I hope this post will be helpful for the readers in making their right personal financial decisions with the mistakes I’ve made in my life, and I hope you will not do the same.
It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.
- Warren Buffett
Like most of us, I joined a job in my twenties and started my career in an IT company in the early 2019’s. The good thing is I got to know my mistakes earlier so your takeaway from this post will be less, let me share the mistakes I’ve made financially one by one – you can even relate with yours.
Investing early is a clever idea but we need to know how much percentage we need to invest and the priority of investment when compared to other basic financial needs.
After a few months in my job that is from June 2019, I have started passive investing on a few mutual funds via the ET money app and stocks via Zerodha without knowing the basics of investments and I was also not that active in it as my salary was enough for my basic monthly expenses but whenever I have a little excess money, I try to invest them.
1. Mistake: Not prioritizing your debts
I prioritized my investments first instead of the debts I have which is the first mistake I made. I have a loan in my name, and they will debit the interest and principal from my salary account on monthly basis and the tenure lasts for 60 months (5years) and the interest is 11.1% which is insane.
As my focus was on Investing whenever I have a little extra money, I forgot to pay off my debts. Of course, the invested amount is going to grow in the future, but I didn’t prioritize my debts during investments. First, we need to pay off all our debts before investing, or else even if you’re building a corpus on one end on the other end you will be left with huge debt which makes your net worth zero.
I realized this after 1.5 years and I decided to make part payment for my loan. As of now, 70% of my loan is completed and I have only a few more months to go or I can do another part payment to close my loan account. Later I can invest peacefully the extra penny I have in my hand without thinking about any debts.
2. Mistake: Not having an emergency fund
Most of the people in India don’t have an emergency fund even me before a few months of writing this post. This is also part of my new year goals of 2022, checkout if you’re interested.
Saving for an emergency fund might be boring because you’re not saving to enjoy it. And your life will be much worse if you’re not doing it. One needs to have an emergency fund of 3 to 6 months of expenses, but I would see 9 to 12 months will be good and it’ll keep you running for a few more months without a job, or during a pandemic like this it will be helpful in any way.
So, what I decided as part of my new year goal was to create 3 months of my expenses as my emergency corpus by the end of 2022 by next year and later, I will increase them to 6 – 12 months.
Where to keep your emergency fund? Keep them in very low-risk instruments like FDs or RDs, saving bank accounts, or in any liquid mutual funds, the objective of the fund is to liquidate it easily whenever you need money during an emergency. I parked them in liquid mutual funds by using the ET money app.
3. Mistake: Not having a health insurance policy
The current pandemic has made the entire world realize the current medical expenses and can burn a hole in your pocket and suck all our savings which are tough to handle. Having a good health insurance plan for your family can help you balance this situation.
Why do we need health insurance? To safeguard our family, to take the stress out of medical inflation, to protect our savings, and to have quality treatment for our dear ones.
I have corporate health insurance in my company for me. But it’s always better to have health insurance outside the company for you and as well as your family. I made a mistake by not taking a medi claim policy for the last three years. This month I bought a “Care Plan“ for my mother from Care health insurer. In case if you lose your job, you can’t claim the medical expenses from your corporate health insurer during that period it’s better not to depend on them. Have a separate plan with an adequate sum assured.
A good health insurance policy should cover expenses for all treatment-related expenses like consultation fees, expenses on medical tests, ambulance charges, surgery, even pre- and post-hospitalization expenses.
4. Mistake: Not subscribing to term insurance
The final mistake I made was not having a term insurance plan. When it comes to personal finances, term insurance is a considerably basic thing one must have and most important.
What is Term Insurance? It provides financial security for your family in case of your demise. Especially if you’re the breadwinner in your family you need a term plan.
The premium paid for term insurance is affordable for all and it won’t be increasing each year. And please don’t think of term insurance as an investment, it is an expense. So don’t opt for a money-back plan, it is not the purpose.
Last month I subscribed for Term insurance in the “Max life smart secure plus” plan (by current claim settlement ratio and for my age this plan looks good) and I am twenty-five, so the premium paid is very less for me. If you’re buying a term insurance product at an early age, the premium you are going to pay will also be less when compared to if you’re buying at your older days. It also provides tax benefits in 80C & 80D.
Things to see when buying term insurance:
- Don’t purchase an insufficient cover, it makes no sense in buying the product.
- Mention the nominee for your plan, after your death to whom the sum assured must be settled.
- Don’t use excessive riders, buy straightforward term insurance without any riders, which is enough.
- Don’t pay for upcoming years’ premium before itself like investing for 2 years and 3 years in one shot, you can use that money elsewhere.
- Look at the claim settlement ratio of the Insurance company, if it is low then other companies don’t go for it. (Settlement ratio – claims that the company has paid out to insurer)
- Not studying the plan, take time and read all the terms and conditions as this is a one-time thing.
- Don’t buy for a shorter period, go for the long term. I took for till my fifty-five, you must think and decide your tenure based on up to when your family needs your support.
These are all the few financial mistakes I made in my life. Hope this post might be useful during your personal financial decisions.