We all make mistakes. But, where ur money is concerned, they can cost u dearly.
Here we bring u the six most common money mistakes. Avoid these to ensure that ur finances are on track.
*Mistake 1
*Waiting for tomorrow
The ancient adage is true: Time is money. Because u need time on ur side to allow ur money to multiply.
Let's say u had an amount of Rs 10, 000 to invest at 9% per annum.
If u invested for?
u would have got?
10 years
Rs 23, 673
8 years
Rs 19, 925
6 years
Rs 16, 771
4 years
Rs 14, 115
A six-year delay(between four years and 10 years) would cost u Rs 9, 558.
The more time on ur side, the more the effect of compounding. Don't wait for the day when u have a fat bank balance. Start now, however small the amount.
*Mistake 2
*Saving only on special occasions
Don't wait for ur bonus to save. Or for Diwali, Christmas or birthday gifts. Saving should be a habit. u may not be able to save huge amounts every single month so start small.
Let's talk about the Rs 10, 000 again. Now, if u invest it at 9% per annum for 10 years, u will get Rs 23, 673.
But, if u are just a little more consistent and decide to add an additional Rs 500 every month to this kitty, u will finally end up with Rs 1, 18, 532. This little monthly contribution surely did not pinch ur pocket and look how u got rewarded in the end!
Be consistent. It hurts less and the rewards are better.
Mistake 3
Investing before clearing ur debt
If u are in debt, that should be a priority. Not investing.
On an average, the interest on personal loans and credit card loans amounts to around 18% to 30% per annum.
Let's say the interest on ur credit card is 2.5% per month. This amounts to 30% per annum.
So, if u want to invest(instead of settling the bill), u should be investing in an instrument that will give u more than 30% per annum after tax. Which, incidentally, is virtually impossible - unless u are a stock market wizard. But, that too is not guaranteed.
Mistake 4
Playing it safe
If u are in ur 20s, please don't look solely at the Public Provident Fund, National Savings Certificate and bank fixed deposits. u must consider investing at least some amount of ur money in the stock market.
For a number of reasons. u have time on ur side. A stock market investor must always think long term. Being young, u have the time to ride the ups and downs of the market.
What's more, the stock market will still give u the best return compared to other investments.
If u don't like the idea of buying shares, maybe u could invest in a diversified equity mutual fund. Here a fund manager will invest in shares of various companies in various industries. Read How to invest in mutual funds.
If that still scares u, then u can try a balanced fund. Here, part of the money is invested in the stock market and part of the money in fixed return instruments.
For Stock Market investment, u should be prepared. Read good books and news letters. The one book I recommend is "One upon Wall street" and news letter "The economic times". Understand it then invest.
Mistake 5
Not doing smart tax planning
Don't let the tax-man take ur money. Use all the provisions to save on tax. Take a good look at Section 80C.
u can invest up to Rs 1, 00, 000 in the investments mentioned in this section and u will get that much deducted from ur income when tax is being calculated.
So look at the Public Provident Fund and National Savings Certificate. Both give u 8% per annum. Read PPF vs NSC.
Also check out Equity Linked Savings Schemes. These are diversified equity mutual funds with a difference. The difference being that u have to lock-in ur money for at least three years and u get the tax benefit under Section 80C.
If u are an employee, the contribution to ur Employees Provident Fund also gets added to this Rs 1, 00, 000 amount. Read PPF vs EPF.
Mistake 6
Not looking at insurance
Look at protecting ur savings and augmenting them.
If ur company does not cover u and ur dependents for medical insurance, take out a Mediclaim policy. A sickness can wipe out ur bank balance. Read All about Mediclaim.
Talking about dependents, if u have any, then u must take out a life insurance term policy. In case u die, then ur beneficiaries will get the amount that u are insured for. Because ur savings will not be adequate to tide them over. So u must provide for them financially.
Let's say u are a 25-year old male and u take a term insurance for Rs 10 lakh(Rs 1 million) for 15 years. Should u die during this period, ur beneficiary will get Rs 10 lakh. The annual premium that u will be just Rs 2, 890.
So there u are, six money mistakes. If u are guilty of any of them, start shaping up. It's not difficult to get back on track
