What money management mistakes you do ?

Do you manage money effectively ?

I have been discussing a lot with my friend regarding money management. He is a lean manufacturing consultant and he works closely with manufacturing companies. He wanted to do a presentation for those people and provide money management techniques to them. So that they will live their life effectively.

One thing we found is that most of them were not aware of these mistakes. Ultimate reason is they don’t realise it as mistake itself.

We have listed 7 common mistakes which most of them make in money management,

1) Lack of Insurance

2) Tax savings

3) Using Insurance policy as savings

4) Chit funds

5) Gold jewels

6) Buying apartments

7) Fixed deposits

Lack of Insurance ;

Insurance is risk management tool only and it should not be seen as investment avenue. The only reason for lack of insurance is this only. Recently one person aged 48 died and the insurance company has went to their home to settle the claim amount. The only question she asked them was “ why less insurance was provided to her husband ? “.

Tax savings ;

You can use section 80 C effectively by investing in tax saver mutual funds or in ULIPs for longer time period. Biggest mistake everyone makes is investing in insurance again and showing home loan principal, tuition fees etc as tax saving. Use this section to invest properly for your future and to save taxes.

Using Insurance policy as savings ;

Only place where most of them follow their elders is taking investment decisions based on the advise from their parents. Yes, even after knowing that insurance policy is not going to provide great returns, everyone goes with the advise of their parents.

Cover all your risks such as loans and your future financial life with term insurance and personal accident policy.

Chit funds

Chit funds might help business people to get immediate money when needed. If you are using chit funds a lot, then you might be at risk. Across India there were numerous instances where chit fund companies are closed. Though RBI and Government provided some regulations, still it mostly consists of unorganised sector. It is better to avoid chit funds as the risk is always unknown and it is dangerous for your corpus.

Gold Jewels ;

As per Indian stats, Indian households has more than twenty thousand tonnes of Gold already. Still the craze of gold among Indians haven’t reduced.

Consider in every family there is few sovereigns of Gold exchanged during their marriage. Stop investing in Gold, meaning don’t buy gold bars or jewels in the name of Investment. You can choose Gold ETF’s or sovereign paper issued by Government. In the last 20 years the average returns of Gold is around 8-9% only and in the last 7-8 years the price haven’t gone beyond the level of 2011.

Alternatively, you can invest in diversified equity mutual fund and then use that amount to buy gold during marriage. Returns in this way will be for sure higher.

Buying Apartments ;

I can say this as an era before IT revolution and one after this. Yes, it was like save for your lifetime and then buy a home or flat during the time of retirement. After 2003, the disposable income has risen significantly and it is easy to buy an apartment.

Lead a happy and enjoyable life with your income. Start saving, get insured, save for yourself. Focus on buying an apartment at later stage of life, around your 40’s. By this time your income and your family would have grown.

Fixed deposits ;

Returns from fixed deposits had gone down in the last decade. From 1970’s inflation have stayed in double digit. Therefore interest rates also stayed in double digit. Now Government have focussed on containing inflation and hence reduction in interest rates. In this period your expenses have grown significantly and unknowingly.

Investing in Fixed deposit is not a wise choice with little saving you do.

Watch this video to know about our discussion on tis topic,

7 Common Mistakes in Managing Money
Watch this video on YouTube.

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