Ten financial lies we tell ourselves

How many of these do you often tell yourself? :)

They say lying is an art and not everyone can do it well. Those who do it well pat their own back by saying they can manage any kind of situation. Do we even lie (to ourselves) when we deal with our finances? Yes, we do. I can bet on it anytime.

I have seen people lie to themselves in a lot of areas concerned with personal finance such as investments, savings, insurance, expenditure, etc.

I would like to touch upon the top 10 financial lies we tell ourselves in our day to day lives.

1. Retirement planning still has lot of time

We somehow strongly feel that retirement planning can be done at later stages of life rather than starting now. It is a common tendency to ignore things which occur after a long time.

Remember the days when we used to study for exams just one day before? This type of thinking is probably continuing with most of us. It is dangerous since life's important goals such as retirement need to be planned well in advance and cannot be achieved overnight (or even within 5-10 years).

In fact, I suggest you start investing for retirement right when you start earning. It seems funny but with rising inflation, medical costs and uncertainties revolving around our heads retirement life is going to be a costly affair.

Use retirement calculator to know how much you need in order to maintain your current lifestyle after retirement. Do not forget to add other expenses such as vacation, dream home, etc.

2. Term insurance is a waste of money

We Indians have a tendency to get something in return for what we have done and that has to be in monetary terms. Term insurance has been ignored for years since it does not give back anything in return.

However, it is the only form of insurance which actually addresses your need -- protection to your family. If it's the question of investment, there are tons of products in the market.

We could be speaking about the sales pitch of insurance agents who reiterate the need for traditional products. These products (in various forms keep coming back to haunt us with changed tactics. No matter what changes happen, they have continuously failed against the biggest evil named inflation.

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This is a common escapist tactic that we use to protect ourselves from health insurance companies when they try to sell us mediclaim policies. It's good that we are already covered by the employer.

But, is it enough?

Will the company give us the same benefit till we stay with it? What about the phase when we leave the current organisation and join elsewhere? And there are few more similar questions to be answered.

If you have answers for all the above questions, you need not buy health insurance. If you are not sure about even one of these, then probably it's time you have one for your entire family.

4. Fixed deposits are enough to help me reach my goals

'Conservatism' is a word which I have been hearing a lot since recession. People have suddenly realised that their money is precious and they cannot afford to lose the principal amount invested. And so, they started investing in FDs rather than mutual funds or stocks for their goals.

They seem to give a blind eye when you talk to them about post tax returns, inflation, etc.

Well, firstly how many of us have calculated as to how much would be needed to help us achieve our goals. Not many.

If returns of 6 per cent or 7 per cent per annum (post taxes are more than sufficient to build wealth for your future, then am not going to stop you from doing it. But, if you feel otherwise, then you need to look to diverse across mutual funds, FMPs, PPF and so on rather than just stick to one product.

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This is a bit of continuation to point no 2 mentioned above. Yes, LIC has the highest claim settlement ration of 97.73 per cent. But, what about others?

Let's see:

ICICI Prudential -- 96.29 per cent

• HDFC Life -- 95.76 per cent
• SBI Life -- 94.41 per cent
• Max Life -- 94.25 per cent
• Kotak Life -- 92.04 per cent

I know that in India, only winners matters and everyone else is treated as a failure. But, are these numbers that bad? Some of these insurers have settled most of these claims within 1-3 months.

Moreover, term plan of LIC is costlier compared to the online plans of private insurers, which provide greater sum assured at a cheaper price. Now, when I say this, I am not against LIC.

However, I cannot support it just because it is a government organisation.

6. I will lose my money in mutual funds

Whenever I talk about mutual funds, this is the most common thing that I get to hear. I try to answer this by analysing why he/she might have lost money rather than just cursing mutual funds. However, I still fail to convince people on this.

You don't stop driving a scooter just because you fell from it once or twice when you were trying to learn. Doesn't the same principle apply to investments as well? I know that life is quite comfortable in your conventional instruments such as FDs, PPF, etc.

Though mutual fund is a single name, it comes in different varieties such as equity, balanced and debt. They have different objectives and strategies. You need to pick the one which suits your risk appetite and time frame of your goal.

Not all mutual funds will eat away your money in bad situations.

For example, liquid fund is an example of debt fund which can serve as an alternative to your savings bank account with sufficient liquidity.

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This is probably the most repeated financial lie. We have a gut feeling in our hearts that managing personal finance is a child's play. Financial planner or advisor only works for his advantage and we don't need such people to advise us.

EPF contribution, tax deduction and a couple of FDs -- that's it. We are done with our financial plan.

We visit a doctor when there is a health issue; we visit a lawyer when there is a law related issue. But, why not a financial planner when there is a financial issue?

The problem is that we don't recognise financial issues till they have actually happened. I suggest you seek a financial planner's help if you do not have time for your finances.

8. I have control over my spending

We keep telling ourselves that we have control over our spending and don't need to make a budget. In fact, we keep applying for credit cards with the same impression. One of my friends also stated to me that he uses credit card only when it's necessary. I believe it doesn't really happen.

Credit is credit. Yes, credit card has reward points and few other advantages. But, it remains good only if you pay bills on time, do not default, do not frequently transfer balance to another card or do not go for settlements.

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Whenever there is an emergency, we only look to apply for personal loans. We believe that there is no other option other than personal loan. But, do you know that you can apply for a loan against fixed deposit, gold, insurance and PPF?

And these can be availed at better rates too.

And the final one...

10. I cannot invest now

Whenever I ask people to invest for their future, they say their plates are full of EMIs, household spending and so on.

So, can you compromise on your goals? I guess no one would want to. You have to make space for regular investment. It may mean you have lesser money to spend on entertainment, vacations and so on.

If you are ready to do these sacrifices, then you will be ready to invest for your future. Intentions are more important than numbers.

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