In spite of being well educated, well traveled across – still we are prone to making mistakes in life. Some mistakes can be corrected easily but some have long term impact on your life. In financial journey too, there are some mistakes which have long term negative impact and after a point it’s impossible to come back from red zone into the green zone.
Worst money mistakes one can make
The journey to wealth requires a series of correct steps at right times pertaining to your finances. However there are a set of mistakes that exist which can ruin the hard work & self control of years.
I am listing them down below, they are not in sequence, but randomly placed. Anyone of these can ruin your financial plans and rock your retirement years
- Over spending: Overspending means spending more than you earn. This will keep increasing gap between your income and expenditure and ultimately the black hole will such all your resources.
- Not working to grow & maximize your career: Basic education is required and it is a must to embark on journey to wealth creation. Education helps you in understating things better, take rational approach, take timely decisions, plan strategies etc. Aim should be to maximize your career through education so that you have steady income for expenses and investments.
- Waiting to invest till right time comes: There is a Chinese proverb, “The best time to plant a tree was 20 years ago. The second best time is now.” The same goes for investing. Albert Einstein was amazed by the power of compounding and called it the eighth wonder of the world. The key is to start as soon as possible and to stay in the race as long as possible. You cannot time the markets hence the right time is now to start investing.
- Not saving enough: Unfortunately there is no magic figure or magic formula that if you save X% of your income you will become wealthy. The perspective of X% differs for a fresh graduate starting job and someone who has spent 30 years in corporate world. Most of the people make mistake in assuming “Things will work out eventually” They absolutely ignore inflation and rising costs of housing, costs of healthcare, education. These costs can make a big dent in your savings.
- Marrying the wrong person: Creating wealth is a team effort involving family members. Once you start working, gradually you tend to settle in life by marrying, planning for home, kids etc. It is very important to choose life partner carefully. A careful selection can make or break your plan of becoming wealthy. Both the spouses should be on same page as far as road to financial freedom is concerned.
- Not having enough insurance (life as well as health): People usually tend to ignore insurance. They take insurance to save tax and mix insurance with investments. This leaves them neither here nor there. Result is they are neither covered adequately nor their investment cum insurance policy sold to them by their trusted advisor is yielding any positive returns post inflation deduction. By doing this they are leaving their wealth creation plan in limbo.
- Investing heavily into real estate: Real estate investments are usually advisable once you are done with all other investments with proper asset allocation. House/flat for self consumption is not counted here. Reason why because real estate investments are big ticket purchase. Also the returns are usually good in long term. The process of buying ad selling could take up to 6-12 months. This makes them illiquid to certain extent. If you tilt your asset allocation towards real estate, you may run a risk. What if real estate pricing falls? One should take holistic approach towards real estate. Also since ticket size is big and you cannot sell part of the asset if you need money unlike stocks/mutual funds/bank deposits.
- Not having a will: No matter what’s your age, you must have a will. Creating a will is not grandpa / grandmas job. Whatever you have earned, whatever wealth you have accumulated so far should be passed on to your successors in case of something going wrong with you. Will also prevents strife in families at a later date. Even you should have nomination forms properly filled with banks and financial institutions where you have deposits. This makes life easy for family members in case of something going wrong with you.
- Buried deep in debt: Easy consumer loans lure you to fall into temptations of buying what your neighbors buy. This keeping with Joneses syndrome can be a big debt trap. Buy 80 inches 3D LED TV when you deserve, not on EMIs. Buy when you are ready financially. If EMIs are taking ac hunk out of your monthly income, you are not going to succeed in wealth creation. Have a practice of buying with cash.
Avoiding above mistakes is not a rocket science, but takes a balanced well planned approach. As I said earlier, any one of the above is capable to derail your train to wealth creation.