The youth nowadays are being influenced by movies and role icons that suggest life is unpredictable, so, rather enjoy each day to the fullest without thinking about the future.
In today’s digital era, investors don’t tend to think of their future and expect results to be instantaneous. This problem instead of being addressed is further being enhanced by digital and social media. The youth nowadays are being influenced by movies and role icons that suggest life is unpredictable, so, rather enjoy each day to the fullest without thinking about the future. Though, we agree to it partially, but not thinking of your future at all is being foolish instead of being smart. Our focus over here is the monetary consumption (expenditure) and investments. According to us, there should always remain a balance between your current consumption and investments.
To throw light on the issue, let’s discuss 5 money mistakes in your 30s which will haunt you in your 50s:
1. Underestimating Future outflows
Rs 1 lakh in 1997 is worth just Rs 29,117 today. According to the dictionary, income not spent is saving, but ask yourself: Are you saving enough to beat inflation? Inflation will make us poorer with each passing day unless we nurture and give our investments enough time to grow. As we look around us, we can clearly see prices of goods and services keep rising Year on Year and what was worth Rs 100 last year is probably worth Rs 110 or even 115 this year. Inflation eats away your savings, bit by bit like a parasite. We keep complaining about this; yet, we fail to incorporate this knowledge into our savings and investment decisions. Therefore, it becomes necessary for us to make future value assessment of the amount which might be required by us in the future, after discounting for inflation and then inclining a goal towards it. A ‘Future Value Calculator’ will help you assess the same.
2. Understating Health Insurance & Not undertaking Life insurance earlier in your age
We haven’t seen the future and so we never know what will happen tomorrow. For instance, a sudden death can sweep away a child’s dreams or a sudden hospitalization can erode all savings in a single hit. Therefore, it becomes necessary for us to insure our loved one’s from these turbulances prevailing in our life. And th e fact is if you don’t consider Insurance at an early age, then acquiring it at a later stage of life not only makes it expensive, but increases the risk as well.
3. High Credit Card debt and higher home loans
Be careful while taking loans. Do not borrow more than what you can actually pay. If you have an existing debt, pay it first, then spend. Get rid of loans on which the rate is the highest. Typically, 75-80% of your earnings goes towards loans than savings, then how are you going to save? And if you never save, then how will you pay these loans when you stop earning? And if you keep clearing loans only through your life then where will your other life goals go? Therefore, keep your expenses low and buy what you require and not what you desire. You can fulfil your desires when the investments reach a sizable amount and can afford frivolous spending. Investment legend Warren Buffett had rightly said, “If you buy things that you don’t need today, tomorrow you will have to sell things that you need.”
4. Not understanding gap between saving and investing
We often notice common mistakes like considering saving and investment as the same thing. However, both are relatively different. Basically, saving money is putting money aside on a regular basis. As you spend less money than you earn and put the rest in the bank. It should be one’s habit to save as we never know the future. As we move forward to investing, it is taking this a step further. Once you are able to save a good amount, you can begin investing money. Investing will help grow your money and eventually build wealth. If you keep your savings in a saving account, the amount of interest you earn will not even beat inflation. However, if you invest, say, in mutual funds or stocks, your rate of return will be much higher over the long term. You will eventually reach a point where you will start earning more than your contribution each month.
5. Not taking a professional advice and feeling ‘I know it all’
Financial planning is the process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds. It is a complex process and is not as easy as perceived to be. Therefore, it is advisable to bring in a professional expert to help you incline your wealth towards your goal. After all, it is what the expert does on a daily basis and a single mistake could cost you a bomb!
(By Abhinav Angirish, Founder, www.invetonline.com.in)