Financial discipline and the right knowledge about managing your finances is a must. This will not only help you grow your money but also enhance the standard of living.
Surprisingly, this is the one sector wherein we as Indians fail and make big mistakes. From money lying under the mattress to buying the bulk of gold, there are endless mistakes that we make when it comes to money.
Listed below are a few big mistakes that Shruti’s dad has been making for years like many other Indian dads. In turn, Shruti as the well aware youth has decided to suggest changes to the conventional methods.
Putting the money under the mattress
Shruti’s dad continues to save money but not in a way that will yield him returns on his savings. Putting the money under the mattress, in the almirahs, in the kitchen dabbas and almost everywhere but in a high-yielding account has been his approach for years.
Even though he uses the method of ‘out of sight, out of mind’ technique for his money to cut down on unnecessary expenses by his family, the money lies idle. This way, his money is not working for him but is merely getting lost in the process.
Shruti, on the other hand, has suggested her father to deposit his savings in funds that offer an impressive interest rate. You would now think ‘why not savings or current account?’
The answer is, both these accounts might keep your money safe but they offer very little interest rate which makes it equivalent to keeping your money idle.
No financial plan and goals, merely going with the flow
Mostly Indians have a standard approach of just going with the flow and not planning their expenses. Having a financial plan is a must as it safeguards your future as well as your family’s future. Shruti’s dad does not have a financial plan in place which means the short term and long term goals are missing.
If we can create a detailed plan for a relative’s wedding function or for a vacation, something that does not even yield us returns, why can’t we plan our expenses and financial goals for 60-80 years of our life?
Shruti has decided to sit down with her dad and help him draft a detailed financial plan with all the minor and major goals. This will ensure that he has a protected and independent life even after his retirement.
Not investing when they are young
The majority of the Indian population is of the view that investing in bonds and funds is for the older generation with kids. The youngsters just utilise all of their money to enjoy to the fullest and party or just save it in their bank accounts. Well, this is not true, financial experts believe that the younger you are, the greater are your returns at your retirement age.
For example, if an individual decides to invest Rs. 100 per month in mutual funds beginning at the age of 25, he/she will have almost Rs. 1 crore by the age of retirement. This is how powerful compounding can be if done perfectly.
Shruti feels that she should even begin investing a very small chunk to mutual funds every month to grow her money manifolds. Her dad should invest a considerably higher proportion to grow his money by the age of retirement since he is already 38 years old.
Not taking a serious approach towards insurance
Mostly Indians consider insurance policies as a waste of money and a medium of fraud which is completely false. Investing in life insurance, health insurance, etc. not only protects you but also ensures the best use of your money.
Additionally, if you are the breadwinner of your family, make sure you are insured. This is an asset for your family and protects them in the long run.
Shruti has researched the best insurance companies and is not comparing their premiums and returns. She has decided to get herself as well as her father insured and buy health insurance for the entire family.
Investing the entire corpus in one basket
Mostly Indians have a conventional mindset of investing all of their money in one kind of asset only, either real estate or gold. This stagnates the growth of your money.
Also, it causes the risk to the entire corpus, you might wonder ‘how?’ Well it is quite simple, if you have invested all of your money in real estate and one morning the real estate prices hit real low, your entire portfolio will suffer and the value of all of your money will depreciate.
It is best advised to invest equal or almost equal proportions of your money in different assets. Invest one portion in real estate, one in the stock market, one in purchasing gold paper, equity, etc.
A diversified portfolio means a diversity of returns and protects you against total losses. It is important to do a risk analysis of your portfolio from time to time and keep shifting money from one asset to another according to the analysis.
To sum it up
Making mistakes while handling your finances can have a deep-rooted impact both for you and your family. Make sure you are well versed with financial knowledge and your tax returns.
In case you find yourself struggling, it is better to talk to a consultant who is both reliable and authorised. Letting your money stay idle will only stagnate the probable growth.
In the end, make sure you confide all of your financial goals and decisions to your partner or parents, this will keep them prepared for tough times.