A sound financial plan is a must to fulfill ones needs like education, marriage or retirement. At times, we tend to deviate from our goal. Avoiding the following common mistakes, can make you wealthier.
Spending more than needed: This is one of the biggest hurdles majority of us face when it comes to investing. Most of us often get tempted to spend, especially because of the plastic money that we carry as it gives us flexibility to purchase. Hence, often we tend to take an impulsive decision on buying. For instance, if you get to know that you can own a Sony Bravia LCD TV at an EMI of just Rs9,999 per month, you may buy it thinking that it will be just 20% of your salary. But what you don’t realise is that it becomes a liability for six months, during which your capability of investing and savings gets reduced. Thus, it is essential to prioritise your needs while indulging in luxury at the cost of your investments and savings.
Lack of financial education to spouse and kids: In India, finances are mostly handled by the males in the family and women and kids are often left out. It is recommended that you include your spouse and kids in the whole journey. This will not only help you understand their needs better, but also encourage them to support your plan. They will be aware about what you are planning for them financially and would restrict their demands to be realistic.
By getting your children involved, you can plant the habit of investing and savings at an early stage of their life. “Parents are uncomfortable discussing finances because they feel kids may face psychological pressure at a young age. But once kids mature, start telling them about your investments and savings because kids and spouse should be aware about it so that they are not clueless on a sudden mishap,” says Suresh Sadagopan, who runs Ladder 7 Financial Services.
Imbalanced asset allocation: ‘If you are young, you can take more risk’ is a common belief. People often have more exposure in equities during the early stage of their career. While investing in equities, one needs to have enough capital to play in the stock market. It is safer to have a balanced portfolio. And always take into consideration your salary package and then invest. Many people don’t review their finances. Tax planning for them is nothing more than a signature or calling an ‘agent’. You need to know the intricacies while planning and not blindly believe in what the agent asks you to do. An imbalanced asset allocation is responsible for the huge ups and downs in your portfolio.
Buying products from friends and relatives: Will you sell a junk product to yourself if there’s a 50% commission and a burden all your life? You won’t. But if you had to sell it to your family, friend or colleague, you may consider it. Don’t get emotional and stop falling prey to the products offered by your friends or relatives that doesn’t make any financial sense to you.
Unrealistic returns: People often expect the same returns from equities every year. And if the graph heads southward, they panic and withdraw money. Equities and mutual funds need time to grow and are long-term investment vehicles. “One should have a horizon of at least 3-5 years when investing in equities and mutual funds. Equity markets in our country continue to provide 12-15% annual returns,” Sadagopan said.
Feeling special when it comes to life or health insurance: Almost every person feels that his health is God gifted, one of the best excuse to not buy a health or life insurance. Majority of the people believe that if they have not made any claims, taking insurance is a total waste. But they fail to understand that buying insurance is to protect one against the unforeseen losses. Always take and adequate health and life cover.
Short-term vision: Inflation and medical expenses are surging. Hence, it is difficult to predict the prices of grocery or medicines five years from now. “It is best to make provisions so that you can have a comfortable life ahead. One should always have a foresight and not a short-term vision,” said Raunak Roongta, an independent financial planner in Mumbai.
Not ready to pay for advice: We are often ears for free advice. But if somebody asks you to pay for it, we won’t like it even if it is right. Currently, the internet is flooded with advice on financial products for free. Many think that if you can get the top 10 mutual funds from valueresearchonline.com, why pay someone for advice? “We must understand that there are situations where you just can’t match professional advice to our own knowledge because that may give you an edge to get some extra returns on your portfolio,” Roongta said.
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