There are many stereotypes about Indians and their equation with money. Some of these stereotypes are not entirely wrong. One such stereotype is that we Indians like to keep our money close and protected. We usually follow the mantra ‘spend what is left after your savings’. What we however don’t realise is that despite our several efforts, we are actually losing money, or at least the opportunity of creating and growing our wealth, because of certain mistakes we commonly make.
Here are top 11 mistakes:
1. Buying too much Gold- Indians, especially women, spend too much on Gold products and jewellery. They see Gold as investment which is a mistake. Gold gives low return over a very long period of time. Instead, Gold is like an insurance product as it retains value in crisis situations arising due to financial and geopolitical uncertainties.
2. Putting all eggs in one basket- We often tend to invest all our money in just one category of assets or instrument type. Doing this not just increases the risk of us losing our money, it also deprives us of the high returns we could have earned if we had invested in other instrument types and asset categories as well.
3. Concentrating on saving rather than wealth growth- Saving helps us financially secure our future goals like children’s education, house of our own etc. However, due to inflation, it is less likely that our saved money will be able to fund our goals completely, no matter how much we save. The correct thing to do therefore is to invest our money in assets that can yield good returns and grow our wealth.
4. Not reviewing investments periodically- It is important to review our investments because our priorities change with time and we might need different investment options for our new priorities. Also, the market keeps fluctuating and hence we need to keep monitoring our investments to make sure they don’t bring losses.
5. Money lying idle in banks- We Indians often put a lot of money in banks, whether in savings account or fixed deposits. The interest rates offered by banks on both are usually less than 10%, so the return earned on them is low. Therefore, instead of putting a lot of money in bank, invest it in other instruments which can yield greater returns.
6. Being under insured- It is alarming how most of us do not understand the importance of insurance. As per an IRDAI report, penetration of life insurance in India fell from 3.40 in 2011 to 3.17 in 2012. The figure for health insurance is also quite dismal as only 0.2% of our country’s total population has a health cover. But for our and our family’s financial security, it is important that we buy these two insurance. Apart from life and health, motor, home, and travel are some types of insurance that we must buy.
7. Confusing salary as income- Indians tend to consider just our salaries as our income. We forget that it’s far more than just that. Our matured fixed deposit, the interest earned on our money in bank, and returns on our other investments, like money back from a matured insurance policy also form a part of our annual income, and therefore we must plan our expenses and taxes taking them into account.
8. Starting retirement planning late- During our twenties, we are so elated with our financial freedom that we keep splurging on ourselves, without thinking much about our financial requirements during our retirement years. We don’t realise that the key to retiring happy and comfortably is planning our retirement at an early age. So, if you are 25, then don’t wait for another 15 years to start planning your retirement. Start today itself.
9. Depending on inheritance- Many Indians depend too much on inheriting property from parents and guardians. However, inheritance rights many a time run into legal troubles due to which we might not get the money that we are anticipating to inherit, despite being entitled to it. Moreover, the inherited money does not grow and instead eventually gets consumed. So, we must make our own plans for wealth expansion instead of depending too much on inheritance.
10. Concentrating on tax saving- Instead of concentrating on wealth expansion, we Indians concentrate more on tax saving. In a bid to save maximum taxes, we invest in instruments that do not give much returns. So where we could gain good returns, we do not earn much by investing solely for the purpose of tax saving.
11. Trading in stocks without good knowledge- While many people are too risk averse to invest in stocks, the ones who are overtly adventurous invest in them without even having a good understanding and knowledge of the market. Due to this, they end up incurring losses. Investment in equity is a good option to grow our money but we must not do it without help from a financial expert or unless we ourselves have adequate knowledge of the market.
Time is changing and world economy is changing with it. Due to globalisation, events affecting world’s economy affect Indian economy too. Therefore, we can’t keep managing money the way our parents and grandparents did in their day and age. We need to keep up with latest methodologies to maximise our wealth growth and stop making the same financial mistakes that we Indians have been making since a long time.
While credit cards come with a host of benefits, they must be used carefully, and never in these situations!