Five silly financial mistakes you must avoid

Financial mistakes happen mostly because of ignorance or negligence. Most common financial mistakes are excessive use of credit card and delays in bill payment. Defaulting on a loan or on an EMI is also an example, and has its own repercussions. Another example of a financial mistake is investing money at the cost of your necessities.Before investing, you have to calculate your income and expenses. The amount you decide to invest is deduced after careful consideration of your necessities and your luxuries.

Following are the silly financial mistakes that you should avoid:

Idle Cash:

Cash in hand or cash in a bank account doesn’t mean that you have invested your money. One of the basic reasons to invest is to beat the inflation. Because of the inflation rate, the value of the money goes down. Your investments need to match or beat this rate of deterioration.

Investing in Fixed Deposit:

Most of the time investors invest their money in traditional investment instruments like fixed deposit because of the safety of the investment. This is done to try to protect the capital. The investor’s main focus is on guaranteed returns. That’s why investors invest their funds in this instrument. Investors don’t invest their funds in other investment options because they fear losing the money. This does not necessarily have to be the case. Understand the risk and then invest your funds. This will help you to get better returns on your investment.

Time Value of Money:

The investor should calculate the time value of money. You have to take into account the interest you can earn and the inflation rate. For example, if you have deposited Rs.1 lakh in fixed deposit for the period of three years at the rate of 8% per year. After three-year you will receive 1, 24,000. But if the inflation rate is 5%, then your actual return on investment will be only 3%.

Investment Opportunities:

In these times, regular income from one’s job is not enough to meet the goals. You need to consider investing a portion of your savings. You can invest your savings in stock, bonds, and mutual funds. This will generate more income in the form of a dividend, selling stock on exchanges and the interest. You should also start investing early so you will get benefits of compounding interest.

Real Estate:

One more common mistake in investments, is an investment in only real estate. Many investors think that they will earn a better returns if they will invest in the real estate sector. While investing in real estate you have to consider the actual amount of property, property tax, and brokerage charges to the broker. Periodic maintenance of the property is important as well. If you have taken a loan against property, then you have to pay EMIs as well.

Investment without understanding is a risky business and it often turns into a messy business. Build your own portfolio and don’t follow anyone. If you don’t understand take the aide of an expert. But the decisions rest or should rest solely on your shoulders. Understand the terms and conditions related to the investment. And avoid these silly financial mistakes to earn good returns on your investment.