Top 10 money mistakes you might be making :
10. Not knowing the difference between good investment advice and a smooth sales pitch
That family friend who sells insurance, your bank relationship manager, Quora posts, Google search results – even your parents – may not be giving you sound financial advice. You may end up locking your money into schemes where it does not grow as fast as it could.
When you realize that what you thought was trustworthy advice was actually a sales pitch.
9. Not factoring in inflation and taxes in your money-related calculations
People often calculate how much their money will grow using the advertised interest rate. Actually, what you actually get is much less than that.
Things keep getting more expensive while you wait for money to grow. At the end, some amount gets deducted as taxes. You need to find investments that can beat inflation while keeping taxes as low as possible to see real benefit.
8. Underestimating how much money you will need in 30 years time
Let’s assume that in today’s money, you would need Rs. 30,000 per month – i.e. Rs. 3.6 lac per year – to live.
This means that after 30 years, you will need around Rs. 28 lac per annum just to maintain your living standards! The assumed inflation is a normal 7%, and ignoring taxes.
Keep in mind that every year you will need more money because when have we seen expenses go down?
7. Not setting up automatic savings from your bank account
We all give in to impulse purchases – some more than others. That’s why it is easier to save a good amount of money when you don’t have money in your bank account or wallet. You can set up your bank account to automatically invest some money around the time you get paid every month, such as in a normal or Dynamic SIP.
6. Not knowing about Term Insurance as a life insurance option
Life Insurance is an emotional decision for many of us. Know the difference between investment (should grow your money faster) and insurance (should protect during unforeseen circumstances easily). It is rare to find schemes that do both well.
Many agents will only promote schemes where your money gets locked-in for years together, while they take home a big commission each year. Term insurance is not an attractive sell for them as commissions are very low.
5. Not having an Emergency Fund where money can be withdrawn without penalty
You should be able to easily withdraw invested money for heavy expenses such as admission fee for a dream college or hospital bills. Fixed deposits cannot be “broken” prematurely without penalty. Savings accounts offer a very low rate of interest so it is not really advisable to keep a heavy bank balance there.
Liquid Funds are a great way to make decent returns with the option to withdraw any required amount when needed.
4. Thinking real estate is always a safe investment
Buying real estate as an investment has many fixed costs such as monthly maintenance, annual repairs and property taxes. You may get some rent, but you may not be able to sell it at the time or the price point that you want.
3. Buying more things that lose value instead of those that will make you richer
Ramesh and Suresh both got Rs. 2 lac in 2004. Ramesh bought a Maruti Suzuki car, while Suresh bought Maruti Suzuki shares with the money. Ramesh’s car is worth nothing today.
Suresh’s investment, on the other hand, is worth over Rs. 1 crore, that he can use to buy a BMW and an apartment. Choose to spend wisely on gadgets, mobile phones, cars, parties, holidays as a young professional. Investing that amount will earn you much more in a few years, and you will be able to splurge on luxuries without any guilt.
2. Thinking investment is for oldies, and being impatient once you start
Most of us wait to earn some surplus before we start investing. That’s a mistake. The earlier you start, the more your money multiplies. Even if you start with Rs. 500 a month at age 22 and continue it till you are 60, your money (total Rs. 2.3 lac) will grow to around Rs. 85.5 lac assuming annual returns of 14%.
Be prepared for fluctuations in your investments. When you keep bailing out of investments that are temporarily underperforming, you lose wealth over time.
1. Keeping all your investment eggs in one basket
Make sure you have a well-balanced mix of investments of different kinds so that you get the best of flexibility, good returns and security. This mix – called your investment portfolio – depends largely on your financial goals.
Getting this right will have a significant impact on how wealthy you get over time. Keep talking to trusted experts to keep this balance maintained over time.
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CashRich (www.cashrich.com), a dedicated wealth management app powered by seasoned professionals with a collective market and investment experience of over 20 years, helps users to manage their money more confidently. Last year the Government of Maharashtra recognised CashRich as a top 10 fintech company and awarded a grant.
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