But with the income that you earn also comes the responsibility to save & invest wisely. And wise saving & investing is possible only if you avoid costly mistakes.
In this post, we share with you the 6 most common financial mistakes that every young investor should avoid.
Mistake # 1: Not spending time learning about personal finance:
We may curse our education system, but a wiser option is to spend dedicated effort in learning how to manage money. The internet is filled with resources on how to manage money. Only your commitment & time is needed.
Personal finance is a skill that pays handsomely over time. If you choose to learn it yourself, you’ll never have to again depend on someone else for your money decisions.
And if you don’t, your entire life you will get tossed over by conflicting suggestions, invest in wrong products, & mess up your peace of mind.
The choice is yours.
Mistake # 2: Not controlling your spending:
As a young investor, can you relate to this cycle, don’t you.
This is fine for the initial few months of your first job. But then, many young earners just don’t come out of this cycle. Over a couple of years, in return for a few thousand likes, you get zero savings, a mountain of personal loans & credit card debt. In short, a pretty messed up financial life. How good a deal is that?
To save yourself from this consequence, you need to set some rules as follows:
- First invest, then spend. Set up automatic investments in the first week of the month.
- Make a budget and stick to it. Get into a habit of writing your daily expenses.
- Make a splurge fund. Save ahead for big expenses like iPhone. Say no to credit cards & personal loans
Mistake # 3: Starting late in saving & investing:
First few years of your job set up a strong foundation for your financial structure. Mostly, people just let these years go by for one simple reason – “Nobody told me where to invest.”
Wealth creation is not about clever investment strategies at all. It’s about the discipline of starting early, saving & investing a reasonable amount every month, & let the money remain invested for a significant duration of time.
So, the most important thing is to START. You can pick one ELSS fund for tax saving and a liquid fund for parking your savings. Set up SIP and start investing. As you move ahead in your investing journey and build your knowledge in personal finance, you can definitely make course corrections & further refine your investment plan.
Mistake # 4: Sticking with “safe” investment avenues”:
These safe avenues have a role to play, like different players in a team. However, putting all the money in these avenues is actually risky. Why? Because the returns do not beat inflation. And when the financial goal is due & you are in need of money, you realize that it’s just not enough!
To avoid this, decide on a proper asset allocation. This means breaking up your investment between high-return asset class like equity & fixed-income investments. This will allow you to let your money grow at a rate higher than inflation. And that will help you meet your financial goals & create real wealth over the long term.
Mistake # 5: Consulting wrong people for financial advice:
The problem with this is that wrong advice doesn’t cost a penny to the one who gave it to you, but costs you A LOT. Oftentimes, one realizes the damage much later in life, when it’s too late to rectify.
The solution is to devote time to do your own research. The more you do your research & develop your critical abilities, the less you need to depend on others for advice.
Mistake # 6: Falling for hot stock tips, F&O etc.:
Know this: Such activities are speculation, not investing. And it requires a different level of skill and temperament to earn money from speculation.
Investing is a slow game that requires patience. There is no excitement in that. Don’t put your money on the line on something that you don’t understand.