Imagine this. You have bagged a top-dollar profession for yourself right out of college and are being paid the big bucks.
You also know the pivotal value of personal finance, so start delving into the subject to be your own financial boss.
You do everything right for your wallet – ace the financial game (or you think so) but a few decades down the line you find yourself still chained to the grindstone of 9-to-5 to make sure your avocado toast doesn’t break the bank.
You were a financially savvy person who devoured all financial literature from Instagram reels and TikToks but still ended up where you are.
This is true for most Indians.
As we take the lead in financial literacy stats, but still struggle to achieve financial contentment and success. It’s like we have all the right ingredients for a gourmet financial feast, but we can’t seem to get the recipe right.
Financial Literacy ≠ Financial Success (Always)
Beware, for you too may unknowingly be committing financial hara-kiri.
Let me share with you my arsenal of 30+ clients’ financial mishaps that are masquerading as innocent mistakes.
Take these steps to avoid such unobvious errors take you down a rabbit hole of financial woes!
[1] Ditch DIY stock picking
Are you an average Joe with a full-time job, personal hobbies, and a social life to keep up with?
Yet, you find yourself half-heartedly sitting in front of a computer, trying to find the next multi-bagger, all because your ‘favourite influencer’ told you to do so.
While the intentions are right, execution is wrong!
Newsflash: You neither have the time nor the skills required to invest directly in stocks, and that’s okay.
You don’t need to pick stocks like a pro to become financially independent and rich.
Let’s be real here. If investing in stocks were the only way to get rich, the Forbes list of billionaires would be filled with investors.
But the truth is, only Warren Buffett made it to the list, and that too entering only at the age of 56.
Sure, learning about investing is essential, but trying to be the next Warren Buffett is just plain stupid.
So save yourself the trouble and let the experts handle your investments.
[2] Protect before profiting
As soon as first paycheque hits your bank account, you are excited to start investing in the swankiest of investment schemes out there.
Everybody wants to play the equity game and join the ranks of the financially savvy.
Afterall equity is a profit-printing powerhouse in the long run for wealth creation
That is what every finance content creator tells you. So do I.
BUT the wealth creation step comes much later in the stages of financial planning.
Before you start building your wealth empire, you need to lay a solid foundation. And that foundation is your emergency fund.
Think of it as a sturdy base for your pyramid of wealth. Without it, your structure is going to come crashing down at the slightest tremor.
Sure, equity is great for long-term growth, but what happens when life throws you a curveball? You don’t want to be forced to dip into your investment fund to cover emergency expenses.
And let’s be real, just saving up for emergencies isn’t enough.
If you’re keeping all that cash in a low-interest bank account, not only are you losing money to inflation, but you’re also way more likely to spend it on things you don’t need.
Having too much money in your bank account is like having a bladder full of urine. You can only hold it for so long before you need to release the pressure.
So don’t just sit on your cash, put it to work in FDs or liquid mutual funds.
[3] One Income? Oh, No!
A chair stands on four legs for stability. A tripod has only three, and we all know how wobbly that can be. And yet, some people rely on just one source of income?
Have they gone off the deep end?
Sure, you might be killing it at your job, but what happens when that one income stream dries up?
Concentration risk, my friend. It’s not worth it. Why not spread the love and create multiple sources of income?
Having multiple income sources not only reduces your concentration risk but also gives you the flexibility to take a plunge into new possibilities and try out new things.
But, if you’re really into monogamy with your job, then at least build up that emergency fund like we talked about earlier.
It’s better to be safe than sorry
You never know when the rug might be pulled out from under you, so prepare for the worst and hope for the best.
[4] Diversification Overdose: When More is Less
My friend excitedly told me how he had a golden egg-laying goose in his portfolio – a stock that went up 5 times in no time.
My response? “And how much did you make out of it?”
He proudly said, “A cool ₹25k.”
Now, let me tell you – this guy is loaded, with a portfolio as big as a house.
But get this, his allocation in that stock was only 1%!
This means, on a portfolio level, he only made a 5% gain.
Allocation hai khaas, baaki sab bakwaas
So the question is, does it even matter?
What’s the use of having a stock that grows 5 times if it can’t make a dent in your bank account?
Even the pros, like Warren Buffett, only have a handful of winners in their investment basket.
So, instead of spreading yourself thin with multiple retirement plans, mutual funds, and stocks, focus on a few well-researched assets and let them work their magic over time.
After all, it’s not about the number of stocks in your portfolio, but the returns they bring in.
[5] The ultimate ROI asset that nobody talks about
While everyone is busy chasing the next big crypto and obsessing over their returns, the ultimate ROI asset is right in front of you – yourself.
Investing in yourself is like hitting the jackpot, but nobody seems to talk about it!
Trust me, the returns are a whopping 10x guaranteed!
Just imagine, investing in a course or upskilling yourself could result in your CTC skyrocketing to 2x or even 3x what it is right now, all while giving you the option to freelance and work on your own terms.
Investing in yourself is not just about acquiring new skills, but also about improving your overall well-being.
Taking care of your mental and physical health can have a huge impact on your productivity, creativity, and ability to handle stress.
Hire a personal trainer, join a combat sports, or find a meditation guru to reduce stress and improve focus.
These investments in yourself can pay off not just in the short term, but also in the long run by reducing healthcare costs and improving your quality of life.
Investing in yourself is like watering a plant. You won’t see the growth immediately, but over time, you’ll see a thriving garden
All this and people will still prefer starting an SIP in a mutual fund, then investing in building their own website which can catapult their personal brand.
To err is human.
[6] Controlling Inflation: Not Just for Money
Price inflation is the star of the show. Everyone talks about it, calculates it, and even RBI approves it. But, what about the underrated villain – lifestyle inflation?
It’s not just the price of commodities that will inflate with time, but also your taste buds.
Sure, the cost of your favourite basmati rice may increase over time, but what about when you start craving that fancy arborio rice? Or when Netflix and chill turn into 4k ultra HD with surround sound?
The truth is, as we age, our wants turn into needs and our needs become more and more expensive.
Today’s luxuries become tomorrow’s necessities.
As time passes, the bar of your expectations is set higher, and you start to adapt to the luxurious lifestyle.
So next time you’re planning your finances, remember to add a few extra percentage points for those fancy dinners and expensive supplements.
if you think YOUR inflation rate is only 4-6%, you are living in a fool’s paradise. It’s time to wake up and smell the expensive coffee!
Final Words
So there you have it, folks! Money mistakes come in all shapes and sizes, and some are not as obvious as others.
Here’s a quick summary of what we discussed
- Ditch DIY Stock Picking
- Build an emergency fund before investing
- Increase income streams
- Don’t over diversify
- Invest in yourself
- Don’t forget lifestyle inflation
These mistakes can quietly chip away at your wealth over time.
But don’t fret! By being aware of them and taking action, you can start saving yourself a fortune.
And if you’re feeling overwhelmed or unsure about where to start, don’t hesitate to ask for help.
Making smart money moves and avoiding costly mistakes with some expert guidance and a little bit of determination is all you need to start taking control of your finances and building the wealth you deserve.
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