Life Changing Investment Mistakes

Introduction

Investment is the method of generating profits with the money we save. Money is the most important thing in any individual’s life. Without money, no one can survive. Therefore we should start saving our money and start investing. Financial Planning is the first step to take. Financial Planning helps us to set us long term and short term goals and according to these goals we can create a plan and spend our money accordingly. If financial planning is not properly devised then we can make many mistakes which can affect our life tremendously. Some of the mistakes we make are discussed below.

“The First Wealth is Health”- Ralph Waldo Emerson

In today’s world, not buying a health insurance is the biggest mistake one can ever make. Due to pollution and unhealthy lifestyle, people are getting infected by so many diseases at the early stage of their life. Health is one of the most crucial and important factors in an individual’s life and it should not be ignored. There is a saying that “Health is Wealth” and people are so busy in earning for their life, that they often ignore their wealth. Therefore, this crucial factor of life should be backed up by insurance.

Let’s take an example:

Mr. Stanley Rosario is a hard working serviceman who is working in a marketing company. One day on the way to his job, he met with an accident. He got so many injuries that he had to be hospitalized. His hospital fees amounted to be Rs 60,000 which is more than his one month salary. Now if he had done a proper financial planning and bought health insurance, he did not have to worry about the hospital fees.

Nowadays life taking diseases like Cancer are very common. The treatment of these diseases is very expensive. A common man cannot afford to pay for these diseases by himself. Health insurance plays a very important role in this case. Health insurance can cover the expenses of treatment of this disease.

Doing financial planning from the day you start earning is very important and buying a health insurance should be included in this financial planning.

Your Best Bet is having a Term Insurance

There are many families especially in India, where there is only one person who works and the whole family is dependent on that person. If that person dies, then what would happen to the financial requirements of the family?

“Most people don’t plan to fail, they fail to plan”- John L. Beckley

Therefore, the earning member should buy a term plan in order to secure the financial requirement of his/her family. A term plan is a kind of life insurance which provides coverage during a given period of time. If the person dies during that period then the amount insured will be given to the other member of his/her family. The term insurance plan is less expensive than the other life insurances. One should include buying a term plan in his financial planning.

Save Money and Money will Save You

The youth generation of India has this mindset of spending all the money they earn rather than saving it. They believe in this philosophy that whatever happens, they will see afterward, let us enjoy life now. They do not do financial planning. But this is the biggest mistake they make of not thinking about the future.

Many unforeseen events may occur in which huge sum of money will be required, then from where they will get the money? If we do not start saving today, then we will not able to maintain the standard of living. We also need money for emergency and to avoid taking loans in this situation. In today’s world saving is a must and if we are not saving then we are doing a mistake.

Too scared of diversification?

We live in a world where there are varieties of financial instruments available in which we can invest. People are fond of investing in Fixed Deposits and Public Provision Fund because the working of these instruments could be easily understood. But there are many other financial instruments are available which give us a higher rate of return than fixed deposit like equity, mutual funds, and Government securities. We should diversify our portfolio in order to gain more and also reduce risk.

Taking one step away from freedom

Debt is the amount of money that we borrow from other people when we are not able to meet our financial obligations. When we borrow debt then we also have to pay interest on it. There are many types of debts such as bank loans, mortgage loan, vehicle loan, student loans and so on. Companies take loans to run their business. Individuals take loan to fulfill their needs. We have seen that many times companies become bankrupt as they are not able to pay their debts.

“Borrowed money is the most common way that smart guys go broke”- Warren Buffet

On individuals, there is always the burden of paying interest and returning back the loan. There are many borrowers who try to attract individuals by introducing different type of schemes and individuals get stuck in these schemes. If we do financial planning properly then we will not be in the condition of taking so much debt. We will not be in the stress of paying back those debts and we will able to live a life financial secure if financial planning is done in the early stage of life.

Control your impulses, when you are broke

In this modern world, we get attracted to things that we do not need. We buy branded clothes, get attracted to gadgets, hang out with friends at expensive cafes etc. We compete with other people in society to show how well off we are. But instead of doing unnecessarily expenses we should start investing in financial instruments.

“Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.”- Johann Wolfgang von Goethe

There are many schemes such as low cost EMI, low interest rate credit cards, cheap loans etc in which get trapped. We should be cautious where we should spend our money. This should be also included in our financial planning. We should never over spend our money as it will lead to borrowing debt in future which further leads to stress. We should spend our money wisely. Therefore financial planning at an early stage is very important.

Bottomline

The wrong decisions taken in our life can affect us drastically. Therefore it is very important to start financial planning as soon as we start earning.No individual has the same set goals. So financial planning will differ from one person to the other. According to financial requirements, one must set their goals. If we do not have knowledge on investment products we can take help of the financial advisors. They help us in doing financial planning.

Make Goal Based Investing to Realize Your Financial Goals

Life is all about setting different goals and achieving them one after another. As Tony Robbins said setting goals is the first step in turning the invisible into the visible. When each rupee you invest has a definite purpose behind it, is called Goal based investing.

Goal based financial planning is done for long term, midterm and short term gains. Long term plans usually yield more wealth comparing the other two. A midterm plan could be buying a home where a short term plan may be having a car.

How it is Different from the Traditional Approach
Unlike the traditional approach of investing, goal based investing does not only focus on your risk profile, rather its focus remains on achieving the target. The investment plans should be designed by keeping the goal at the centre.

The focal point of the traditional approach remains in selecting areas that ensure safe returns. It finds a safe and sure path to grow money. Whereas, in Goal based investing, realization of the goals defines its ultimate success. Wealth generation is not the sole target.

Goal based investment plans get designed only after doing a detailed research of the investor’s net worth, level of risk-tolerance and financial goals. In case of traditional approach, first the risk quotient is calculated and according to that a pre-designed investment plane gets selected.

Benefits of Goal Based Investing

In life, each rupee you spend is a type investment that yields certain results for you. If your goal based investments are planned, well thought out and work for achieving specific goals then they do not affect each other. The benefits of making goal based investments are-
It engages you in making systematic approach toward a better money management.
It is nothing but a good habit that restricts you from making spur of the moment purchases.
Channelizes your money toward building value assets and wealth through proper financial planning.
Increases the achievability of the financial goals of your life.
You can continuously monitor and make changes to your plan in order to reach closer to your desired financial goals.

How to plan a Goal Based Investing

Planning a goal based investment requires-
You have to make a list of important life goals that you need to achieve. You should prioritize them according to their importance.
Analyze your money needs. It will help you in clustering your investments according to the upcoming life events.
Cluster your investments in three sections- 1) Short-term, 2) Mid-term and 3) Long-Term.
Now choose suitable investment plans and start investing.

Short Term Goal based investments are made to fulfill impending requirements that are going to arise in next 2 years. You have to choose less volatile and low risk areas to invest as you need to turn them into liquid soon.

Mid-term Goal based investments are those where you need the return in next 3-10 years. Long-term goals may include retirement and child’s higher education. To meet such kind of goals, you need to accumulate large corpus. For that, you have to give good effort to identify pre-determined asset class and make systematic investment over longer period of time. During the course of time, you should stay invested in your plan irrespective of the short-term market upheavals.