Moneywise, be wise

To be financially sound, steer clear of these money myths

1. Thinking of money as an important part of my life will make me look greedy

man relaxing with money in pocketLet's face it; we live in a materialistic world. And those who say money is not important are fooling themselves.

So just because you talk about money does not make you greedy. Do not feel ashamed when you want to discuss your queries related to finance with anyone or if you are interested in finding new ways of making more money.

2. Discussing money matters with family is not healthy

This mindset is characteristic of most Indian families. Earlier, men were expected to be bread earners, whereas women were 'supposed to be' home makers.

However, discussing about money with your family is an integral part of a healthy and financially secure family. In fact, to a small extent even children should be involved in the process of managing home finances. This will help your child understand the importance of money and how hard you have worked for it.

Financial education for your child should be started at a young age. It's also best to keep your spouse informed about your finances. If you don't want complete transparency, then share at least crucial information such as insurances and investments with her/him. This would prevent headache as well as heartache, if something unfortunate were to happen to either you or any family member.

3. The day I earn 'X' amount I will be OK

It does not matter how much you quantify your 'X' amount, once you get it, it's never enough. With inflation eating away into your hard-earned money, it becomes difficult to justify and quantify an amount. Individuals who earn in thousands want to earn in lakhs and those earning in lakhs want to earn in crores. So what is the limit?

Instead of speculating about how much money you need to live comfortably, invest your time in wise planning. Planning helps achieve your financial goals—maybe not immediately, but definitely eventually. In fact, individuals who have lower income but have planned well have been able to achieve their goals better than the ones with much higher income and no planning.

4. I don't have much money, then how can I make more money?

As Bill Gates says, "If you are born poor it is not your mistake but if you die poor it's your mistake". What he means is 'Where there is a will there is a way'. Hence, if you think that you can't generate more income just because you were not born with a silver spoon, then your bubble just got busted. Remember, hard work always pays.

5. Savings require high income

Wrong! You do not require thousands or lakhs to save; starting even with a small amount helps. It inculcates discipline in you to save. Remember, money pulls money and saving regularly helps you harness the power of compounding and build a foundation of a healthy financial life.

You can increase the amount as and when you can. So, stop thinking this way and start saving today. When it comes to saving, it's never too late to begin.

6. More debt motivates me to earn more

This might shock some of you, but a lot of people, especially those running a business, believe that creating debt motivates them to earn more money. Their mantra is to borrow money to build more assets and then allow the debt to push them to make more money. Any form of debt in excess is a no-no.

Here's a simple calculation that will tell you if you are crossing your limits. If the ratio of debt to total income gives you 45 per cent, then you are within your safety net. A warning bell should start ringing as soon as you cross 50 per cent. All hell should break loose if the ratio comes to more than 60 per cent—a dangerous area to be in. If you are here, try to repay as much as possible as soon as possible.

7. I don't need to buy insurance

Individuals working in service industries and those who work in big organisations are generally covered by the organisations. Hence, they do not get medical insurance over and above the one provided by the company.

There are two problems with this: firstly, the cover provided by the company is less and secondly, if they decide to shift jobs and the next company does not provide the policy or if they retire, they have no medical insurance. Understand that the older you are at the time of buying a policy, the more premium you have to pay and that too with loads of terms and conditions. This applies to a set of people who work in service industries.

Second set of individuals are those who feel since they have enough income and investments, there's no need to buy medical policies. Remember, no one has seen the future. Today, practically all diseases can be cured, but at a cost.

And although you might have the income, shelling out `5 lakh as medical cost at a particular point of time can be difficult even for high-income individuals, as ready cash might not be available. High income or not, there is no harm in being ready for this eventuality.

8. I will invest only if there are guaranteed returns

Guaranteed returns have almost become a thing of the past [I'm not considering returns from debt products, which often don't even beat inflation]. Sometimes, losing the opportunity by keeping your money idle can at times prove costlier than losing gains on your investment.

Also, remember that savings or investments are always done with a goal in mind. You save for your retirement, which is again a goal. So invest as per your goals in life and have a well-balanced portfolio. In time, you will definitely reap good returns.

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Sheetal Jhaveri
Sheetal Jhaveri holds MBA[Finance] and CFP degrees and is also certified by AMFI and IRDA. She runs her own financial consultancy in Mumbai and writes on finance for several leading publications. Besides her profession, she loves to travel, read and paint.

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