For financial success here on, people have to shift from a product-centric approach to their financial situation without mistakes.
Too many expenses and loans: –
India has one of the best saving rates as compared to western nations, but the same really can’t be said about the next generation. Even after having a high and stable income, their saving rate is very poor due to additional expense incurred due to loans. EMIs, increased insurance premiums and personal expenses eat all earnings quickly. Many business owners and professionals take on loans only to save tax without taking a view of the family’s liquidity position, present needs and future requirements, which in turn might lead to severe liquidity problems.
Over Concentration in Real Estate: –
Our love for real estate creates a huge flow of black money in the system and many people’s income in cash can be easily cushioned in real estate. Most Indians have completely forgotten the great Indian real estate crash of 1995 to 2003-04. Taking loans for real estate is a double side pain, maybe risky, especially since real estate is an illiquid investment.
Inadequate Insurance against risks of death, disability professional liability: –
Most people buy life insurance as an investment and end up paying high premiums and get a very low cover. There is no assessment of the actual financial risk, their family will face, in case of premature death and if most liabilities aren’t covered.
Investments done and money mistakes: –
The portfolio of most people would probably look like this –
50% to 60% in real estate
30% to 40% in Debt funds like PPF, Insurance policies, fixed deposits, bonds and post office
5% to 6% in cash (saving account, short term fixed deposits and cash)
gold (primarily bought as jewellery)
Very little equity.
Day by Day, people are getting busier and end up making decisions based on the advice of different set of people like CAs, friends or different agents. There is no coordination between all financial decisions and their requirements of funds. Achieving financial responsibilities and dreams are most important to achieve peace, and that is always different from family to family.
Lack of goal setting and planning: –
Most people take life as it comes. They don’t plan for it. But nothing meaningful can be achieved in life without setting goals and planning. For uncertain things, review of the plan is essential. Many of us plan for our vacations for several months and discuss the next big car to be bought. But when it comes financial life planning and goal setting, we have no time.