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Summary
- People often consider a mix of assets for building a desirable retirement corpus
- Other than retirement, a person has to make arrangements for a number of things
Investing for the long-term requires a disciplined plan with which you can make sure that all the necessary expenses are being addressed adequately. People often consider a mix of assets for building a desirable corpus over a period of 30-40 years that can be utilised at the end of their respective professional jobs or some years after it.
Equities, equity-linked mutual funds, safe-haven assets, fixed-income securities and debt instruments are some of the most favourable long-term assets that are preferred by a large section of people in order to construct a suitable portfolio that can maximise the returns, absorb the market risk up to an extent and keep your money safe.
Irrespective of the dedicated retirement fund or a corpus designated for fulfilling a long-term goal, there are certain things which are required to be dealt before hopping on to the long-term plan. As safeguarding your retirement is not the only thing, a person has to make arrangements for a number of things and the tasks involving money can hamper the long-term investment plan at any point in future.
Here we discuss why it is important to become debt-free before you start long-term investments.
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Become debt free
Staying debt-free becomes a dream after a person begins his or her adulthood, realising the need for several basic things starting from buying a vehicle, owning/renting a home, insuring the health, urgent medical expenses, going on a vacation, marriage, raising kids, their education, etc. There is a long list of requirements that keep all the middle-income earners very busy throughout their lifetime.
Besides managing the daily financials, it becomes quite complicated to set aside a fixed portion of income in an investment basket. However, most of us know that safeguarding your future is one of the most important things you should do while you start working.
Becoming debt-free can provide you with a financial freedom with which you can comfortably allocate a set amount of money for long-term investments. Paying huge EMIs on a monthly basis and investing for the long-term can be tedious to maintain as there can be certain unwarranted requirements that will need your immediate attention.
If there are certain debt obligations that have a long repayment schedule, then you should make sure that the cumulative monthly debt repayments should remain under 10% of the total income. For instance, a person utilising 30% of the net income for debt repayment, 50% for meeting the essential periodic requirements, he’ll be only left with 20%.
Of the 20%, there would be certain non-essential requirements as well including a vacation, buying some electronic gadget, unforeseen medical expenses for the elderly in your home etc. So ultimately, you will be left with no money to allocate for the long-term investments.
While, on the other hand, if you are able to manage your debt obligations within the 10% of your net income, then it would be quite easy for you to designate a fixed amount of money towards your long-term investment basket. A debt-free person can enjoy financial independence, and, at the same time, can assure retirement by building a sizable corpus.
