Case 1: Akshay is 26 years old IT professional. He started working at the age of 22 with a monthly salary of ~45k and currently earning around 80 k/month. In the last 4 years, Akshay earned ~30 lakh. But unfortunately, he is left with no money. He is living paycheck to paycheck.
Do you know the reason?
He became a victim of lifestyle inflation. The moment he joined the job, he purchased an iPhone on EMI, after a year he purchases a Sedan can on EMI, he started swiping his credit card and spent a lot of money on weekend parties and drinks. His cost of living kept on increasing with his income. Due to this, he was always short of money. He couldn’t even pay his complete credit card bill and hence ended up paying high-interest charges. Now, he is wondering where did he go wrong?
If Akshay knew about the importance of a balanced lifestyle and spending within the limits, he would have never fallen into the debt traps and could have saved a lot of money in the initial days of his life. This money would have compounded to give a high return on investment. Have you made this financial mistake of lifestyle inflation?
Hari is 32 years old doctor. When he started his job, an agent suggested taking an endowment plan. Hence, he opted for an endowment plan for Rs 2.5 lakh per year in premium. He was promised a corpus of Rs 50 lakh on maturity. It’s been 4 years since he is paying the premium. A few days ago, Hari came across an article on how to calculate the annual return on insurance. When he calculated the return, he realized that the yearly return from the endowment plan is just 4%.
Now he is regretting his decision of opting for an endowment plan. He is confused if he should cancel the policy and take a term plan and invest the rest of the money in better instruments. If Hari knew that mixing insurance and investment is a financial mistake, he would have never taken that decision.
Karthik is a 30-year-old manager in a hotel. He has a wife and a kid. Karthik started working at the age of 25 and has purchased his own house and a car on EMI. Due to the high EMIs, he was not able to save money. However, he was living a comfortable life with his monthly income. Recently, he lost his job due to COVID. It was a shocker. He couldn’t believe what happened. His life turned upside down. He had no savings. Now he is worried about the EMI payments and basic expenses to feed his family. He is having sleepless nights. Even his bp level has gone up.
If Karthik knew about the importance of emergency funds and had built an emergency fund of 6–9 months of expenses, he would have not faced this financial crisis. It is a common financial mistake where people end up taking too much debt and have no emergency fund.
Case 4: Radhika is 28 years old business consultant. She started earning at an age of 24 and has an annual package of Rs 12 lakh. She has been able to save and invest in mutual funds. Till date, she has invested Rs 20 lakh in mutual funds. However, she has invested in the regular mutual fund via an agent. Recently, she was informed about the difference between direct vs regular plan and the fact that the agent charges ~1% yearly commission. When she did the calculation, she realized that she has paid a total commission of Rs ~70k to the agent. If she had invested directly, she could have saved this money. She also learned that every year she would end up paying ~1% to the agent. So next year, if the portfolio becomes Rs 25 lakh then she will pay ~25k to the agent and likewise, she will pay the commission every year.
If Radhika knew about the difference between direct vs regular plan, she would have never made this financial mistake.
Case 5: Vikram is 27 years old. He is a cafe owner. Vikram always wanted to earn a lot of money in a quick time. So when he started earning a good income from the cafe, he started investing the money in the stock market. Someone told him about the options trading where he can get leverage. He got greedy and started doing options trading. Unfortunately, he had no idea how the stock market work. He lost some money initially. But, he wanted to recover the money. Hence, he ended up investing even more. Eventually, he lost almost Rs 25 lakh. Today, he is regretting his decision of investing based on tips without any knowledge. A big financial mistake!
If Vikram knew about how the stock market works and how to avoid falling into various Ponzi schemes offering high returns, he could have saved his 25 lakh.
Moral of the story: If you want to become financially smart, you need to learn how to manage your money and avoid all financial traps.
PS: Have you made any of the mistakes? Do you want to learn how to manage your money and achieve your financial goals? If yes, you can enroll in our complete course on money management. This would be the best investment of your life. Because investment in knowledge will pay you the best interest.