5 common financial mistakes that make you lose your money

         First of all, what is meant by financial mistake? The financial mistake is not a one-time process; it is a series of poor financial decisions which leads to a financial crisis. Sometimes, we invest without considering our financial goals or understanding our investment in the right way, and as a result, we shall lose money. So what are these common financial mistakes which we can avoid to prevent from losing money? Let’s understand it one by one.

 

• Invest without considering inflation:

         Today, a rupee will not buy the exact value of goods in ten years due to inflation. As a result, a specific amount of rupee will be able to buy less than before. Therefore, it is essential to find the right strategies and investments to hedge against inflation. You can invest in those asset classes which are capable of beating inflation. If you don’t think about inflation when you invest, then you are losing your money. Because when you make a long-term investment, it should be inflation-beating so that you can get an appropriate return from it and achieve your financial goals effortlessly.

 

• Ignoring Diversification:

         Wealthier people always say that don’t put all eggs in one basket. Diversification is a technique that reduces risk by allocating investments across different classes of assets. It is one of the best ways to balance risk and reward in your investment portfolio to diversify your assets. Though everyone would love to earn high returns without taking any risk, one has to manage risk and return together in real life. It restricts the damage to your financial well being in case one asset class or instrument goes into a loss; if you ignore diversification and put all your hard-earned money in only one asset class and at the time when you need your money then the returns on that investment are lesser then you are losing your money and paying for ignoring diversification.

 

• Using long term investment for short term goals and vice versa:

         As I explained in my previous blogs, your financial goals should be clear before starting an investment. Most of the time, people don’t bifurcate their short-term and long-term financial goals for wealth creation, eradicating their financial planning. As I always say, there is no option for quick wealth creation. It is an ongoing process where you have to invest with lots of patience, commitment, and close attention. You must be clear on your hard-earned money for short-term goals and long-term goals. It would help if you consider your overall financial objectives and the risks you are ready to take.

 

• Neglecting tax planning while investment:

         In our country, usually, before three to four months of the end of the financial year, the rush for tax savings or planning is seen. Tax planning is something to be followed from the beginning of the year, not at the end of the year. It is essential to compute what percentage of your income will go to pay tax from the beginning of the year. If you plan from the beginning, how much tax you will have to pay at the end of the year, then there will be no load upon you at the end of the year. Investing your income in the right place at the right time will not ruin your financial planning too. 

 

• Starting the investment at a later age:

         By investing at an early stage of life, you learn a pattern of financial independence and discipline at an early stage of life. An early investment teaches the real frame of investments. With early age investment, you develop a habit of saving more. The more you invest, the more you get in the future. Early investment facilitates your entry into the world of finance early. Your money grows with time. Because of early investment, you can afford things that others might not at that age. This puts you ahead of others who prefer investing at a later stage of life. Many people start their investments when they reach 40. The early you start, the easier it is to build wealth. You are losing money by not starting your investment at an early age.

 

         Making financial mistakes is common, but it’s never too late to fix them. I hope this information will help you to avoid your financial mistakes. 

 

Your valuable feedback on this blog is always welcome!

 

Happy Investing!!

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