1. Living beyond your means:

  • You must make a closer analysis of all the things that you are spending your money on and whether you can do without them, e.g: spending on cable TV, cigarettes, entertainment, mobile phones, hotel bills, EMIs, vacations, new clothes, shopping bills, consumer durables etc. You must differentiate between necessity and luxury and focus on necessities only.
  • You must make it your goal to save at least 30% to 40% of net take home salary every month

2. Spending using credit cards and borrowed money:

  • Credit cards are very addictive as it allows us to buy products and services without having to pay cash first.
  • Few people are aware of the very high interest rates that banks charge when you pay only the minimum balance due and revolve the remaining amount of your credit card monthly bill.
  • You must closely analyze whether you require a credit card at all and if so, how would you control your spending urges.

3. Lending money:

  • Many people lend money informally to friends, family and in social circle
  • This lending is often informal only on verbal basis and without legal documentation
  • Later on, many people struggle to get the money back.
  • You must never lend money in the first place and if at all you do so then you must have proper legal documentation to do so.

4. Buying a new car:

  • Lacs of new cars are sold every year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car.
  • Furthermore, by borrowing money to buy a car, you are paying interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money.
  • You must think hard whether a car is really needed and if so, would this need be satisfied by buying a small car, which is economical to buy and maintain.

5. Buying a big house:

  • Many people buy a house much bigger than their small family needs, since it is funded by a bank loan.
  • What people fail to understand is that unless you have a large family, choosing a big home will only mean more expensive taxes, maintenance and utilities bills. Do you really want to put such a significant, long-term dent in your monthly budget?

6. Not drawing up a financial plan and investing without planning:

  • Many people have excess money lying in savings bank accounts for months and years earning minimum interest.
  • Many people buy life insurance policies without studying the need an the type of insurance really required to be bought. Many people do not buy or buy inadequate mediclaim insurance cover.
  • Many people invest money in unproductive assets like gold and precious metals due to family pressures and social reasons.
  • Many people do not invest in equity stocks and equity mutual funds because they have misconceived notions and do not understand that in the long-term equities is the only asset that can beat inflation by a wide margin and create wealth.
  • Many people do not think and plan important goals like children’s education expenses, retirement planning and invest money based on advice from family and friends.
  • You must meet a financial planner and discuss your goals and plan your investments as per his/her advice.

7. Not drawing up an estate plan/will

  • It is a know fact that many people do not pay attention to this important activity
  • Drawing up a proper estate plan / will and completing it’s registration would save your nominees or beneficiaries a lot of avoidable legal trouble, time and money later on, in your absence.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.