Yesterday, we celebrated ‘Teachers’ day’ in the memory of Grate Mr Sarvepalli Radhakrishnan! Our teachers have indeed a strong place in our lives as they have helped us in shaping our personality, knowledge & attitude in one way or the other.
In the words of Mr Ralph Nader, “Your best teacher is your last mistake”!
Well, that holds true!! Apart from people in our life, our experiences & mistakes, give us lessons that remain helpful throughout our life.
When it comes to our ‘personal finance’, in the process of earning & handling money, we do make some mistakes! Some mistakes are not harmful but some cause damage to our mindsets, cashflows & investments too.
Then in an attempt to rectify it, we do take efforts to learn different concepts & way of investing, read about many things, listen to experts.
Let’s talk about some such common mistakes & understandings that teach us to be better at money management & handling our personal finance.
- Sticking to traditional investment products only:
Many a times we feel that traditional investment products such as bank FDs, recurring deposits etc are ‘only’ good enough to make our money work for us. But, considering the rate of inflation today, our future goals, standard of living & different ways to spend money on, we have to take support of new age investments like mutual funds, bonds, NCDs etc.
When chosen right, they work better for us.
- Equity is too risky:
When we see market ending in ‘Green’ & closing at new highs, we jump on to making investments. Without knowing the risk, without understanding the fundamentals of respective stock & without acknowledging our risk appetite, if we jump on investing our money in the markets, then we may end up losing our money big way.
When we do this, it changes our mindset forever about equity markets & even if new suitable opportunities come our way, we ‘ignore’ & that way loose on the chances of making profits for us.
- Not creating ‘emergency fund’:
When we start earning, we either spend our money on our long list of wishes & items or start making investments directly. But here we simply ignore, the troubles which any emergency situation may bring to us.
Today, we are still leaving in the shadow of this pandemic & different problems occurred due to it. Many of us learnt it hard way when many of closed ones lost their jobs, faced huge losses in business, spent money on healthcare from investments made for long term goals, lost their only earning member in the family.
‘Emergency fund’ helps us fight any contingency with confidence as the corpus takes care of our monthly household expenses & we are free to find permanent solution to our problem.
We should have emergency fund equivalent to minimum 1 year of our monthly household expenses. Please note that, if we are in a profession where our incomes are vulnerable & can go awry when hit with any emergency, then we need to increase the amount of emergency fund.
- Buying a product mix of insurance & investment:
When we spend money, we always ‘seek’ some returns on it. Even when we buy insurance, we want our money back after a period with some returns on it!
Insurance is always about ‘protection’ to our dependent’s ‘financial wellbeing’ when we are no more. We should not be looking for earning returns from the same. To earn returns, we should invest our money in ‘pure’ investment instruments.
When it comes to ‘insurance’, a right & suitable ‘term insurance’ cover is a must.
To help us pay the bills of medicines & hospitalization, a right & suitable ‘health insurance policy’ for us & family is required.
We often ignore these facts, end up buying some marked linked policies or a mix of insurance & investment products, & realize it hard way at the time of actual claim settlement.
Today, no of people applying for insurance is more compared with pre-pandemic period.
- We should earn more to plan our finances:
A person once told me,’ I would like to plan my finances but only after my salary becomes Rs.——– this much”!
Many of us think that, we should earn higher to plan our finances, but that’s not right.
Whatever our earnings might be today, we should ‘plan our finances’. When we plan, we become mindful in spending & thoughtful in investing. This makes our money work for us…
What is your last mistake which taught you about understanding ‘personal finance’ better?