I see people all around me who get paid handsome amounts at their jobs and yet crib about having none by the end of the month. These are often the people who end up working till they retire and have very little to show for it in the end. They spend all their lives living paycheck to paycheck and if you look closely, you will realize it is because of their relationship with money itself. They make the same financial mistakes over and over again, which may seem small individually but over time, they add up and affect them drastically. Here, we look at ten of the most common and detrimental money mistakes people generally make throughout their lives until its too late and all they left with is regret and an empty wallet.
Avoiding these mistakes can help you steer clear of major heartburn in your future.
1. Spending way more than you should:
This sounds like a no-brainer but it is often the one mistake people find the hardest to control. Desire is a deep pit with no bottom. Often, people go to buy one thing and end up getting five other things they did not need in the first place. Sometimes, it is greed (Sale! Sale!! Sale!!!), sometimes it is the desire to outdo your friends or colleagues and some other times, it is emotional spending. Be it the too expensive sports car or the designer clothes we could never pull off, we have all bought things we did not need. Understanding the difference between wants and needs can go a long way in saving you from financial doom.
2. Living on Debt:
Debt has become way too commonplace for people to realize just how addictive it can be. People often take debt for things they don’t need, like a car way out of their budget or a plush house. They end up spending all their money on these expensive loans living them with little for other things. This often pushes them to take even more debt for basic necessities, eventually pushing them into debt trap where all their income goes into interest payments.
Debt also comes with a massive psychological burden that forces you to avoid risks you may have taken if you had none (such as leaving your job for starting your own business).
Some debts are necessary and even wise, like in businesses. So why you take the debt is much more important to understand. But if you are the kind of person who wouldn't be able to manage it well, it is best to stay away from it.
Not all debt is bad. But having none is even better.
3. No investments:
Making this mistake is possibly as bad as being addicted to drugs, maybe even worse since you atleast get a high with drugs. Investments are not a choice, but a necessity. Read this blog to understand why investments are a MUST.
4. Delaying investments:
Many people often think investing is for the oldies. They postpone their investments to their distant future and end up spending all they earn on unnecessary luxuries that are way out of their budgets. However, the key to successful investments is time. Investments are like trees; the more time they get, the taller they grow and more fruits they give. Delaying your investments takes away its most important nutrient- time- and prevents you from the fruits of compounding. If you haven’t done it already, the next best time is now, not tomorrow.
5. Thinking bank accounts and Fixed deposits are investments:
It's one thing to not have any investments; it is even worse to think you have investments when you don't. Savings accounts and fixed deposits are not investments. They are simply not.
Rich people generally have very little bank balance, you see. Buy real assets that can beat inflation. The most important reason for investments is to grow your money by beating inflation. Savings accounts don’t even beat inflation rates so you are actually making losses. Fixed deposits may beat inflation in some cases, but they are highly illiquid and banks go for toss pretty quickly nowadays. Besides, the returns from fixed deposits are taxable. So it might be a better option to invest in tax exempt schemes like the Public Provident Fund (Check out some other tools for tax exemption in India). But even then, treat it only like a way to diversify. Only a small percentage of your total investments should be in such low-yield instruments.
6. Investing based on tips:
Often, when people realize the importance of investments, they go beserk and try to find the fastest route to catch up on their lost time. Of course, it doesn't work but they go about asking their friends for "hot deals" in the stock market. They search for the “Top 5 companies to invest in”, and often click on videos with titles like “Best 10 companies you can invest in blindly”, often without knowing the head of investing from its tail. This does not end nicely, of course.
There is nothing wrong in seeking out new opportunities to invest in but If you put your hard-earned money in companies or investments only because someone “trustworthy” advised you to without knowing anything about it yourself, you are essentially gambling. Ask others but do not make decisions solely on tips. Don’t buy because your favourite analyst on TV said so. Buy because you know why and what you are buying.
7. Having no insurance:
A cynic may argue that this is not a money mistake since you are actually "saving" money by not paying any premium. But someone with even scarce financial knowledge will tell you that insurance is a way to protect your investments.
Insurances can help you in case of unexpected emergencies. Not having an insurance puts you at a terrible risk of liquidating your investments and savings to pay for your bad times. If you don’t have any other insurance, have atleast two: health insurance, for medical emergencies and term life insurance, to help your family in case of your untimely demise.
Do not forget to read the scope of the policy thoroughly before you put your money in them.
8. Mixing investments and insurance
Hundreds of agents roam your streets in hopes to sell you terrible schemes which are often called Unit linked Insurance Schemes which promise insurance mixed with investments. They promise you great returns in the distant future, often in the form of fixed yearly payouts, while giving you insurance as well. But these schemes are terrible for both investments and insurance. They give you very little insurance cover, have hefty premiums, and if you calculate their returns, you will find the numbers are abysmal.
So, while they promise you best of both worlds, they give you the worst of both worlds.
Avoid them as feverishly as you tried to avoid Covid-19.
9. Having no emergency fund
You may often think an insurance may cover all emergencies but it may not be so. An emergency fund helps you with things which insurance doesn’t cover. Say, your ceiling suddenly began leaking one fine morning or an unprecedented pandemic forced your company to fire you despite your great performance, it’s the emergency fund that will come to your rescue. An emergency fund will help you float over any unexpected trouble without touching your investments so that you may This can help you mitigate unforeseen situations and you don’t have to take out money from your investments. Read this article to learn how to build an emergency fund in detail.
10. Chasing money:
This one is a bit philosophical and different from the other practical points listed above but true none the same. If you read this article, one thing that you may have noticed is that many of these mistakes occur because of people’s relationship with money and how they perceive it. If you have a healthy relationship with money, in that you are not chasing it or are not incredibly greedy or miser with it, you will handle it well.
And if you look closely, you will realize most successful people (who aren't married to or born to rich people) chase value, not money. They create or build something that they are passionate about, or really good at. Money comes as a byproduct. So instead of chasing money, chase values and skills and find ways you can affect more people. The more people you can provide your services to, the faster you get rich.
So don’t chase money, chase value.
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