Five financial mistakes I made
I plead guilty in the court of financial misdemeanours of the following five money mistakes I made in my youth. As a young professional without any liabilities and an easily disposable income, I tried my hand at adulting – I bought a house, committed myself to long-term investment instruments, bought lots of life insurance policies – basically all the things I thought grown-ups do with their money. However, over the years, I realised that these are traps that I should have avoided. Let me explain.
Buying a house
The day my monthly take-home crossed the ₹ 1 lakh mark, I took a home loan and bought a house. The reasoning was that the home loan can be used as a tax-saving device and in the Indian social context, the security home ownership offers cannot be overstated. So here I was, a newly minted land-lady, filing my income tax returns and looking for the rebate on the home loan. To my surprise I found that the 80 C rebate I was entitled was met by my PPF savings – you can claim a rebate only for savings/ home loans/ children’s education etc up to a limit, beyond that limit everything is taxable. Plus, I could claim a tax-deduction only on the interest portion of the EMI I was paying – not the principal. The total deductible is limited to ₹ 2 lakh.
Added to the disappointment was the burden of house tax – it is more if you are renting out the property. Plus the income tax on the rent you are getting. What do you do next? Try and sell the house – but the property market is in the dumps – the prices have been stagnant for years. Here I am now, with a house that is costing me in terms of maintenance, house tax and income tax when I could have invested the money I paid in interest to the bank on the loan and the principal amount that I put in myself and earned more over the years through mutual funds and equity.
The devil is in the details
The bank where my salary would be deposited had these smart, smooth-talking agents who came and sold dreams. “Ma’am, you just pay three instalments over three years and after 15 years, you will get a pot of gold,” they would say. Well, not literally, but their job is to sell schemes that involve long-term investment with lock-in periods. While on the face of it the schemes sound great. They also deliver. But the devil lies in the details. They do not mention lock-in periods. They do not talk about hidden charges for managing your money. They mention only the minimum number of years you may have to pay – not telling you that to get the full payout you may need to pay for more years.
So many complaints about agents misleading investors have come that now, the banking ombudsman has become stricter, but by that time I had already got myself into some real long-term financial commitments. However, I should also own my share of the blame – I should have read the fine print and done my own research before signing on the dotted line. Like now, when I want to invest, I have options such as Basis where everything is there, upfront, you find what suits your needs and you remain in control.
Power of the spreadsheet
The biggest mistake I made was not being organised. I did not believe in excel spreadsheets. I got into SIPs, MFs, life insurance policies, post office savings account, bank fixed deposits, savings certificates, bonds – you name it. But I did not keep a record. I just had a big bag into which I threw the monthly or annual statements, unopened. The result was that I never saw the correspondence asking for updates on my personal details. Some investments matured and came into my bank as a windfall that I accepted jubilantly, without wondering where the money is coming from; some lapsed; some became dormant. Now when I see how well some schemes have done, I wish I had continued with them. I wish I had maintained better records so that I knew when an instalment was due and when a policy was maturing. Now, an excel spreadsheet is my best friend.
Money in the bank does not equate value
I just let the money sit in the bank. When I quit my full-time job I suffered from a sense of insecurity. My biggest fear was ‘what if I suddenly need big money’. For the sake of this ‘what if’ I did not think of investing my money, not even a fixed deposit. I just happily let my money earn about 3 per cent interest when even an FD could have fetched double that. I wish I had known about funds which can be encashed within a day.
Lack of discipline
This is something I most regret – I would not pay my bills on time. Out of sheer laziness or a lack of discipline, I would let the phone bills, the house tax, the credit card bill all pile up. Procrastination – I will pay it tomorrow – cost me a lot in fines. Well, these were my money mistakes, so if you are a twenty-something gal out enjoying the taste of financial freedom make wiser decisions.