For a financial plan to succeed, a lot of things have to fall in place; but one of the critical factors is financial discipline on the part of the investor.

Here, we will look at some of the traps that investors may fall into, and stray from the path of financial discipline. With this knowledge, you’ll be in a better position to judge what you need to do when tempted to spend what you’ve put aside.

Funding luxury needs Investors often — due to social pressure or temptation — siphon off a good portion of their retirement kitty into furnishing a house, buying the latest car, fancy jewellery and clothing, taking pricey vacations, and so on. It may seem natural to splurge on such things; after all, everyone likes the good things in life, but not at the cost of one’s retirement savings.

What investors don’t understand is that these needs can be put off for a couple of years or more — but not retirement. Beyond 60, it’s hard to carry on working tirelessly and besides, opportunities to earn would have also dwindled.

Yes, you can satisfy your luxury needs, but in a planned manner without compromising on your retirement or children’s education fund. When you sit down with your financial planner, draw up a list of goals, prioritise and act accordingly.

Dipping into emergency funds

It’s not easy to maintain an emergency fund. You might wonder whether your money is just idling when it could have been put to use. ‘‘Are we sitting on too much cash?’’ or ‘‘I haven’t had any emergencies in the last couple of years,” are questions that crop up. But an emergency, by its very nature, is unexpected. Just imagine: what if you suddenly lose your job? Or you’re faced with a big medical bill for a family member, and you don’t have the funds to cover it?

This is what an emergency reserve is meant for. So, make sure you don't touch it.

The other scheme is better The question “Are we investing in the best scheme?” regularly pops up in investors’ minds, especially when they see other mutual fund schemes or stocks performing better than the ones they hold. There’s the temptation to switch to the other schemes.

But the point to remember is that short-term performance may not sustain in the longer term. So, unless there’s good reason, stick to your investments.

Also, there are many instruments in the market to suit the profiles of investors. What is good for your friend may not be so for you.

The writer is a SEBI-registered investment advisor and a member of The Financial Planners Guild, India

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