What are the Biggest and Worst Finance or Money Mistakes: I've noticed that many young people who have recently graduated or are just starting their careers are unconcerned about their finances and make severe financial mistakes. They will realize it later, but the consequences of their mistakes will cost them dearly.

1. A lack of a contingency/emergency fund:

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When many young people receive their pay or money, they spend it quickly and have nothing left over at the end of the month. Consider what would happen if a medical emergency or other pressing financial need arose at that time! You will take out a loan from a third party. Borrowing money is the worst and most expensive financial blunder you can make.

How might this blunder be avoided? It's very simple: keep a contingency or emergency fund equal to six months of your net monthly wage / income. One crucial point to remember is to put your money in a good liquid fund, which will give you some interest and be easily available anytime you need it.

2. Life Insurance Is Inadequate: Health-2


When an agent advises them about the benefits of an insurance coverage, most young people in India are easily swayed. They wind up investing in costly endowment or money-back plans, leaving them with insufficient life insurance. For example, if a 25-year-old man purchases an Endowment policy for an amount of one lakh, he will have to pay a premium of roughly Rs. 10,000 for a period of 12 years, and at the end of 15 years, he will only receive around 2 lakhs. If anything happened to him during this time, his family will only receive 2 lakhs. Making insurance an investment product is the second worst error you can make, and your family will suffer greatly as a result.

How might this blunder be avoided? Simply purchase a term coverage for an amount equal to 8 to 10 times your annual gross pay. For example, a 25-year-old young individual can purchase a 50-lakh term policy for Rs. 5000 per year. If he buys this policy online, he may be able to earn a 15% to 20% discount on the premiums. If something goes wrong with him, his family will receive Rs. 50 lakhs, which is a pretty comfortable sum for them to live on.

3. Inadequate health insurance coverage:

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Many young employees, particularly those employed by private companies, believe that their company's Group Health Insurance covers all of their medical needs. This is the next most common blunder, which leaves a significant dent in their pocket during times of need. The current job market is quite turbulent, and you cannot be certain of your current employment. You may have to move jobs or lose your current one. If you have a medical emergency during this transition period, your existing Group Health insurance will not cover you, and you will have to pay the hospital fees out of pocket.

How might this blunder be avoided? You and your family should purchase a new Medical Insurance policy from the market. Don't be concerned about the higher premiums you must pay; they are well worth it. Another key point to remember is that if your parents are present, you should not include them in your Mediclaim coverage; instead, you should purchase individual health insurance for them. This will lower your premium costs.

4. Failure to set financial objectives:

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Another common mistake made by young individuals is failing to define their long-term as well as short-term financial goals. They simply invest in a variety of things with no specific financial goal in mind. As a result, the wrong product will be chosen for the goals, resulting in insufficient funds to meet those goals.

What can be done to address this issue? Define your long-term goals, such as your children's schooling and marriage, your retirement life, and so on, and match them with a decent investment product. Similarly, you must specify your short-term financial goals, such as purchasing a home or car, or taking a vacation, and pair them with the appropriate investment product. Investment product definition is determined by the time frame and financial goal.

5 Putting a lot of money into debt investments.


The majority of the younger age invests in gold, insurance plans, bank FDs, and postal insurance. Without a question, these are the safest goods available. These products, on the other hand, will not provide inflation-beating returns and are not particularly tax-efficient investment vehicles. Finally, you'll have insufficient returns to meet your goals.

What is the best way to deal with this blunder? You must make a direct or indirect investment in the stock market. You can invest directly in solid stocks for the long term if you have appropriate stock knowledge or if you have access to a financial adviser. Otherwise, you can invest in mutual funds over a lengthy period of time using a systematic investment plan (SIP). This will almost certainly provide inflation-beating returns while also being tax-efficient.

6: Having a lot of credit cards and overspending


Young people nowadays think it's cool to have a lot of credit cards and swipe them left and right. This is one of the most common financial blunders that can put your financial future in jeopardy. Many people I know (especially young software engineers) are devoting a significant percentage of their wages to paying off credit card debt and high interest rates.

How might this blunder be avoided? Only keep one or two credit cards on you. Use them wisely and make cash payments to cut down on your wasteful spending.

7. Investing Later in Life:

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Many young people believe that investing is a concept reserved for the elderly and do not consider investments or savings until later in life. Consider a 25-year-old who invests Rs. 100 every month in a decent mutual fund. Can you image how much he would have by the time he retires? There's only one CRORE!!!!!! That is the power of early-stage investing. Investing early on will benefit from the Power of Compounding, resulting in bigger returns.

8. There is a lack of diversification in investments:

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It's not a good idea to put all your eggs in one basket. Many people put all of their money into one savings instrument, such as FDs, gold, or real estate. This is not a good concept, and it will not pay off in the long run. Many young people made large investments in real estate or the stock market during the 2007-2008 period. The real-estate boom and stock market crash of 2008 wiped out all of these people's savings.

What can be done about it? The best remedy for this is investment diversification. You divide your investment funds among various investment products. Not only would you be able to average your losses, but you'd also be able to maximise your returns over time.

9. Financial illiteracy / lack of tax knowledge: Budget2


How many of you are aware that the Section 80C exemption limit has been raised to 1.5 lakhs? How many of you are aware that the Section 24B (Home Loan) ceiling has been raised to $25,000? I'm guessing that only a few people are aware of the recent Budget-2014 revisions. Saving tax is the same as saving money. As a result, every young person should be thoroughly informed on their current financial situation as well as the taxes that apply to their earnings. Only then will they be able to effectively manage their taxes.

10. There will be no changes to financial planning:

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Last but not least, this is the most common blunder made by young individuals. Many of you will just invest in one product and will not monitor the progress of the investment product's returns. That is not a good idea at all. Everyone should assess their financial portfolio at least twice a year and make any necessary changes. It is preferable to get advice from a seasoned financial advisor.