Rookie mistakes to be avoided

In your early twenties, it seems the money you earn is never enough to last the month. Saving seems to be an impossible concept, unless if a strict parent imposes restrictions on spending and forces you to do it. The mid-twenties is when future goals become clearer and saving for them starts off in earnest. The crucial difference between saving and investing usually gets highlighted in your early thirties.     

However, having over a decade of experience doesn’t help much. Managing money and managing investments are two totally different tasks, requiring an entirely different approach and set of skills. Making money earn money is the key factor here that tends to be missed out.

Earning less
Saving enough money to pay three to six months of living expenses in case of job loss concerns is a good idea, but then keeping that amount for a rainy day in your savings account is just plain stupid. Invest it in fixed deposits instead and keep rolling them over instead of encashing on maturity, its that simple.

Unbalanced portfolio
Similarly, while equities do give a good rate of return, the risks are equally great. Maintain a balanced portfolio so that volatile markets do not completely deplete your net worth overnight. Diversify across instruments and sectors even while dealing with ‘safe’ options like mutual funds. 

Unclear goals
Do you want to live in a spacious 2BHK flat or opt for a 1BHK and send your child abroad for higher studies? Buy an entry-level hatchback or top-end SUV?
Party every weekend or once in a few months? Vacation abroad twice a year or once in two years? Unless if you are clear about your projected spends, it will be impossible to plan your investments in sync with them.

Unexpected inflows  
Diverting your Diwali bonus for an outstanding credit card payment gets you out of a financial crunch but did you learn anything from the experience? They say those who do not learn from history are condemned to repeat it and you may just exemplify that adage next year. Unexpected inflows should be invested and reinvested, not spent.

Stopgap solutions
Taking a personal loan to bridge the gap and buy a bigger house solves an immediate need but adds a high-cost liability that will offset whatever returns your current investments are making. Instead, ‘break’ a few fixed deposits before their maturity. Losing projected interest for a few months is better than paying it multiple times over for years on end.

Following friends
What works for your office colleague, school buddy or train friends may not necessarily be applicable to your financial situation. Blindly investing where others do without understanding your own financial potential, abailities and constraints, is strictly avoidable.