30% interest on his debts while earning 12-15% on his investment portfolio.”
Pitfall 3: Exiting from equities on panic
Investors in middle age panic seeing equity investment portfolio drop 10 percent or more. Abhinav Angirish, Founder, Investonline.in advised, “Don’t make the mistake that many did in 2009 by selling stocks from portfolio due to fear and then missing out on the recovery.” Volatility is part and parcel of markets and must be taken as opportunity to invest rather than an opportunity to exit.
Pitfall 4: Making adhoc investments
Most people simply invest their money in an adhoc manner without thinking of the purpose of their investments. They rely on friends, family, bankers, chartered accountants and insurance agents for financial advice. Pandit said, “Such people not only face the risk of being mis-sold but also investing in products that they do not need. It’s important to take an advice from a financial advisor and then chart a plan to achieve this goals.”
Pitfall 5: Investing in one asset class
Most investors simply construct their portfolio by having all their investments in one asset class which is a bad idea. Angirish said, “Diversification of portfolio is a key to success while investment planning. Calculated risks and diversifying portfolio into stocks, debts and growth assets such as property is more likely to produce consistent returns over the time rather than investing in a single or selected stocks”.
Pitfall 6: Mixing insurance with investments
As soon as there is a dependant within the family (non-working spouse, elderly dependent parents or a child), the individual must ensure that he has adequate life insurance. Pandit advised, “One should buy a term insurance policy to meet his life insurance needs and avoid insurance-cum-investment products like ULIPs, where, despite paying a high premium every year, the life cover may not be adequate.”
Pitfall 7: Investing in complex financial products
Sandwich generation should avoid investing in complex financial products for short-term gains which undermines long-term objectives of the family. Dinesh Rohira, Founder and CEO, 5nance.com advised, “It is important to avoid committing beyond available corpus for the purpose of investment and make unrealistic goals.” By practicing this simple commitment for a longer period will result in greater likelihood of succeeding to achieve set goals for you, elderly parents and children.
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