Investment FOMO? Here’s why you shouldn’t fall for the comparison trap

• Your situation is unique and your financial plan needs to be crafted as per your specific situation.
  
• Fear of missing out (FOMO) is real when it comes to financial planning, especially investing.
  
• Understanding that there is no one-size-fits-all solution enables us to tailor financial strategies to our own needs.
  

Ahmedabad-based Pranav Jain found out when talking to a colleague that the colleague was investing ₹45,000 in mutual funds (MF) systematic investment plans (SIPs) every month. Since Jain has a similar salary, he felt he was not doing enough as he invests only ₹20,000 a month in MF SIPs.

What Jain is feeling is normal as we all tend to compare ourselves to people around us when it comes to the phone we use, the car we drive and so on. Financial planning is no different. However, this can be a problem. Let us understand why.

Your situation is unique

Just as it’s not justified to compare your doctor’s prescription with someone else’s prescription, personal financial matters should not be compared with others.

“Your situation is unique. A financial plan needs to be crafted as per your specific situation,” says Arijit Sen, a SEBI-registered investment advisor, and co-founder of Merry Mind, a financial advisory firm.

While you might be paying EMI for a house, someone else may be living in their parent’s house or paying a lower rent. So naturally, the other person will have a higher investible surplus even for a similar salary.

Similarly, it is easy to feel inadequate when you figure out that your friend could send his son abroad but you’re not in a position to do so. Hence, it is important to acknowledge your own financial position. Here, you do not know what sort of situation your friend may be in or how far he has taken a hit in the retirement kitty in order to send his son abroad.

Do not fall into the FOMO trap

Fear of missing out (FOMO) is real when it comes to financial planning, especially investing. FOMO in investing refers to making impulsive investment decisions driven by the fear of missing out on a potentially profitable opportunity.

This often leads to poor investment choices and can result in financial losses as individuals act hastily without proper research or consideration of their long-term financial goals.

“A prime example of FOMO that we encounter over and over again is when investors think it's easy to make money trading the stock markets, just because people are talking about making a quick buck,” sas Deepak Gagrani, Founder of MADHUBAN FINVEST, a financial services firm.

He adds that a professional financial advisor helps reduce external noise and better align investment decisions with a person's risk tolerance and financial goals.

Retirement plans may differ

Just like your kid’s education, your retirement plan may differ. Where the objective varies, the process to achieve the required corpus is expected to be different too.

Someone may like to start his/her own business after retirement. On the other hand, a couple may desire to move back to their hometown and lead a relaxed life.

“How you want to lead your retired life is your choice. The retirement corpus required for the above stated retirees will definitely vary,” says Sen.

Social media is all about winners

We live in an era of social media. One might feel bad that their friend is vacationing in the Maldives while they are spending their holiday in Goa. Similar comparisons can occur when it comes to investments.

People tend to put only the good part of their lives on social media. Similarly, when it comes to investments, people take to social media to talk about their successes.

“As an investor, you should be aware of the fact that people generally don't like to talk about their mistakes or bad decisions on their financial path,” says Gagrani.

Some thumb rules to follow

While it is important to understand that your situation is different, there are still some basic rules of thumb you should follow to get started on your financial planning. These rules are of course not set in stone, but nevertheless are widely recognised as a method to help you start off on the right note. We look at a few such thumb rules.

Personal finance thumb rules

Emergency Fund	Save at least 3-6 months' worth of living expenses in a high-yield savings account for unexpected emergencies.
50/30/20 Rule	Allocate 50% of your income for necessities, 30% for discretionary spending, and 20% for savings and debt repayment.
Debt-to-Income Ratio	Keep your total debt (including mortgages and loans) below 36% of your gross income to maintain financial stability.
Retirement Savings	Save and invest at least 15% of your income for retirement to ensure a comfortable future. Take advantage of employer-sponsored retirement plans and consider diversifying your investments.

These thumb rules can serve as general guidelines to help individuals make sound financial decisions and work toward achieving their financial goals. However, it's essential to tailor them to your specific circumstances and seek professional financial advice when needed.

The final word

The journey of financial planning is as unique as the individual embarking on it. Attempting to compare your financial path to another's is akin to comparing apples to oranges. Recognising this individuality is paramount in achieving financial success and well-being.

Understanding that there is no one-size-fits-all solution enables us to tailor financial strategies to our own needs, aspirations, and life circumstances.

Whether it's saving for education, retirement, or simply building wealth, embracing the diversity of financial planning allows us to make informed decisions that align with our personal goals.