look news india
As hard and sweaty as earning money is, keeping it safe and creating wealth by investing it in the right place is an even bigger skill. In today’s busy life, social media appearances and the glamor of e-commerce, people often lose financial discipline. Spending lavishly as soon as the salary comes into the account at the beginning of the month and having to ask for a loan in the last 10 days of the month has now become a common middle-class tragedy. Financial experts believe that the cause of financial crisis is not low earnings, but wrong and irresponsible decisions related to money. When huge credit card bills, personal loan EMIs and empty bank accounts come to the fore, people exclaim – ‘A huge mistake has been made!’
If you also want to save your hard-earned money from going waste and want to secure your future financially, then understand these 10 biggest money-related mistakes today and stay away from them.
In life, illness, loss of job, sudden home repair or any family crisis never comes with any warning. The biggest mistake people make is that they spend their entire earnings and do not keep any liquid emergency fund. When an emergency arises, they have to take high-interest personal loans or swipe credit cards, which pushes them into a deep debt trap.
-
Solution: Keep aside an amount equal to at least 6 months of your essential expenses (ration, rent, EMI, children’s fees) in a savings account or liquid mutual fund.
Nowadays, in the race to post lifestyle pictures on Instagram and Facebook, people are spending beyond their means on expensive cafes, designer clothes and gadgets. In the language of economics, this is called ‘lifestyle inflation’. Doubling the scope of expenditure as income increases strangles future savings.
-
Solution: Follow the classic budgeting rule of 50-30-20—50% should go to basic needs, 30% to wants, and at least 20% to essential savings and investments.
As great a convenience as a credit card is, it can become a big financial trap if misused. Many people just pay the ‘minimum amount due’ (about 5%) when the bill comes and think that the job is done. In fact, on the remaining 95% of the dues, banks charge compound interest ranging from 36% to 45% per annum.
-
Solution: Always pay the full credit card bill 2-3 days before the due date. If you are unable to make full payment, stop using the credit card immediately.
Nowadays, ‘No Cost EMI’ and ‘Buy Now, Pay Later’ options are available on every small and big e-commerce website. People buy shoes worth Rs 10 thousand to phones worth Rs 1 lakh on EMI. Many small EMIs together already deduct 40-50% of the monthly salary, leaving not a single rupee left for investment.
-
Solution: Do not buy any consumer item on EMI which loses its value over time (Depreciating Assets). If you don’t have cash, postpone that purchase for a few months.
Often young people think ‘what is going to happen to me’ and they shy away from taking insurance. A serious illness can wipe out decades of savings, FDs and mutual funds of an entire family in a matter of weeks. Similarly, due to untimely demise of the earning member of the family, the family left behind may end up on the streets.
-
Solution: Take a pure term plan of at least 15 to 20 times your annual income. Also, keep a comprehensive family floater health insurance policy for the entire family.
In matters of money, time is the greatest wealth. Many people waste 20 to 30 years of age just thinking that they will start investing when they get a big salary. By doing this they completely lose what Albert Einstein called the eighth wonder of the world—the ‘Power of Compounding’.
-
Solution: Even if it is ₹500 or ₹1,000 per month, start SIP in equity mutual funds from the age of 20-22. A delay of 10 years can cause loss of crores in your final corpus.
The money lying in the savings account gradually loses its purchasing power because the inflation rate remains at 5 to 6 percent and the interest in the savings account is only 2.5 to 3 percent. That means your money is not actually growing, but shrinking. Even in FD, the net return after tax deduction is not able to beat inflation.
-
Solution: Diversify your investment portfolio. Invest money in gold, real estate, PPF as well as equity and index funds to create real wealth that beats inflation.
The biggest tragedy of today’s youth is to lose their hard-earned money like gambling by being misled by ‘Fin-Influencers’ and so-called gurus of options trading who dream of getting rich overnight on YouTube, Telegram and Instagram.
-
Solution: Do not consider the stock market as a lottery ticket. Without financial understanding, stay away from Futures and Options (F&O) and penny stocks. Consult only SEBI registered advisors or invest directly in index funds.
The most commonly sold traditional endowment policies and money-back plans in India neither provide adequate insurance cover nor good returns to investors. After paying heavy premium for 15-20 years, the returns are not more than 4 to 5 percent per annum, which is less than bank FD.
-
Solution: Always keep investments and security separate. For protection, take cheap and big ‘Term Insurance’ and for investment, choose ‘Mutual Fund, PPF or NPS’ as per your risk appetite.
Most Indians invest all their money in their children’s education, marriage and building a house, but do not even create a fund for their retirement. They forget that the bank will give loan for higher education and house, but no bank gives ‘retirement loan’ to live a respectable life in old age.
-
Solution: Plan for retirement from your first job. Start saving a fixed portion every month in National Pension System (NPS), PPF and equity funds for your old age.