10 money mistakes to avoid – OXBIG NEWS NETWORK-OxBig News Network

In a country where the cultural conditioning has been to manage with financial shortage rather than creating surplus, it is no surprise that Indians are mentally wired to make money mistakes. We don’t involve children in the financial decision-making of the household, and, as a result, they are destined to learn from their own mistakes. Of course, many either don’t learn or do so by when it is too late to rectify those mistakes. Money management of an average Indian is very poor and financial literacy rampant even among those who are earning well.

Even high-earning urban Indians, say with an annual package of Rs 50 lakh, which easily gives them a cash-in-hand of Rs 3 lakh a month, can be seen struggling with a debt trap. The reason is obvious: poor financial choices and money mistakes. The sad reality is that for an average Indian, most of the problems have more to do with the poor choices and not not earning enough. Many persons might be earning less but have a better financial standing. The difference here lies in miscalculations a person makes. Here are the top 10 mistakes Indians make…

#1. Not having an emergency fund

When they are earning well and their finances are in place, most Indians do not see the need to create an emergency fund. A Track2Realty study of corporate employees found that with no backup plan, 98 per cent of well-earning Indians were a step away from a major health emergency or lawsuit. Their comfortable job, with a good package, could be lost overnight. Of course, everyone hopes it won’t happen. But then, hope is not a strategy.

#2. Neglecting insurance coverage

Indians either neglect insurance coverage, or go for it too late in life. Insurance is your lifeline in times of crisis; a term insurance could save your family in case of death or permanent disability; a medical insurance saves you in the eventuality of an unexpected disease or accident. Statistics might suggest that 37 per cent of Indians are covered under health insurance schemes but in reality, only 5 per cent of the population has a comprehensive health insurance coverage. An office health insurance of a lakh or two can’t protect you in times of critical illness, keeping in mind the high cost of medical treatment today and skyrocketing healthcare inflation at 14 per cent yearly. People generally don’t have an adequate health insurance policy, especially for elderly dependents. The corporate insurance covers only till you work over there or till retirement.

#3. Wrong investment choices

Indians not only start too late when it comes to investment, but also make wrong choices. In the absence of financial education, they are blindfolded with udhaar ka gyan (borrowed wisdom) of others. They think an insurance agent is an adviser but the fact is that the market is full of salespersons who are thinking of their vested interests, not yours. Many Indians, hence, are trapped into insurance-cum-investment schemes where the rate of interest (ROI) is less than simple bank deposits. So, Rs 1 crore might sound an attractive return today but after 20 years when the insurance gets matured, its value will not be more than today’s purchase power of Rs 25 lakh.

    Term insurance is also ignored because Indians feel there is no moneyback guarantee. Your investments must give you inflation-beating returns by at least 300 basis points or 3 per cent. Investment for tax saving is a money mistake.

#4. Over-invested in physical assets

Indians have a cultural affinity to over-invest in physical assets like property and gold. They have inherited this wisdom generation-wise. It used to be a sound decision in the good old days when other lucrative options, most notably financial products, were non-existent. The sad reality is that gold is just a hedge against inflation and your gold in the form of jewellery has high cost involved while buying and selling. Similarly, as per a CRISIL report, the returns with property have been just 6 per cent over the past 20 years. And then, there is the reality of higher inflation, acquisition cost in terms of Stamp Duty and GST, and maintenance cost. And mind you! Property is an illiquid asset and you can’t sell it overnight in times of need, unless you are ready to lose more with distress sale.

#5. Caught in a debt trap

Indians have, of late, starting treating debt as income and are leading an over-borrowed life. They take debt without having debt repayment strategies in calculation. Rising credit card debt and debt default indicate financial indiscipline. Most of the salaried class today fail to calculate their debt-to-income ratio, and by the time they realise it, they are already into a debt trap. A trap that could have easily been avoided, but they have the house on loan, car on loan, appliances on loan, and even vacation on loan. Their entire life is on loan. Buying a house beyond the income level is a common Indian reality today.

#6. Leverage and liability imbalance

The real problem with debt is that most of us fail to differentiate between leverage and liability. A classic case being house on loan. Indians buy an over-priced house on loan, especially when they don’t have a net worth. A house loan is a leverage only when you have that much money invested at a higher interest but you borrow the cheapest possible housing loan and make the best of that arbitrage. But it is a liability if the only strategy is hoping that your job will be stable and you keep growing over there. Unfortunately, to reiterate, hope cannot be a strategy.

#7. Matching social expectations

A wise man once said that you buy things you don’t need with the money you don’t have to impress people who don’t care. Allowing lifestyle inflation, where with every increase in income you upgrade the lifestyle unnecessarily and do not save even a small part of the increased income, is a costly money mistake. In the age of social media flaunting and a compelling urge for instant gratification, an average Indian today suffers with FOMO (Fear of Missing Out) and a fake lifestyle only adds to debt.

 As a thumb rule, your appearance should not be different or better than your bank balance. A costly wedding, often funded with debt, is a common money mistake in today’s urban India. Similarly, keeping up with the Joneses syndrome, including sending children to expensive schools/colleges just because others are doing it, is a costly money mistake.

#8. Not saving for retirement

A survey by Track2Realty has found that 78 per cent Indians are not financially retirement ready. They hope their children will take care of them in old age. But children are not necessarily your post-retirement insurance. They could neglect you in old age, or are themselves not in a position to support you. Most of the Indians either don’t save enough for retirement, or start too late. It’s one of the biggest money mistakes to plan retirement at a later stage because by that time, you have more responsibilities. It should ideally start early when responsibilities are less.

#9. Quick rich schemes

Quick rich schemes have destroyed many Indians as they gamble with money, often with the money that is not hard-earned. As per SEBI data, Indian traders lost more than Rs 1.8 lakh crore in the stock market between the 2022-2024 financial years. Most people invest in financial products they don’t understand. A case study is Sushil Kumar, who won Rs 5 crore at Kaun Banega Crorepati (KBC), which gave him Rs 3.5 crore post tax deductions. This could have changed his life but in his own admission a few years later, he lost it all too soon with various fishy investments and indulgences. There are many such examples where people waste their entire life’s earnings or inheritance with quick-rich schemes.

#10. Playing safe with money

10Many Indians have this inherent tendency to play it safe with money. They feel bank fixed deposit is a safe bet, but don’t understand the threat that comes with hydra-headed inflation. Even if one assumes that the bank is safe and won’t go bankrupt where all that you will be compensated with would be just Rs 5 lakh, there is nothing called safe investment. For example, ask someone who invested in a property and the project is stuck for the past 10 years. Safe bets with low returns are okay in those economies where the interest rate and inflation are also lower, for example Japan. The Indian reality is different, where inflation is high and your investments have to match that.

   Remember, more than how much you earn, what is important is what you do with that money. Many successful entrepreneurs went directionless when they got reckless with money. Right from Vijay Mallya to Anil Ambani, the list is endless. Are you ready to avoid money mistakes? Well, that is a choice you have to make.

— The writer is CEO, Track2Realty