Six Regrettable Financial Decisions To Avoid
A wise man once said that good judgment comes from experience, and experience comes from bad judgment! However, we can always learn from the experiences of other people when it comes to our personal finances, and avoid regrettable decisions. Here are six of them to watch out for.
Buying Life Insurance to safe taxes
This is another regrettable financial decision. Buy Life Insurance for its primary purpose – that is, to boost your life cover. Don’t succumb to the mad rush of buying a policy at the fag-end of the Financial Year to save taxes under Section 80(C). There are better products available for that. You may get locked into a commitment which could you between a rock and a hard place – “should I continue paying premiums into an investment which won’t reap benefits, or should I stop paying and lose out heavily on the payments already made”.
Taking a home loan too soon
While it’s a worthwhile aspirational goal, purchasing a home too soon can stretch your finances to breaking point. Loan amounts tend to be large, and so do corresponding EMI’s. Within the EMI’s themselves, interest costs are front ended heavily and this keeps you locked into the commitment as your equity in the said properly only starts becoming significant by the second half of the loan cycle. If you’ve been unlucky to buy at the peak of a price cycle, you may not get exit opportunities either. Consider your finances holistically before deciding that it’s the right time to leverage yourself and buy a home.
Investing in stocks after markets have gone up
Despite being one of the most legitimate long term wealth creators on paper, stocks have received bad press over the years mainly because retail investors tend to jump in after markets have already gone up. Obviously, this approach of leaping aboard a sinking ship cannot reap rewards in the long run! Why does this happen? It happens because bullish markets generate a sense of euphoria which lends otherwise timid investors the increased confidence to invest into volatile assets - at the wrong time, unfortunately.
Taking on too much Credit Card Debt
Credit card debts are frightfully expensive- and convenient. The convenience of credit cards can lead you to buy things you don’t need, can’t afford, or both – sometimes, even on “easy EMI’s”. Here’s a thumb rule –spend no more on your card than you can afford to pay back comfortably by the next due date, without drawing upon your emergency funds or goal based savings.
Stopping your SIP’s midway
Market downturns or other pressing financial commitments may lead you to stop your Mutual Fund SIP midway. However, you’ll lose out on the compounding benefits that you could have accrued by holding on. The very nature of SIP’s is such that you need to ideally continue them for five to ten years to reap maximum benefits. Stopping your SIP should be an absolute last resort.
Buying things that you don’t need
None other than the great Warren Buffett himself once said that “If you buy too many things you don’t need, you’ll sooner or later have to sell things you need”. Take a pause before making large purchases. Sleeping on your decision and deciding the next morning may be a useful strategy.
