Ganesh Chaturthi 2019 comes in the midst of challenging times. It is a little more than a year since the liquidity crisis hit us in the aftermath of the IL&FS default. It set off a chain reaction with money becoming tighter and consumers and investors becoming tight-fisted. This Ganesh Chaturthi, therefore, may also be the appropriate time to look back at some our typical financial habits and take steps to avoid them.
Mistake 1: Treating savings as a residual item
This is a common mistake most people commit, so most likely you are with the vast majority. What this means is that that you put down your income on one side of a sheet of paper and pen down your expenses on the other side. The difference, if any, becomes your savings. The problem with this approach is that you will never be able to save and invest anything substantial. That is because; your expenses have a weird ability to expand with your income. The answer is to jot down your goals and then work backward and calculate the savings required. Then you prepare your budget and see how you can pinch corners and reach the savings target. That is better than a passive approach of just saving what is left.
Mistake 2: Investing randomly on tips and intuition
We can look at this common mistake from the perspective of equity investing and also from your financial planning point of view. Investors often tend to invest in stocks based on tips and WhatsApp forwards from well-meaning friends and relatives. If you expect to make serious money out of such tips, just perish that thought. The second mistake pertains to our financial plan. You normally buy mutual funds and insurance policies at random. The correct way is to start with your goals and then work backward to determine your insurance needs, liquidity needs and wealth management needs. Let this Ganesh Chaturthi help you make the right start with respect to your wealth management.
Mistake 3: Waiting too long for the right investment
If you wait for the stock to fall another 10% before buying or if you want the stock to rise another 10% before selling, there is a possibility that you may never get it. There is nothing like the right time to enter and the right time to exit. You need to be approximately right in your entry and exit rather than precisely right. One way to address this is through a systematic or phased approach to investing and a rule based approach to reallocating your portfolio. If you adopt a phased approach (like a MF SIP) then you are very likely to have a lower acquisition cost. When it comes to exiting your investment make it rule-based. This will ensure that you automatically book profits out of value and have liquidity when there are opportunities. Let Ganesh Chaturthi 2019 be the time to adopt a more rule based approach to entry and exit.
Mistake 4: Rolling over your credit card dues
This is where most of your financial problems begin. Repaying just 5% of your outstanding on your credit card looks quite enticing but it comes at a huge cost. Credit cards carry interest rates of 35-37% per annum and if you pay these rates on your debt, you are never going to be able to grow your wealth. There are two mistakes to overcome here. Firstly, make it a point to use your credit card like a charge card. You get the convenience and credit limit without the hassles of managing debt. Secondly, when you get lump sum flows first repay your credit card dues.
Mistake 5: Getting your insurance and investments mixed up
Buying endowments and ULIPs looks like a smart move because you are hitting two birds with one stone. You get risk cover and you also get an investment that grows. Unfortunately, it is a very inefficient way of planning your finances. One of the basic diktats of financial planning is to keep your risk management and investments separate. A smarter way is to take a pure risk insurance cover for a larger value and investing the money saved in mutual funds for growth. That is called hitting two birds with one stone.
Let Ganesh Chaturthi 2019 be an opportunity to unlearn the mistakes of the past.