Must Avoid Financial Mistakes For Young Investors
Young people who have begun to earn, do not engage sincerely with money or investment decisions. They give several excuses like not enough money, very complex, not sure about where to start, etc.
Here are the few common issues of young investors:
1. Many young earners think that managing money is complex and is not for them. They feel so when they have already opened a bank account, taken a credit card and a loan for a motor vehicle. The simplest way to understand personal finance is to see you as an asset that generates income. The four ideas of your assets are if you save and invest, you are buffering income, if you spend more than you earn, you need a higher or an alternate source of income, if you borrow you create a liability and take away from the future income. There are no other than these personal finance decisions to take.
2. Youngsters tend to moan and complain when the world they see and experiences is different from the comfort zone that they are used to. Protective parents make the process of growing up tougher. The simple rule is that money decisions require action, and for it one has to evaluate alternatives and make a decision. The 2-minute noodle has been a hostel staple for way too long. This quick fix approach continues in young people’s money lives, where the search is for quick, comforting solutions that are easy to arrive at. But young investors need to think strategically, without which they remain clueless earners, who do not know how to take decisions.
3. There are several youngsters who have not opened their bank statements, haven’t deposited their dividend cheques, not filed their tax returns, or completed their KYC process with a mutual fund or broker. The taxman would want to know if they can establish how they built their assets, and whether they paid the taxes on their income before doing so. Use empty boxes for keeping bills, papers and notices and file your tax on time. You can avoid being ripped off if you deal with your paperwork in the early days.
4. Some young investors are overconfident about their future incomes. They are big splendors as they do not visualize a dark future for which they have to set money aside. You should set some money aside right at the start instead of defining savings as the amount left after spending. For disciplined savings, direct debit options can be used like systematic investment plans take money away from the salary account. It always makes sense to pay ourselves before paying anyone else.
5. Young investors are very tech-savvy and should find out how modern technology can help them in their financial lives. The core banking solutions ensure that money can be easily accessed, used and transferred without recourse to physical branch, by using internet and mobile banking instead. But this will increase the risk of password protection guarding against phishing and internet frauds. It is now possible to aggregate all the money transactions into applications that help budgeting, spending, investing and recordkeeping. The youngsters should persuade their ease with technology to make money transactions simpler and more efficient.
6. Many investors start at the wrong end of the investing gamut. Several think that speculating in stocks, buying a few IPOs or conducting derivatives transactions are the easiest ways to make money. But a solid foundation for creating wealth is through simple and staid products, like fixed deposits and PPF accounts. Diversified large-cap mutual funds and bonds can be added to this progressively. Anyone who has dealt with money will be able to tell you how magically compounding can work if good investment decisions are taken early on it.