Significant Life Choice Regarding Finances: What It Entails
In the bustling city of Pune, Archana, a 34-year-old marketing professional, embarked on a financial journey in January 2023, starting a monthly Systematic Investment Plan (SIP) of 10,000 Rs. However, the story of Archana's financial journey isn't just about her recent decision, but a valuable lesson in the consequences of financial procrastination.
Financial procrastination isn't about laziness; it's about emotional discomfort. We often delay decisions that make us confront mortality, discipline, or reality. Archana, unfortunately, fell into this trap. Over the next two years, she postponed her SIP, citing various reasons such as travel plans, Diwali expenses, and market volatility.
The Psychology of delay is a tendency for humans to prioritise short-term comfort over long-term benefit, often referred to as "present bias" in behavioural science. This tendency can have significant long-term consequences. By delaying her SIP, Archana lost two years of compounding, which could have added ₹14-15 lakh to her final corpus over 20 years.
Let's compare Archana's journey with two hypothetical individuals, Rahul and Pooja. Rahul, who started investing at age 25 with a ₹10,000 monthly SIP, could potentially have a corpus of ₹76.5 lakh by age 45, assuming an 11% Compound Annual Growth Rate (CAGR). Pooja, who started investing at age 30 with a ₹10,000 monthly SIP, could potentially have a corpus of ₹43.2 lakh by age 45, assuming the same CAGR.
Delaying the start of a SIP for 5 years can lead to a loss of over ₹33 lakh. If Archana had started her SIP in January 2021, assuming the same CAGR, her SIP would have grown to ₹2.53 lakh by January 2023.
Procrastination in financial decisions can lead to a cycle of delay, guilt, emotional avoidance, and eventually, the action becoming too big, too scary, or too late. To break this cycle, one can make financial decisions bite-sized, use dates instead of intentions, automate everything, track opportunity cost, get accountability, and commit to specific actions.
In finance, delaying decisions can result in lost time, lost returns, and lost peace of mind. Archana's story serves as a reminder that the biggest financial mistake isn't always what one did, but what one didn't do. It's never too late to start, but the sooner one starts, the better.
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