One of the most common pieces of advice that we receive growing up is to learn from our parents. In most aspects, this is an important lesson. After all, our parents have taught us several important things that are needed in life. They have been our guide when we have been in a moral dilemma, and they have taught us several practical skills that even educational institutions don’t.

However, when it comes to financial planning, we need a revised approach to avoid repeating the common financial mistakes that the former generation has been making. Generally, elders place a lot of importance on saving. However, their understanding about saving is restricted to fixed deposits as they are “safe” investments.

Inadequate knowledge about other financial instruments such as guarantee¹ insurance that can fund major and minor life goals or wealth-building investments such as ULIPs are often neglected. Investing in these financial instruments helps build a corpus for the future that is sensitive to inflation.

Research reveals that the financial patterns observed in childhood are often replicated by individuals later in life. To discontinue this habit, here is a list of financial mistakes to avoid:

Delayed Investing

Delayed investing is one of the most common financial mistakes that have regrettable repercussions. To reap the fruits of investment at a later stage in life, most financial experts recommend starting early. It is advised to not procrastinate in making the right investment decisions so as prevent a panicked financial situation.

Investing in financial tools offers the dual benefit of insurance and – as the name suggests – guaranteed¹ returns upon maturity. For steady wealth creation, investments need to begin with at the start of your career. Time and the rate of return both work in your favor when you make early investment decisions.

In fact, life insurance plans are a key financial instrument that not only ensure life cover for your family but also but also pave a path for building a long-term savings corpus.

Contrarily, when you invest late, you might have to take higher risks to attain your financial goals, such as building a house or buying a car. As against this, starting early with small investments helps you achieve bigger investment milestones.

Not Purchasing Life Insurance Policy

While Indians impress the importance of savings in their children, their financial planning does not incorporate saving in term insurance. The most common among the financial mistakes people make is thinking that term insurance is only needed if you are married.

However, any individual who has financial dependents requires a term plan policy to secure the financial future of their loved ones if something unfortunate were to happen to them. This is especially important if a person is the sole breadwinner of the family.

If you are concerned about no benefit on surviving the policy, you can begin with saving in guarantee¹ insurance plans. With guarantee¹ insurance, you are promised a maturity benefit as well as an insurance cover for your loved ones.

After purchase, you can check your Tata AIA Life Insurance policy status online from the comfort of your home.

Being Biased towards Tax*-Saving Instruments

There is no denying that tax*-saving is an important component of financial planning. However, for building a robust financial portfolio, tax* concerns should not be the driving factor. Amongst the financial mistakes people make, this one is particularly common in India.

Your priority must always be steady wealth creation by saving in wealth-building tools such as a guaranteed¹ return plan that will help you achieve important financial milestones at the preferred pace. Rushed investment decisions made towards the end of the financial year to save on taxes* does more harm than good.  

Neglecting Retirement Planning

It is not an uncommon sight to see the elders break their fixed deposit or PF to fund their children’s marriage or higher education. This temporary fix can prove to be detrimental to their financial wellbeing in the long run. Planning for your retirement is an important element in personal finance, and it requires an individual to dedicate some time.

Investing in the right tools that will enable a smooth and respectable retirement. Creating a corpus for post-retirement is important because expenses don’t end when your job does. Amongst the financial mistakes to avoid is not factoring in the rate of inflation (usually 7%) while making investments for retirement.

You must also calculate the benefits your current savings will reap in the future. Financial planning for retirement begins with deciding the age at which you would like to retire and the amount of money you would need to sustain your lifestyle thereon.

Not Building a Diversified Portfolio

A diversified investment portfolio ensures layered protection for the future. With this, you don’t place all your faith in just one financial tool but invest in several so that if one asset fails to give you the desired returns, you still have other investments to rely on. Additionally, if you need contingency funds, having only one investment can disrupt the planning for the future.

You can invest an amount you are comfortable with in high-risk investments that give higher returns, and most of your funds can be invested in a low-risk investment that gives steady returns. These can be adjusted based on your risk profile.

Generally, elders rest their faith only in fixed deposits because they are safe investments. However, fixed deposits don’t even give returns in line with the inflation rates. Diversification of your financial investments can lower volatility.

However, don’t be seduced by the other end of the spectrum and only invest in high-risk investments, as this can be harmful for wealth creation. Investments are a careful act of balancing.

To conclude, the first step to avoiding repeating the common financial mistakes made by your parents is to identify where things are going wrong. A great indicator of identifying financial mistakes is observing your spending patterns. While some individuals reverse their habits on their own, some others might require professional guidance for financial planning.

 

L&C/Advt/2022/Aug/1905