Mistake #1. Rely on company health cover
Mistake #2. Addiction to credit money or loans
Mistake #3 . Overs-pending because of Social Pressure
Mistake #4 . Heavy Spending Habits
Mistake #5. Over relying on Robo Advisory
Mistake #6. Getting attracted with FREE advice
Mistake #7. Thinking that DIY is for everyone
Mistake #8. Start-up ka bhoot
Mistake #1 – Rely on company health cover
I advised someone to purchase a 10 lakh health insurance policy in the year 2021. The person works in a bank and, at the time, had little interest in acquiring his own health insurance. In 2023 he contacts me and informs me, “I have got a serious health issue, cancer detected in my kidney and doctors have suggested me to cut a portion of my kidney” .
He stated that the bank is only willing to pay 3 lakh, when the actual cost is 8-10 lakh. He asked if there was anything that could be done to purchase a backdated health insurance coverage, and I responded no.
Many people rely largely on their employer’s health insurance and occasionally end up paying a high cost. One illness can wipe out all of your savings. Ensure you have your own health insurance.
Certainly! Let us look at a simple example of how relying solely on the company might affect an investor’s financial life in India:
• Senario: Meet Rajesh, a hardworking employee at a prominent IT firm. He believes that the company’s health insurance plan is adequate for any medical crisis.
• The Problem:Rajesh fails to explore further health insurance options. He believes that the company’s policies will always protect him.
•The consequence: Rajesh suffers from a major illness, resulting in a health catastrophe. The company’s health insurance falls short, leaving him with significant medical expenses.
• Lesson: Relying only on workplace health insurance can be problematic. One disease has the potential to wipe out your whole savings. Rajesh realises he should have had his own health insurance.
Note: Make sure that you have health insurance on your own in addition to any advantages from your employer. It acts as a safety net to safeguard your financial security in any unforeseen medical issues.
Mistake #2 – Addiction to credit money or loans
These days, it’s common to see advertisements advertising low-interest personal and credit card loans as well as the ability to purchase goods on an installment basis. One of our clients tried to master the skill of utilising different credit cards to juggle money.
He plans to use Credit Card A for a loan, then Credit Card B for the remaining amount. Although he was successful at first, he soon incurred debt. We told him not to take on any more debt, to stay away from credit cards and personal loans, as he already had a house loan and a car loan.
He disregarded advice and ultimately had to stop his SIP; as a result, he lost all of his funds, which he now regrets.
Example
• Scenario: Priya is a youthful professional who works in Bengaluru. She enjoys shopping a lot and makes plenty of purchases using her credit card. She also takes out personal loans for non-essential purchases like electronics and trips.
• The Problem: Priya gets a false feeling of financial stability from her reliance on credit. She thinks that by taking out loans, she can afford anything.
• The Consequences: Priya accrues numerous loans and credit card debt over time. She has trouble making her payments on time because of the mounting interest rates.
• The lesson: Using credit cards excessively can put you in debt. Priya understands that she ought to have kept her credit and funds under check. Long-term financial stability requires responsible borrowing.
Takeaway: Use credit wisely, avoid unnecessary loans, and prioritize building an emergency fund.
Mistake #3 – Overspending because of Social Pressure
A client of ours had budgeted thirty lakh for his daughter’s marriage, but ultimately spent seventy lakh. All of the additional expenses were incurred on the pretence of “trying to look good”.
He ended up overspending due to pressure from family and customs. It took him almost ten years to accumulate the excess funds, which came out of his retirement account.
A lot of people get bigger automobiles and homes as a sign of achievement. It’s time to let go of these social pressures because nobody is going to support your retirement or dreams for the future.
Certainly! Let’s look at a nice illustration of how excessive spending brought on by peer pressure might affect an investor’s financial situation in India:
Example
Scenario: Meet Rahul, a Mumbai-based young professional. To keep up with his contemporaries, he frequently travels, purchases pricey devices, and attends opulent parties.
The Prolem: Rahul experiences strong social pressure to uphold a particular way of life. He thinks that purchasing luxuries is necessary to fit in with society.
The Consequence: Rahul incurs debt as a result of his mounting credit card debt. His funds suffer, and he finds it difficult to reach his financial objectives.
The Lesson: Financial stress can result from overspending in an attempt to fit in. Rahul comes to the realisation that his long-term financial security should come before his desire for instant approval from others.
Takeaway: Be mindful of your spending habits and focus on what truly matters for your financial security.
Mistake #4 – Heavy Spending Habits
Many people spend extravagantly on electronics and other items they don’t actually need. “If you buy unnecessary things, you will very soon have to sell things which you actually need,” stated by Warren Buffet.
His counsel and comments are priceless, and everyone should examine their spending patterns. For what purposes are you using your money? And what tangible value is it producing? Steer clear of impulsive purchasing and quick satisfaction.
Purchasing an expensive device, treadmill, or upscale household appliances can be one way.
Certainly! Let’s explore how heavy spending habits can impact an investor’s financial life in the Indian context:
Example
- Scenario: Meet Rohan, a young professional working in Mumbai. Rahul enjoys dining out at expensive restaurants, frequently shops for designer clothing, and takes lavish vacations.
- The Problem: Rohan’s spending habits exceed his income. He often uses credit cards to fund his lifestyle, accumulating debt.
- The Consequence: Over time, Rohan’s credit card bills pile up, and he struggles to save or invest. His financial goals take a backseat.
- The Lesson: Overspending reduces savings and prevents wealth accumulation. Rohan realizes that he should prioritize his needs over wants and create a budget.
Takeaway: Accountable spending is crucial for long-term financial stability.
Mistake #5 – Over relying on Robo Advisory
Robo advising firms are widely available in the market. Technology use is not always a bad thing, but it is important to consider the platform’s quality rather than just its cost.
A few months ago, by mistake, I happened to speak with Shubham Kapoor, his real name. He told me he was unsure about his mutual fund investments and that he had received guidance from a robo advisory service. I saw his portfolio, and all of the recommended funds were garbage. I instructed him to make the necessary corrections right away.
I created his current portfolio, and the funds are performing really well. I requested him to share his experience with me while I was writing this piece, and he did so right away. We have nothing against robo advisory firms, but they must also provide high-quality advice. I have not changed a word.
Certainly! Let’s explore how over-relying on robo-advisory platforms can impact an investor’s financial life in the Indian context:
Example
- Scenario: Meet Ananya, a young professional in Bengaluru. She enthusiastically embraces robo-advisors for all her investment decisions.
- The Problem: Ananya relies solely on automated algorithms without understanding the underlying strategies. She doesn’t seek human advice.
- The Consequence: When market conditions change unexpectedly, Ananya’s portfolio suffers. She panics and makes impulsive decisions.
- The Lesson: While robo-advisors offer convenience, investors should also educate themselves. Ananya realizes that she needs a balanced approach, combining technology with financial literacy.
Takeaway: Use robo-advisors as tools, but don’t neglect your own financial understanding.
Mistake #6: Getting Attracted with FREE Advice
This refers to the widespread mistake of seeking advice or services solely because they are free. The evaluation of advice is frequently based more on the expertise and experience of the provider than on whether it is provided free or for a price.
Example:
Scenario: Let’s say you are an aspiring business owner attempting to open your own company. Even after doing your homework and making plans, there are still certain elements you’re unsure of. One day, you come onto a post on a social networking platform made by someone claiming to be a prosperous business owner.. They are providing free business advise to anyone who is interested.
Problem: Attracted by the phrase ‘free’, you accept their offer. The advise appears sound at first glance: they recommend investing extensively in a fashionable product and promise you that demand will only increase. You put your trust in their advise and spend a large percentage of your capital in the development of this product.
Consequences: Unfortunately, after a few months, demand for the product reduces dramatically due to market saturation and shifting consumer tastes. You’re left with a lot of unsold product and a substantial financial loss. This setback has had a significant impact on your firm, and recovery appears to be difficult.
Lesson: The problem here was relying on free advice without examining the source’s reputation and experience. Even while the advice was free, it ultimately came at a high cost. It’s crucial to keep in mind that wise counsel often originates from seasoned experts who have a deep comprehension of the problem. Seeking expert advice while the stakes are high pays off since it can prevent expensive mistakes down the road. Always carry out your own research and, if necessary, consult an expert. Never forget that quality should never be traded off for quantity when it comes to advice. Occasionally, the priciest advice is the best kind..
Conclusion: While free advice may be attractive it is critical to assess the source of the advise and their reputation. Professional counsel may be costly, but it frequently gives value that free advice cannot equal. Do your own research and, if necessary, seek professional help. Remember that you should never compromise quality for affordability when it comes to advice, particularly in urgent circumstances. Ultimately, like they say, “You get what you pay for.” Therefore, it’s always a good idea to proceed cautiously when dealing with free counsel.
Sure, let’s delve into this common mistake:
Mistake #7: Thinking that DIY is for everyone
This alludes to the widely held belief that everyone can perform tasks on their own, commonly referred to as “Do-It-Yourself” or DIY. Even if developing new abilities and becoming independent are advantageous, not everyone has the resources, time, or aptitude for every task.
Example: Imagine someone who chooses to fix their own plumbing issue instead of hiring a licensed plumber for it. Before starting, they watch a few internet instructions. But because of their ignorance and incompetence, they end up causing more harm, which means that when they finally have to hire an expert, the repair process will cost more money.
Scenario: Let’s say you operate a business and want to save money by handling all bookkeeping and accounting duties yourself.
Problem: Despite your best attempts to learn and grasp accounting principles, you are not a trained accountant. You end up creating mistakes in your financial statements.
Consequences: These errors provide false financial statements, which may result in legal challenges, tax penalties, and poor company decisions based on faulty data. The time you spent trying to handle the books may have been better spent on things that required your skills and knowledge.
Lesson: The problem here was assuming that DIY was for everyone. It is critical to recognise that, while it is useful to gain new abilities, professional activities should be left to professionals. The cost of employing an expert is frequently lower than the expense of making mistakes. It is critical to understand your skills and weaknesses and distribute duties accordingly. Remember that time is a valuable resource that should be spent carefully.
Note: DIY can be a terrific way to save money and learn new skills, you must be aware of your limitations. Some jobs require professional skill, and trying them without the proper knowledge and experience can cause more harm than good.
Mistake #8 – Start-up ka bhoot
I recall the beginning of Manish and Myself’s enterprise.
I requested that Manish stick to his work till we have complete confidence in our endeavour. In January 2021, he decided to give up his job and focus all of his energy on writing and blogging. I’ve worked with a few entrepreneurs who started their companies without first conducting any personal financial planning.
In my opinion, doing business is all about taking chances; it’s never a free fall. All I ask is that you not let your company concept overwhelm you and that you not combine your personal finances with your business endeavours. It’s not always necessary to quit your lucrative job to launch a business just because it seems “cool.”
Certainly! Let’s explore how the “Start-up ka bhoot” (the startup obsession) can impact an investor’s financial life in the Indian context:
Example
- Scenario: Meet Amit, a young IT professional in Bengaluru. He’s fascinated by the startup world and dreaming to launch his own venture.
- The Problem: Amit invests all his savings into various early-stage startups, hoping for massive returns.
- The Consequence: Unfortunately, most startups fail, and Amit’s investments vanish. His financial stability is at risk.
- The Lesson: While startups offer potential, overcommitting to them can be dangerous. Amit realizes that diversification and risk management are crucial.
Note: Balance your portfolio; don’t let the “start-up bhoot” blind you to other investment opportunities.
Final words
Don’t be afraid to make mistakes, but also have the courage to admit and improve on them.
Wealth building depends on being honest with yourself regarding money. If you choose, you might share some of your mistakes and new commitments for this year. Please comment.
Thank you for joining us in raising financial awareness. There will be a lot more in the coming year, and we look forward to continuing our love and relationship.
