Give them up post haste and make a rocking beginning to the New Year, says Amar Pandit.
Illustration: Uttam Ghosh/Rediff.com
It is that time of the year, when you make New Year resolutions to change certain bad habits and choose to start off with good ones, to improve your life.
This year you should all resolve to apply this to your personal finances as well.
Financial habits that can prove very costly in the long run, and you must give them up post haste.
1. Taking investment decisions based on tips from friends and relatives
We all have that set of relatives or friends, who are self-proclaimed investment gurus.
Usually people who have been tracking the markets and investing for many years without any professional knowledge or guidance, believe that they actually 'know-it-all', and generously start imparting their knowledge on 'how you can double your money' or 'how investing in the stock market is a gamble and you should invest only in safe asset classes like gold and real estate.'
Many a times, we get influenced by their views and take their advice when it comes to personal money matters; we tend to rely on people who we know and trust.
However, it is very important to differentiate between a qualified financial advisor and a person who is giving advice based on his experience as an investor.
2. Lack of tax planning
Most of us start investing in tax saving schemes at the end of the financial year when we get a reminder from our HR departments and our chartered accountants to submit investment proofs.
Making provision for funds last minute usually leads to unnecessary stress, and often leads to some amount of additional tax implication.
This can be avoided by planning all tax-related investments in advance, and in fact investing in the same at the beginning of the year itself.
3. Making ad hoc investments
Simply setting aside some amount as savings is not enough. All investments must be made with a purpose in mind.
Take the help of a qualified financial advisor to list out your life goals and how to prioritise, plan (how much you need to save) and invest (where to invest) to achieve these goals.
Periodic reviews will also ensure that you stay on track towards achieving your goals.
4. Spending sporadically and not having a savings budget
Most people spend first and then save and invest of what is left.
This way of managing cash flows leads to unnecessary expenditure and eventually we land up saving less.
We recommend a strategy of first setting aside a portion of your income as savings towards your goals, and then spending the balance amount guilt-free.
This will ensure that over a period, you build a sizeable corpus, through steady investments and streamline your monthly expenses.
For example, by saving mere Rs 5,000 per month in equity oriented investments for long term, you can accumulate a corpus of Rs. 1.62 crore, over a period of 25 years.
5. Being impatient and tracking portfolio returns too frequently
Seasoned investors are always patient with respect to their money and they tend to stay away from the madness of the crowd.
Like great wine, the fruits of investments get only sweeter with time.
Hence, make it a habit to ignore the short-term fluctuations in the market and stay focused for the long term.
You should resolve to give up these bad habits and inculcate good ones, not only in the New Year but make them a way of life.
Amar Pandit, CFA, is an engineer-turned-financial planner, and founder of HappynessFactory.in, a unique fintech company.