Wealthy Wednesday: 7 Major Money Mistakes

Huffington Post recently reported that according to 44,000 women over 60 in the Sixty and Me community, "The biggest mistake young women make is not saving enough money". As a young woman, with over a decade of work experience, here are a few money mistakes I've made, that I hope you won't repeat. 

Saving money (aka letting money rot) in your savings bank account: Yes, of course you are saving by not spending, but your interest rate is also around half that of what it would be had to you deposit the same amount in an online fixed deposit. You may claim that the money in your savings account is purely contingency funds. But seeing as how investment professionals suggest that you have at least three months' salary as contingency that's a whole lot of money. Secondly, if you invest in a fixed deposit online, you can break it as quickly (5 secs or less) as you make it; so in the event of an emergency your money is just a few clicks away, whilst it has been growing at a faster rate that if it had been just sitting around in your savings account. The 1% penalty for prematurely breaking an FD is more that covered by the higher interest rate that your money is earning. The fact that you can't just swipe away your savings when your emotions drive you to a bout of retail therapy is an added benefit. Of course, you do have to ensure that the account that you are creating the FD from is solely in your name and does not require multiple signatories. Secondly, you are taking a chance that there will be no emergencies on a Sunday, when you won't be able to break an FD online. But if you're the optimistic sort, the higher savings that your money is earning and the fact that it helps you stick to your monthly budget, far outweigh, the risk of not having funds for an emergency that may never occur.

Withdrawing your EPF every time you change jobs: Were you aware that after ten years of having an EPF account you become eligible for a pension? Well, I found this out ten years too late and have been withdrawing my EFP instead of transferring it every time I change jobs. So after working for 10-odd years, I'm actually back at ground zero as far as a pension is concerned. While the sudden inflow of money just as you are transitioning between jobs may be a temporary high, it is clearly not worth losing out on a pension, however low or high that amount may be.

Blindly trusting investment "professionals": 'Read the offer document carefully before investing', the ads say. But lets be honest, who pays attention to the ads? Do you know someone who actually reads the fine print? Besides, when you think you are dealing with a professional (who supposedly knows more than you), there's a tendency to just leave all the details to him/her and simply sign on the dotted line. This is definitely not the smartest thing to do; I've learned the hard way that there are a lot of "investment professionals" out there who are more interested in the commission they will earn by selling you a certain product, than helping you invest in a product that suits your needs and dreams. As little as you think you know, this is your money we are talking about, making it your prerogative to try to understand as much as you can. Think of it as a child learning to walk; if he just sat there and cried every time he fell on his butt, he would never be able to run or dance or play.

Not saving because "it's too small an amount": How small is too small? Rs 500 can't buy much you think... yet put it in a recurring deposit, and 10 years down the line, you will have Rs.93,101, as per the HDFC Bank Recurring Deposit Calculator (http://www.hdfcbank.com/RD_Calculator/index.aspx) at an interest rate of 8.25% per annum. Now that doesn't sound small at all. In fact, if you have a retirement figure in mind, the HDFC Bank RD Calculator will let you work backwards and calculate how much you need to invest per month. The downside it that it can't calculate RD values beyond 10 years. If you plan on working for 40 years, that same Rs 500 per month will earn you Rs 18,59,222, according to All Banking Solutions' RD Calulator (http://www.allbankingsolutions.com/recurring-deposit-calculator-india.shtml).

Splurging on something, simply because I can afford it now: Ah! The joy of spending; it makes you buy a cool remote-controlled Hummer for a two-year old (which he'll only be able to effectively control three years down the line) or an exquisite saree that you'll only use once in three years, and even lend money to a cause you don't necessarily believe in. The high of buying something right now makes it easy to forget that you have dreams that will takes months of saving to actualise... like that backpacking trip around the world. Unless you get into the habit of allocating funds to your goals, your present purchases come at the cost of your dreams. If there's something you really really want, compare the prices across retailers/websites, before you make a purchase. I have often discovered that books cost less on portals other than the one I log onto by default. You might also want to consider placing a time buffer between the time you see something that you want to buy and the time you actually buy it—whether it's just two hours, a good night's sleep or a week, you may often find that things lose their allure in the bright light of priorities.

Forgetting to pay bills by the due date: Doing things on time pays off; whether your electricity bill or your broadband connection, everyone seem determined to reward timely payments with discounts and paybacks. Why not take advantage of it? Granted it's just a few rupees here and there, but in a year's time those few ruppees could buy you lunch for two. Who said being on time doesn't pay?

Saving Leftovers: When you leave the savings to last, chances are you've already spent a lot of money that you could have saved. According to Robert Kiyosaki of Rich Dad, Poor Dad fame, "The poor pay themselves last, and that is why they're poor; but the rich pay themselves first, and that is why they're rich". That does it; starting next month, I'm going to invest before I spend.