All of us have made mistakes in our lives. We make mistakes everyday. To err is human.
Money management mistakes are no exception , they hurt a tad more as there is a financial loss that comes with it.
A wise man learns from his mistakes and does not repeat them .
Here are a few money management mistakes that people commit frequently. Have you committed these mistakes too?
1 – Investing without thinking
Have you invested on the spur of the moment because that pushy salesman kept insisting you invest in that fancy scheme ? Did you read the “terms and conditions” and the product brochure thoroughly before putting in your money?
If No, then you have made a mistake, even if the outcome turns out favorable, remember it was luck/fluke.
A good investor reads the fine print before investing.
2 – Investing to Save Tax
The tax filing season is almost upon us. This is the time when people make wrong investments without doing need- benefit analysis. They trust advisors/relatives/bankers blindly with their money and hope to make bumper returns.
Are you investing in the wrong product just to save taxes? At times, it is better to pay tax than to invest in a wrong product which leads you nowhere.
3 – Confusing Insurance with Investment
This is the most common mistake investors make. Never confuse insurance with investment.
Keep Insurance and investment separate . Do not look for great returns from Insurance products, as these are made to insure you not to grow your riches . Investing in a ULIP to build your wealth is the wrong path . Invest in instruments that are designed for wealth creation . I have seen people huge amounts of money by investing in low-yield investment products assuming these were designed for maximum wealth generation. So, Invest only when you are 100% sure.
4 – Keeping Funds Idle
This mistake is quite common among lazy people. Have you kept loads of money idle in savings account?
If yes, you have lost out on significant interest income by keeping funds in low-yield savings account.
You should be aware of the interest rates offered by banks in savings and deposits accounts.
5 – Not Filing Taxes on Time
This is perhaps the most common mistake we make deliberately. Despite multiple ads in different media such as newspapers, TV, radio etc , we turn a blind eye to filing taxes on time. This impacts us in more ways than one.
The consequences of not filing your taxes can be :
-Denial of Visa
-Rejection of Loan
-Poor credit score
– tax refund claim rejection
6 – Spending more than you can afford
This is the cardinal sin that we all commit. Thanks to instant credit available via credit cards and EMI schemes consumers don’t even realize that they are spending more than they should. This leads to debt. When debt mounts the savings shrink. When saving shrink , you live from one pay cheque to another.
Have a look at your annual credit card spends your form 16. If the earning (cashflows) do not significantly outweigh spends (cash-outflows) then there is an issue that needs to be addressed ASAP.
7– Saving only what is leftovers
If you save only what is left out after indulging yourself, don’t expect your savings to do wonders.
If you invest leftovers , the results will also be pedestrian.
A good investor saves more and leaves the rest to the power of compounding . The earlier you start, the more your corpus will grow. The more you invest, the more it grows.
Therefore , do not invest only the leftovers . Allocate more funds into investments early on and retire earlier.