Here are the top 5 mistakes people do in their financial life-Courtesy Manish chauhan

Here are the top 5 mistakes people do in their financial life:

Buying products from close one's

Will you sell a junk product to yourself if there's a 35% commission and it will be a burden to you all your life? I don't think so!. But if you had to sell it to your friend, colleague, brother-in-law, sister-in-law, father's friend etc, you'd consider it, wouldn't you? That's what happens in real life too. Most times, the "Best plan" comes from one of your relatives or someone known.

A simple 'NO' might hurt your relations with said person, but it will save you, your hard-earned money, rather than waste it on idiotic products, which you'll regret for life. It's just common sense that there are better advisers and consultants than your relatives or a close ones, unless they themselves are known and respected in the field (of finance). Most of the investors have their bitter personal experiences, where they bought products because it came from their relatives, uncle's et al.

This happens a lot with young guys yet to start working, and their fathers have bought policies for them and then delegated the premium paying responsibility to them once they start earning, it's a real "burden of legacy".

Spending more than they should

With many people, savings occur, only if they are left with any money at the end of the month. This needs to change - start saving first, then spend on what's necessary and then spend on your desires - last.

Sometimes, people spend impulsively, on things which they do not really need. Just because, your plastic card is in your wallet and you "might" need it in future makes you believe that you need to get it right now.

A brand new camera, with a 100 megapixel sensor and a 2000 x zoom is available at an EMI of just 1999 per month - and suddenly you're interested in Photography! An EMI of 2500 a month, for that magical million colour, anorexic Flat Screen TV creates a magical belief in you that your normal TV at home is now really blurry these days (not to mention really fat!).

Is there a need, to splurge on Movies and eat out, every weekend? A regular meal at home, with a movie on TV is also a good weekend, at times. It's all about knowing what you need and what you don't, & knowing it well!

No financial education to spouse and kids

Most people are not comfortable talking about 'FINANCE' to kids. They don't feel the need to tell their children that they have bought life insurance, in case they be hit by a bus tomorrow (the parents, not the kids). Once children reach an age of maturity like 16 or 17; when they can understand things & reason well and can take on responsibilities to some extent, parents can start telling them about money and finances.

Kids should know how much you earn. They should be clear on how you are saving money to fund their education, bike, trips etc. Once they know about all these things, chances are they will be a lot more supportive, would be realistic in their demands & stay well within their limits. Kids don't know sometimes, how much pain you take in earning money. Most of the times, kids know your salary and your designation at company and assume the family to be a "higher middle class" one.

Once you tell them about Home loan EMI, Car Loan, other liabilities, Retirement Savings, Education Expenses, Marriage expenses and the medical emergencies for which you are saving, they will have a better idea about the current situation and they will act responsibly. The same applies to spouses.

Imbalanced asset allocation

A lot of people have a tendency to start working and then never look at, or review their finances. Tax Planning is nothing more than a "signature" on some form for them. When they finally look back at their finances, they find that they have huge money in Fixed Deposit's and much more lying in Bank earning them pennies.

This happens a lot with NRI's working outside the country, who are in middle 30-40's and have huge cash in debt or Cash. On the other hand, there are investors who have no PPF, no FD, no Debt Funds, no bonds; they just do share trading, buy direct stocks, invest in just Mutual funds (pure equity).

Their imbalanced Asset allocation is responsible for the huge ups and downs their portfolio takes. One year the worth of their portfolio will be 10 lacs, the next year it will be 7, then suddenly it will be 14 lacs the next year. The numbers dance with huge fluctuations, but at the end of let's say, a decade, they look back & find they are nowhere better than their "High debt Instrument" kind of Investor brothers.

Unrealistic returns

Risk free returns, in our country are amongst the highest in the world. In countries like US, the interest rates are 1-2%. Equity markets in our country continue to provide 12-15% annual returns. But how much do investors expect from equity these days? A lot! No one is ready to settle below 20-25%? This happens when you look at short-term returns.

Investors who started in 2004 started thinking that they are all "Warren Buffet" and can leave their jobs in some years! Whereas all investors who started in 2007 end or 2008 start compare equity with their mother-in-laws, they just can't stand it. Think long-term, and timing will just not matter much.

For retirement and child education, which is 15-20+ years away, just start a SIP in an Index fund and then go into a COMA, come back once in a while and just review it every 6 months to a year. That's all.