I am NOT going to tell you how to make money but I am going to tell you how to ensure not to lose money over the years. I have identified some mistakes in investment that destroy the financial life.
No financial plan
People don’t know why they need to save money because they don’t have any financial goals. A financial goal could be to invest in a retirement corpus of two crore rupees for the next 15 years or saving 5 lakh rupees to buy a car in the next 2 years.
No medical insurance
I have seen people losing out their lifetime of saving just because they did not have medical insurance. One incident can shatter all your financial dreams. better be insured. Health care cost is rising at a fast rate and it is impossible to manage it without medical insurance.
No track of cash flow
Most people don’t keep a track of their cash flow. What is the result by the end of the month? They don’t know where the money is gone. I have seen people earning one lakh a month. But by the end of the month, they are struggling to save even Rs.10,000.
No emergency budget
It is important to be ready for the bad days. I read somewhere that some of the employees were struggling with the basic financial needs in the Covid period.
For example, paying their home loan EMI, their children’s tuition fee, or even the basic requirement. Not having enough money at the time of emergency could even result in embarrassing situations where you need to borrow it from your friends and family or even you need to break your investment.
Not discussing money matters in the family
I remember an incident where the husband died and the wife had no idea about the family assets, no bank account details, no passwords, no insurance details. She had a terrible time getting all this information. ensure that you should have this information with your spouse.
Becoming a victim of lifestyle inflation
Moving from 2 BHK to 3 BHK just because you have got a good hike. Upgrading your car just because you have got a bonus or buying an iPhone worth eighty thousand although you make a salary of 30,000 per month. These are examples of lifestyle inflation. While there is nothing wrong with buying a fancy car or phone the problem is with spending over and above your means.
Wasting time on unproductive things
Rather than learning new stuff and growing their skillset, a lot of people end up spending hours and hours on social media. final result? No future plans.
Getting tempted to go for an exotic vacation or Buying a new car
Only because your friend has put a post on Facebook or Instagram. Facebook and Instagram were introduced as social media platforms but they’re actually ripping apart the entire social fabric of our society. Facebook and Instagram are now more of a marketing platform where people put a post to get a few likes and companies promote their products and services. Most people fake a perfect life on social media whereas real-world life is much different than the social media life.
Spending a bomb on weekend parties
Five days work and two days party… This is the new culture in India. pubs are jam-packed on weekends, where people would spend a lot of money and by the end of the month, they are left with nothing.
Spending all the hard-earned money on the children’s marriage
Thanks to a Hippocratic Society people save their money their entire life just to spend it on random relatives who only bother about food and arrangement. A middle-class man saves his entire life for the children’s marriage making thousands of compromises which get wiped out in just 2-3 days certainly not worth it.
Considering frugal as cheap
We people have been traditionally frugal, where we spend economically. But this new generation likes to show off their fancy gadgets and think that frugal is cheap. When one of the world’s richest man Mr. Warren Buffett can live a frugal life. why can’t we?
Spending a lot of money on fancy stuff
Well, there is nothing wrong with buying fancy stuff. The problem is buying fancy stuff even when you can’t afford them.
Buying things just because they are at a discount
From amazon’s great Indian festival to Flipcart big billion-day sale everyone is cashing on the Indian’s weakness to buy things when they are on discount.
Not able to break credit card mystery
A credit card is like a double edge sword. on the one side if you can’t control your spending, then a credit card can rip you apart. on the other side if you’re someone like me who can control the spending, who pays the complete credit card bill on time then you can reap a lot of benefit out of it. for example, free airport lounge excesses huge discount on purchases free Patrol buy one get one movie ticket, etc.
Most people have a myth that financial management is an extremely complex subject. I used to think the same a few years ago.
Procrastinating investment decision
We keep hearing that I will start investing from tomorrow but the problem is that tomorrow never comes.
Buying insurance policies for investment purpose
Have you invested your money in an insurance policy to get a return in the future? It’s a big mistake. 95% of people have made this mistake. when I do ask them what is the return that they are expecting from their insurance plan? nobody had an answer.
Have you also mixed insurance and investment? If yes, ask yourself what is the annual return that you would get from your investment? I am sure you would not have an idea when it comes to insurance very few people understand the difference between term plans, and dormant plans, unit plans, etc.
Buying excessive gold only to keep it in the locker
Results in money getting blocked and not generating any return. while it is good to keep some investment in gold it is not good to keep excessive investment in gold
Depending on others for investment decision
People say that I don’t know anything about investment please manage my money. Unfortunately, a lot of people are dependent upon others for their hard-earned money.
An extremely conservative approach with investment
Traditionally people have been risk-averse. They would keep the money in FD and just get a 6 to 7 percent return. while this approach could work for a retired person, who does not want any volatility.
This is certainly not a good approach for someone who has just started learning and wants to create wealth for the future.
Lack of clarity between asset and liability
The major difference between rich people and poor people is that rich people invest in assets that generate income. And poor people are trapped in the liabilities of paying the loan for the rest of their life.
Lack of Understanding between real and nominal return
Money kept in saving accounts is actually getting shrunk. The reason is simple. The inflation rate in India is much more than the interest rate from the saving account. for example, if the inflation is 5%, the next year your money what hundred rupees would be equivalent to rupees 95. A lot of people made this mistake of keeping excessive money in saving account and shrinking their money.
No idea about the power of compounding
Everyone has come across the formula of compound interest during their school days. But very few people really understand its implication in the real-world. It is the reason people do not start investing early and lose out on the power of compounding. Albert Einstein once said that the power of compounding is the 8th wonder of the world.
You don’t need 100 times returns to generate wealth you just need 10 to 15% returns over a period of 15 to 20 years to create wealth. Part of compounding will do the wonders for you.
Lack of patience
A lot of people lose their lifetime of saving just because they don’t have the patience to remain invested for a long duration. You don’t need a high IQ to generate wealth, you need the patience to remain invested for a long duration.
Lack of discipline in investment
Instead of spending what is left after investing people invest what is left after spending. This results in undisciplined investment. Do you know what is the root cause behind all these financial mistakes? Lack of knowledge about personal finance management.
No diversification in investment
Somewhat invest all the money in real estate. Some would invest all the money in gold. Some would just like to keep money in FD. Whereas some people just like to invest all the money in the stock market, Cryptocurrencies like Bitcoin. Very few people understand the right way of diversifying the investment
Buying stocks based on tips without any knowledge
Nowadays every Tom, Nick, and Harry is giving free stock tips over Facebook, WhatsApp, and TV shows, unfortunately, a lot of people fall into those traps and end up investing a lot of money what is the end result they lose everything.
Buying stocks on peak and selling on fall
Most retail investors get overexcited when the market is rising and they end up investing when the market is at its peak. Eventually when the market corrects they sell their investment at a loss.