We live in a world of myths. There is a lot of misinformation about finances. As a result many of us confront these mistakes in finance. With my few years of experience in the profession I came across people who happen to live with these myths. I have compiled some finance myths to break and also expressed what the reality behind them.
1. Insurance is for investment and tax saving
I come across people who think insurance is the only way to save taxes and exhaust all their tax saving limit with insurance premium. Sad is the term for them. Also, when I tell them that my insurance premium forms the smallest part of the Section 80C investments, they think I am a fool.
The word ‘Insurance’ itself stands for protection. Insurance is only to protect your family in case of unexpected casualties like accident, sudden death, fire etc. In case of any of those events the insurance amount will come handy to your dependents. People try to use it as an investment saying if I pay ‘x’ amount every year as premium I will get ‘y’ amount in return after the end of some years. Well, that is only the sum assured. In reality, it turns out to be a loss to you if you calculate the time value of money. Therefore, always use Insurance as a surety towards your family in case of unexpected casualties.
2. You have to be rich to invest
Well, of course you need money to invest. But you need not be rich to invest. Well, the definition of rich is different for everyone.
Everyone can invest. Also whoever is rich he is so because he invested. Make your money earn for you. You earning money will not be enough. In order to do the right finances one needs to remember to – Save money, Invest right and Create passive income. Keep your money moving. It has to generate you more money.
3. I am unable to save as I don’t earn enough
Many of you might be wondering – I am unable to make enough money to spend during the month. How will I even save? I have a debt to repay. How can I save? I hardly earn anything to save.
I reiterate – Save first, Spend next. It is very important to save however less your income is. That is the only way you can make your financial position better. If you are unable to save then you are overspending. Do not compare yourselves to others. Do not buy something just because some one else has bought it. He/She has already saved his share of income and then spent but you are unable to do it. Living a simpler life does not make you poor. Just look at Mrs. Sudha Murthy, wife of Mr. N.R. Narayana Murthy, founder Infosys. I am sure she lives a simpler life than most of us. She is not poor. Simplicity only makes her life easy and helps her make more money.
4. I don’t need an emergency fund. I have a credit card
Many people assume that credit card can work for an emergency and can be swiped in any instance.
An emergency fund is a must. A credit card, remember is only a short term debt. In case you need to take a career break, a credit card debt will only be an extra burden as you won’t be able to repay it without monthly salary. Also credit cards do not work at all places. Therefore, always have an emergency fund.
5. Cash is king
I have a lot of cash. I am rich. Need I say more?
How can you forget the date 8 November 2016? Imagine you considered yourself rich because you have a lot of cash in hand on that day. Overnight you are only have to stand in a huge queue to use your own cash. Further, if you consider having a bank balance also as cash, don’t you think it is better to make it grow at 14% p.a average with other investment avenues than 6%p.a in an fixed deposit?
6. Debt is bad
I have a loan. I am in deep trouble. Most of you might have this feeling or are worried that repaying a loan is a very big obligation.
Remember even India’s richest man has a loan in his balance sheet and he has made comprehensive plan how to get rid of it. You too need to do that. If you haven’t then you are in trouble. But otherwise debt is not bad. Debt has to be taken at the right time in the right way. It does not become bad then.
7. You can get a job even after you retire
I have experience of more than 30 years and can get a job easily. I am still young I need not sit at home.
Days are not far away where the retirement age will be reduced. Companies today look in for younger talent, fresher ideas and more energy. Recently, IBM laid-off more than a lakh of older employees to cut-costs. Of course you have experience but they need only one person of your type who has that to drive all these youngsters into the business. Also remember with the lifestyle health and related issues will only increase with age and working after retirement is not as easy as it looks.
8. The stock market is too risky for my retirement money.
Of course the stock market is risky. I cannot think of investing in it. It is not the cup of my tea.
You should make your retirement money when you are young and not when you have retired. This is the line. Stock market returns are the best for more than 10 years investments. Thus, since you have to make your retirement money much before you retire stock markets work the best for this type of your saving. Again, if you think it is not your cup of tea to look into it, then take help from the right person.
9. My children will take care of me. I need not save
My children are the best. I have loved them from my heart so they will not let me down. Your feelings and expectations are right. But situation can force your children not to support you whether it is in their will to do so or know.
You need to secure your future and not your children’s future. Like you worked and made your own living your children are also supposed to do it. Therefore, do not expect them to take care of you. You are supposed to take care of your own financial health.