Avoid these Financial Mistakes
Posted On July 14, 2019
In India ,there is huge gape in financial awareness. Knowingly or unknowingly we commit such silly financial mistakes which can put a break on wealth creation. Lets have a look on these common financial mistakes to prevent and appreciate our hard earned money.
1. Not understanding difference between Insurance & Investment:
Buying insurance policies for investment purpose is the biggest mistake done by most indian investors.If you have invested your money in insurance plan to get a return in future than this is the Biggest mistake! Out of 100 people, 95 have made this mistake. Very few people understand the difference between term plan, endowment plan, etc. INVESTMENT & INSURANCE are two completely different terms with different meanings.
2.No emergency budget:
Not having any extra money in the case of an emergency results in embarrassing situations of borrowing money from friends and relative. Some people even break their investments and make a big mistake.
3.No medical insurance:
I have seen people losing out the lifetime savings just because they did not take medical insurance. One accident can shatter all financial dreams. Better be insured. Healthcare cost is rising and it is impossible to manage it without proper health insurance and mediclaim.
4.No financial goal & plan:
As like our Career goal, Educational goal, Life events goal , various people do not have there financial goals.They don’t know why they need to save money because they don’t know their financial goals.
The second biggest mistake done by Indian investors is not following the principle of “Don’t put your all eggs in one basket” .Some people would invest all their money in real estate, some would invest all the money in gold, some would just keep it in the locker, some would invest all the money in the stock market. Some so called CONSERVATIVE INTELLECTUALS put all the money in FD and get assured that there money is safe.But they dont realize that there money in FD is being depreciating rather to appreciate.This is because they don’t have knowledge of Debt funds ,there returns and there security aspects.Traditionally, people have been risk-averse. They would just have an FD and live on 6–7% annual interest.This is an extremely conservative approach with investment Some would just keep the cash at home. Very few people understand the right way of diversifying the investments.
6.Buying excessive gold only to keep it in the locker:
Gold worth lakhs is kept in lockers only to be used once or twice a year. This is resulting in the money getting blocked and hence not getting any returns on it.
7.Lack of clarity between asset and liability:
Having a car is not an asset because it consumes fuel and has a maintenance cost. Its price will only depreciate in the future. Car is a necessity but people spend a lot of money and even take the loan to buy a luxury car over and above their budget.
8.Procrastinating investment decisions:
“I will invest from tomorrow”. But the problem is that tomorrow never comes.
9.Lack of patience:
“I can’t wait for my wealth to grow. I want to double my investments in 6 months. I need to invest in the stock market.” A lot of people lose their lifetime of savings because they don’t have the patience to understand the investment option and would blindly trust anyone with their investment.
10.Not discussing the money matters in the family:
Discussions related to money are considered as a taboo in Indian families. Nobody really discusses money matters.And end result is complete KIOS in financial matters.
11.Getting too greedy with investment:
People blindly invest their money in penny stocks, day trading, futures and options. They eventually lose all their hard earned money. What is the root cause? GREED
12.Lack of disciplined investment:
Instead of spending what is left after investing, people invest what is left after spending. This results in undisciplined investment.
13.Not able to crack the credit card vicious circle:
If you are paying the minimum amount due on your credit card payment than you are trapped in credit card vicious circle. On the other side, very few people really enjoy the benefits like free lounge access, buy one get one movie ticket, etc.
14.No idea about the power of compounding:
Everyone has come across the formula of compounding but very few people really understand its power. This is the reason people do not start saving early and hence lose out on the power of compounding. Albert Einstein said that power of compounding is the eighth wonder of the world .And best tool for that is SIP.
15.Buying stocks based on tips without any knowledge:
You will find every Tom, Dick and Harry giving stock tips over Facebook, Whatsapp and TV. Unfortunately, a lot of people fall in a trap of these people and invest money without any knowledge. What is the end result? They lose everything!
16.Becoming a victim of lifestyle inflation:
Moving from 2bhk to 3bhk just because you have got a good hike, upgrading your car because you have got some bonus are some of the examples of lifestyle inflation destroying financial lives.
17.Buying things just because they are on discount:
From Amazon’s “Great Indian Sale” to Flipkart’s “The Big Billion Days”, everyone is encashing on the weakness of Indians buying things just because it is on discount. Funny thing is now you will find such sales every other month.
18.No track of cash flow:
Very few people keep a track of their expenses. Most of them just don’t know where the money is gone.
19.Spending all the hard earned money on children marriage:
Thanks to our hypocritic society! People save their entire life just to spend all the money on random relatives who only bother about the food and arrangements. What is the topic of discussion at weddings? “Sharma ji ne to unki beti ko car gift kari. (Mr Sharma has gifted a car to his daughter)”. “Mehta ji ne unki beti ko 50 tola sona diya” (Mr Mehta has gifted 500-gram gold to his daughter. And to beat these virtual competitors and show the status people even have a loan.
20.Wasting time on unproductive things:
Rather than learning new stuff and growing the skillset, people end up wasting time on social media and YouTube. Now a days WHATS APP is the biggest enemy of productive time .
So be cautious and prevent yourself from these mistakes to prevent and appreciate your wealth.
Personal finance consultant