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9 financial mistakes I wish I had not made!!

“I do not regret the things I have done, but those I did not do” – Rory Cochrane

I cannot agree more to the statement above. Through a large part of my working 20s I believed that we earn a living to live an enjoyable life in the present. Makes perfect sense. But it was only until recently that I started to think differently. It took a medical emergency in my family to make me realize the importance of financial planning. As I reflect on my past, I realize I made several mistakes, all of which could have been avoided had I thought about the uncertainty that future holds.

Mistake 1: Reckless Expenditure

I never made a budget for my expenses. Spending on anything and everything I ever wanted was my road to happiness. But now I have learnt that it is important to differentiate between what I need and what I want. A careful thought before every purchase we make will uncover the extent of our wasteful spends.

Mistake 2: Inconsistent savings

I never thought about savings. I spent first and then whatever was left at month end amounted to my savings. A recent consultation with a financial advisor coaxed me to take a reverse approach. I now decide the percentage of my salary I want to save and then plan my expenses.

Mistake 3: Saved but not invested

I never looked at money beyond my bank account. Whatever I saved, sat idle in my account, growing only by a meagre 4% every year. As per NSSO data, between 2004 and 2014, the average medical expenditure per hospitalisation for urban patients increased by about 176%. Ever wondered how your bank balance will cater to your future needs? Channelizing our savings into return generating assets is inevitable now.

Mistake 4: No emergency fund

A year back someone asked me if I had an emergency fund. I thought it was a crazy idea to plan for an emergency. But if only such situations came knocking at the door. It is advisable to park at least 6 months of expenses as an emergency fund so that any untoward incidents can be accounted for.

Mistake 5: Excessive use of credit card

My credit card enabled me to defer my payments. So, I seldom had control over how much I was spending. Not to mention, the innumerable defaults I made in repaying my credit card bills. Sometimes, I did not have sufficient money to pay it back and sometimes I just forgot. I now keep just one credit card with a very tight credit limit.

Mistake 6: Got greedy about making quick money in the stock market

My friends used to regularly tell me about how stock market offers opportunities to make quick profits. I saw someone make 30% profit in 8 months and I felt like I am missing out on the rocket to richness. So I immediately invested all my savings in a “tip” I received from one such friend. I had no idea what business that company was in, who managed the company and how did they make money. All I was interested in was my 30% profits. Well, after 3 years, I made a loss of 35%. Anything that is too good to be true, is perhaps not true. Lesson learnt the hard way.

Mistake 7: Got excited about “instant” personal loans

I once got a message that I was eligible for an instant personal loan. I was royally ecstatic. No questions, no checks. I grabbed the opportunity with both hands. Little did I read the footnotes about exorbitant interest rate. Thanks to my financial advisor, I now know the difference between good loans and bad loans.

Mistake 8: Trusted my Provident Fund to be sufficient for my retirement

I had been living under this solemn belief that my PF balance will be more than sufficient for my retirement. No, I did not make any calculations. I was simply assuming that the Government had us covered. But as alarming as it might sound, my PF balance might not cater to even 10% of my needs when I retire. Again, channelizing our savings into return generating assets is inevitable now.

How do we help?

At CAGRfunds, we help you NOT commit any of the above blunders. With a careful analysis of your cash flow and future goals, we tell you how much you need to start saving every month to ensure a comfortable and peaceful future. We also be with you throughout your financial journey to help you manage your financial commitments and make course corrections if required.

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5 things about investing that we learn from Mahabharata

We all derive values from the great stories of our past! Turns out, we can learn a little something about investing from them too!

Don’t gamble with your money: Take palatable risks

The root of all problems in Mahabharata arises from the eldest Pandava gambling away the kingdom. This caused the Pandavas a lot of suffering. And thirteen years in exile. All this could have been prevented only if Yudhishthira had not taken such a pricey bet!

Investing fundamentals: Don’t bite what you can’t chew. Your ability to take risk is partially defined by how much can you afford to lose in the worst case scenario. Consult a financial advisor to identify your risk profile and invest according to what suits your profile.

Diversify, but not too much! Quality over quantity

There were five Pandavas and a hundred Kauravas. Both sides had brave warriors with different skills, with Kauravas clearly outnumbering the Pandavas. In the end, what mattered weren’t the numbers but rather the quality.

Investing fundamentals: Making a few good investments always scores over making innumerable investments that you can’t follow. Diversification is important to minimize risk, but over-diversification can lead to suboptimal results. Click here to know how many mutual funds should you ideally own in your portfolio.

Do what you understand: Build your financial knowledge

Abhimanyu, the son of Arjun & Subhadra had entered the Chakravyuh with partial knowledge of breaking it. Before Abhimanyu’s birth, when Arjun was narrating how to break the Chakravyuh to Subhadra, half way through the story, she fell asleep. Abhimanyu thus could not learn the full technique yet entered the Chakravyuh. Since he could not exit the chakravyuh, he got killed.

Investing fundamentals: Always understand the products you are investing in. Since it is your money, it is imperative you understand the important aspects of the same. Consulting a good financial advisor is recommended to get clarity on various products. Subscribe to our blog to keep learning!!

Don’t get caught in the rumor trap: Beat the noise!

Drona, who was supposed to be undefeatable when armed, took charge of the Kaurava army. By the thirteenth day, Pandavas were on the losing side of the battle. That is when they devised a clever strategy. They killed an elephant called Ashwatthama (which incidentally was Drona’s son’s name) and spread the news that Ashwatthama is dead. On hearing this news, Drona let his guard down and was summarily killed.

Investing fundamentals: We often feel tempted with the “quick rich” ideas that our friends and acquaintances present to us. Anything which is too good to be true, is perhaps not true. Investing is a science which works best when you are patient. If you are not falling prey to rumors and “getting rich tips”, you are probably on the right road to richness!

Take sound advice

The battle of Kurukshetra couldn’t have been won by the Pandavas had it not been for Krishna. Though he didn’t take up arms himself, it was his information and guidance that paved the path to victory.

Investing fundamentals: It is always good to take advice when it comes to important things, especially when it’s money. The right advisor will help you with the right information and guidance.

How do we help you?

At CAGRfunds, we help you define a stable investment plan for yourself. We ensure this by interacting with you, understanding your objectives and risk profile. The investment plan is then prepared keeping YOU in mind, so that all your objectives can be met in a disciplined way. Not only that – we help you stay away from suboptimal products, develop good investing habits and introspect your own investing behavior & priorities.

Whatsapp us on +91 9769356440 to know more about how we travel with you throughout your investment journey!

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Are you taking the right investing decisions?

Much like the overconfident hare in the fable of “The Tortoise and the Hare”, people can well fall prey to the exaggerated notions of their own infallibility. Are you then, the tortoise or the hare, when it comes to handling your money or investing? What if we were to tell you that overconfidence bias can impact your investment decisions?

There is a very fine line of distinction between confidence and overconfidence. Overconfidence is the difference between ‘what you know’ and ‘what you think you know’.

A colleague of mine had no idea about investing and more specifically, about buying and selling stocks. It was during the regular lunch break discussions about the rising equity market, that he got fascinated with the idea of investing. What next? He started following the prices of stocks and in a trending market, he felt that he is successfully being able to predict the market movement.

The next logical step for him was to open a brokerage account with an equity broker. Kicked by his exuberance about the newly acquired skill, he started buying and selling stocks in small quantities. And his excitement knew no bounds when he started making some money. With the initial success he started to believe that he had the ability to predict the market. And that he had acquired a skill which could help him make money on a continuous and consistent basis. With the increased confidence he started taking bigger bets. But as equity markets do not behave rationally in the short run, there was an unforeseen event in the economy and his stocks started to fall. Seeing his portfolio in red, he had to exit all his positions and he lost faith in equity markets.

How do we then prevent ourselves from being overconfident about our financial decisions?

A financial decision demands a thorough review of attendant factors.

  • Are you getting sold on something that is too good to be true?
  • Are you being over enthusiastic? Optimism is good; but an excess of enthusiasm can be fraught with risk, because it involves haste and haste preempts caution.
  • Do you have enough logical reasons for the financial decision you are about to take? Remember, each deal presents distinct challenges. Tackle them wisely and.
  • Have you reflected enough on your past experiences and mistakes?
  • Have you consulted an expert advisor for a second opinion on your decision?

Determining answers to these questions will serve to offset the ‘overconfidence bias’ into your investment patterns.

How do we help?

Overconfidence is largely a result of misjudging one’s own judgement. At CAGRfunds, we give you the “second opinion” that you might just be looking for. We not only conduct a FREE audit of your current portfolio, but also give you the right financial advice for all your future goals. We therefore ensure that you do not mistakenly take very concentrated exposures to a particular asset class.

Write to us at contact@cagrfunds.com for a FREE audit of your existing portfolio.

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Is tax eating away a major chunk of your salary?

A few years back, a text message popped up: “Dear Customer, salary of Rs. ABCDE for the month of May 2017 has been credited to your account XXXXXXXXXXXXX”.

Happiness?? Not for me. Not when I was expecting a six figure salary but ended up with a five figure one, all thanks to the tax that I had been paying so diligently.

The emotional impact was of a nature that I felt compelled to consult a tax consultant. And to my absolute horror, I discovered that I was solely responsible for the reduction of a digit in my monthly pay package. Before I could get into any further depression, my consultant served me with the much needed ray of hope – several ways of saving tax to increase my income in hand.

1. If you live in a rented accommodation, you can save some tax

A salaried employee living on rent can save some tax by presenting the rent bills to his organization. Such expenses can be claimed under the House Rent Allowance (HRA) offered by the company.

2. Did you know you can reduce taxes by holidaying??

Leave Travel Allowance (LTA) can be claimed twice in a block of every four years. You can get your actual travel bills reimbursed for any travel that you might have done. However, every company has policies relating to what qualifies for LTA. If unclaimed against travel, LTA becomes fully taxable.

3. Check if your salary includes medical allowance

More often than not, medical allowance is part of the CTC. Medical expenses to the extent of Rs. 15000 are exempted from tax in any financial year. However, one usually needs to submit actual medical bills to one’s company to get the same reimbursed. So now you can worry a little less about the rising medical costs!!

4. Save tax as you invest your money under section 80C

Under section 80C, we can make investments into several instruments and the amount of investment made is deductible from our taxable income. However, the upper cap of such benefit is Rs. 1,50,000. Public Provision Fund (PPF), Employee Provident Fund (EPF which is part of your salary) and Tax Saving mutual funds are a few such instruments which fall under this category.

5. Planning for retirement can help reduce tax further

While section 80C gives benefits of up to Rs. 1,50,000, section 80CCD(1B) gives a further benefit of up to Rs. 50,000. This benefit accrues by way of investing in the National Pension Scheme or NPS. Also, investing in NPS helps generate better returns as compared to bank deposits as they have a diversified exposure across asset classes. But, the only consideration with NPS is that you cannot withdraw your  money till you attain the age of 60.

 How do we help?

At CAGRfunds, we help you plan your tax outgo by making you aware of expenses that you can claim as deduction. We also apprise you of various investment avenues which either help reduce tax or earn tax free returns. For example, after studying one’s profile, we recommend the best tax saving (Under section 80C) mutual funds. We also help plan tax by educating our investors about benefits of equity and debt mutual funds vis-à-vis other products.