The inevitable never happens. It is always the unexpected!
John Maynard Keynes
In times such as the present, it is next to impossible to predict the immediate future. It is quite possible to get swayed by supposed expert opinions, by well meaning and ‘in the know’ friends or by the daily reports of what everybody is doing. Especially when there is so much that is being said, heard, read and seen.
So what should one do or rather not do?
The 5 Financial “DON’Ts”
- When it comes to estimating the monthly expenses and the buffer for emergencies, one rarely hits the mark. Very often, there are unforeseen festival expenses or a sudden travel which makes all the calculations awry. And when one actually needs money for a medical emergency for example, you end up running from pillar to post arranging for funds. Don’t underestimate your liquidity requirements.
- The opposite is true as well. Following the old adage wrongly ‘better be safe than sorry’, often people tend to hoard all their cash in savings bank accounts not realizing that at the paltry interest that savings accounts offers, one is actually losing money if you take the big bad inflation into account. Don’t leave your funds idle in the bank. Even if the equity market (and the equity mutual fund) is risky at the moment, look at other asset classes which haven’t been so badly affected like Debt instruments – debt mutual funds, gold, even traditional investments like NSCs etc which would give better returns then the savings bank.
- Whether it is a long term investment or loan, Don’t ignore the interest rate on either. Often it may emerge that you are actually paying off a loan at a high interest rate while your investment is earning a low rate of return. Look at exit clauses and prepayment clauses of your investments and liabilities at the time of entering.
- Don’t fall into the ‘Spend today what you will earn tomorrow’ credit card trap. It may seem very easy to acquire the Plasma TV, the expensive meals and exotic holidays through multiple credit cards and roll over the credit by paying the minimum balances till bonuses or incentives arrive or covert the outstandings into loans and pay EMIs. But at the end of the day you are acquiring loans you simply cannot afford. Interest on unpaid balances is as high as 36% - so use the credit card only when you are sure you can pay the unpaid amount on the due date.
- Advertisements may promise attractive returns, quotes will claim high returns, but look at the fine print – Don’t forget the tax! Whether it is your balance in a savings bank, an FD with a 10+% return or churning your portfolio for profit booking – there is always tax. Always take into account post tax yields to take sound investing decisions.
For InvestmentYogi by Shweta Jain, Certified Financial Planner