The biggest money mistakes!

May 9, 2007

Ever wondered why some people become millionaires while the rest of us languish where we are? Well, amongst other things, they probably don't make the same mistakes you and I do. Here are some money mistakes we are most susceptible to. Hopefully, once we are aware of them, we will get on the right financial track. Read on to figure out the money mistakes you must avoid, and why!

Money mistake 1: Waiting for tomorrow Time is of the essence. Treat your money smartly and make it multiply. If you had invested Rs 10,000 at 10 pecent per annum in 1994, you would have got Rs 25,937 in 2004. If you had delayed and invested it in 1996, you would have got Rs 21,435. And if you had invested it in 2001, you would have got only Rs 13,310. A seven-year delay thus would cost you Rs 12,627. The more

time you have on your side, the more interest you will earn and the more money you will make. Don't wait for the day you will have more money to invest. Start now. Don't worry if the amount is small. Note: The example of Rs 10,000 taken all through has not taken tax into account. Money mistake 2: Saving only on special occasions Most people celebrate on certain occasions, but save through the rest of the year. If you plan to save only when you get Diwali gifts from your family, a bonus from your company or a rich inheritance from an ailing relative, you are being downright silly! Let's talk about the Rs 10,000 again. Say you got it as a bonus or a gift. If you invest it at 10 percent per annum, you will get Rs 25,937 after 10 years. But if you are a little more consistent and decide to add an additional Rs 500 every month to

this kitty, you will finally end up with Rs 1,25,869. This is a small monthly contribution and should not pinch your pocket. More important, the reward it fetches you is worth it! If you are sold, let me push you some more. Be a little more conscientious. Instead of a measly Rs 500, hike it to Rs 1,000 a month. You will end up with Rs 2,25,801. Be consistent. It hurts less and the rewards are better. Money mistake 3: Investing before clearing your credit card bill If you have credit card debts, stop right now! Forget all that I said earlier. If you are revolving credit on your credit card (paying back just the minimum amount every month and carrying forward the rest to the next month), your sole motive should be to clear your debt. (Also check out: Are you revolving on your credit card?) Forget about investing your money. The annual interest rate on your card at 2.95 percent per month will be 35.4 percent per annum. If you drag your feet on paying this bill, the interest gets compounded and it amounts to much more. That will suck precious money out of your wallet. You don't necessarily have to be a mathematical genius to calculate that you should get a return of that much (35.4 percent after taxes) to break even. Which, incidentally, is virtually impossible, unless you are a stock market wizard. Money mistake 4: Playing it safe Don't be too cautious. Surely you can live a little dangerously. If you are in your 20s, consider investing at least some amount of your money in the stock market. (Check out: What's in a share? Money!) Sure, the market will swing both ways and the prices of your shares will rise and fall like the tide. But the good news is, you have time on your side. When buying shares, what you need is time. That will even out the ups and downs. You can take the risk. If you are sceptical of stocks, remember, they give the best return compared to other investments. They also beat inflation over time. If you don't like the idea of buying shares, consider an equity mutual fund where the fund manager will invest in the share market. If that too scares you, try a balance fund where only half of the money that the fund manager invests will be in shares. The other half will be in other investments. Money mistake 5: Penny wise, pound foolish This is for those who refuse to spend money on eating at a 5-star hotel or buying a designer outfit, but are silly enough to blow up cash all through the week without even realising it. How much of your salary (or pocket money) do you spend on hopping into an autorickshaw when you could probably take the bus? How much is blown up on your tri-weekly trips to the coffee shop? How much do you

spend on unnecessary SMSes on your cell phone? Money actually leaks out of your wallet without your knowing it. Not convinced? Try this for a few weeks. Note how much you spend and on what every day. Say you drop in at Barista [the coffee shop] thrice a week with your pals and have coffee worth Rs 36. In a week, you would have blown up Rs 108; this adds up to Rs 432 in a month. Eat out once every week for Rs 200 and you spend Rs 800 a month. Blow up Rs 400 every week at a pub and you spend a cool Rs 1,600 a month. Just pubbing, eating out and exchanging pleasantries over coffee will set you back by Rs 2,832 a month. Maybe it is time you put your spending under a microscope. Note: The example of Rs 10,000 taken all through has not taken tax into account. Source : Rediff.com . Help Ever Hurt Never - Baba A Anantha

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