I just turned twenty-six a few weeks ago. In my 25 years of life, I’ve made plenty of personal finance mistakes. And I could find people doing the same thing as I did.

It’s good to learn from your mistakes. It’s better to learn from other people’s mistakes.
       - Warren Buffett

Let’s dive deep into it.

#1 Refinancing

In 2018, I had a loan for 2.5 lakh, and I was paying nearly 5,500 INR every month (interest + principal), which was one-fourth of my salary. The bank was making an interest rate of 11.35% per annum for this loan.

I had been paying for this for 20 months or so, and then COVID 2020 happened (my interest in personal finance too).

During this time, the government has started to reduce interest rates for loans to run the economy normally.

At my nearest co-operative bank, the gold loan was reduced to 6.5% for the next 12 months. which comes to half of my personal loan’s interest.

What did I do? I got jewels from my mom, kept them in place for the gold loan, and paid that to close my personal loan.

I had a 1.8 lakh principal balance to repay, and I still had 40 months more to loan closure if I kept on paying 5.5K every month.

By using the gold loan, I could save some of my interest amounts and I could re-pay and close the loan in 20 months. (of course, bit more principal i pushed in to close soon)

I didn’t know the term’s name when I implemented it. In finance, there is a term for this: “refinancing.”

If you have any high-interest loans, just find a lower interest rate loan and close the higher one.

#2 Not having the basics

Even if you have invested crores of the amount in equity and have not covered the basic things in personal finance, then you’re ignorant.

I can mention these basics in all my personal finance posts: emergency corpus, term insurance, and health insurance.

1. Emergency corpus: Have 6 to 12 months’ worth of expenses in liquid. It can keep you running for a few more months without a job.
   
   
2. Term insurance: If you have enough corpus already and your family knows how to source them out without you (demise), then you won’t need term insurance. If not, then you need a term plan.
   
   
3. Health insurance: Medical expenses can suck up all your savings and can burn a hole in your pocket. That’s cruel. So, have at least a basic medical insurance policy for you and your family.

One of my inner circle relatives has decent assets to live in and a good passive business running. Recently, an elderly person in their family had an accident. It cost them nearly 10 lakhs for hospitalization.

At that time, the family was not able to liquidate the amount for an emergency, which finally led to a few borrowings and loans.

If they have covered emergency corpus and health insurance in check. They don’t have to be in this scenario.

It’s not their mistake, because most people are still not aware of this. I’ve covered these 3 basics in this post in detail. Check it out later.

Though you may find these things small. If you do not take these 3 basics seriously, believe me, they are all the biggest wealth destroyers.

#3 Going full-on equity

One of the common mistakes all retail investors make is “going full-on equity”, even me before.

Markets can go down again, like in the 2008 financial crisis or the 2020 COVID crash.

If you’re 100% invested in equities and something goes wrong in the market, your entire portfolio will be affected, and it might even take years to get back to normal.

From housing finance crash, if you invested in Nifty in December 2007, you’d be negative in returns until September 2013. You should have waited for 5 years (Dec 2013) to get a positive return.

What would you do if you wanted money in this situation? Will you book a loss and exit? 

100% equity will not only make your portfolio red, but also it will not give you the confidence to invest again in the market. (But this is the time you’ve got to invest)

The solution is that (100 – your age) % should be in equity. And for the rest, you must stay on a fixed income.

It can be either in EPF, bonds, or any debt mutual fund. These can act as a pillar of support during financial distress.

#4 Buying products immediately

At the initial stages of my career, when my salary got credited, I used to buy things from my wish list (irrespective of needs and wants).

I even bought products for a price that equaled my salary.

Here, I’m not telling you not to buy any stuff, but not immediately.

Nowadays, I use a “goal-based investing” model for buying products.

In case I need to buy a new smartphone, let’s say 30,000 INR. I’m not going to buy it tomorrow immediately, even if I am able to afford it.

Suppose I could run with the current smartphone for the next 6 months. Then I’ll invest 5,000 INR every month in an arbitrage fund. At the end of the sixth month, I’ll have 30K + a little interest.

Now, I will withdraw the money from the fund and buy myself a new smartphone.

Why do you have to do this?

1. You’re giving yourself enough time to decide whether the decision to buy a smartphone is good or not.
   
   
2. You get minimal interest for the amount invested. With that, you can buy decent-quality mobile accessories (especially for the iPhone, where you need to buy everything other than the phone).
   
   
3. If you’ve bought a phone immediately, then you’re screwed with the current month’s expenses. But by goal-based investing, you just have to spend an additional 5K on your expenses.
   
   

So, consider this method when buying new gadgets, saving for a sister’s marriage, or buying a new home. Based on your goal’s tenure, you can choose funds accordingly.

See later: Are you overspending? Want to control it?

Closure

These are the few mistakes I see people around me make over and over without correcting them; hopefully, this post will wake you up and help you do the right thing on your personal finance journey.

Until next time,
Peranesh xx 

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