Newbie To Financial Planning? Be Wary Of These Misconceptions

Welcome to adulthood: a never-ending cycle of saving, investing, spending, and repeating. Avoid these "myths".

It is get set retirement plan from the very beginning 

Courtesy - iStock

You are on the other side of your 20s. You have got bills to pay and decisions to make. You want to skip back to when spending your money was about deciding whether you want a samosa or Maggi for lunch in your college canteen.

Welcome to adulthood: a never-ending cycle of saving, investing, spending, and repeating. It is not the easiest learning curve. If you are not from the “money world” it can be overwhelming. But don’t get trapped in the following financial misconceptions:

#1 You Are Too Young To Think About Your Retirement

In case no one gave you the memo? We will say it out loud and clear. No, you are never too young to think about your retirement plans. You may think you have all the time in the world or may consider thinking about your retirement plans when you will have a larger salary. Here is the truth, if your salary increases then so do inflation and a bunch of other responsibilities. It means that your expenses are bound to go up as well. The harsh reality is that you may not have the money available to save as much in the future.

What you save today is your earning for when you will not be in a position to save. So it is get set retirement plan from the very beginning.

#2 Credit Cards Are A Debt Trap

So, you have seen Confessions Of A Shopaholic. And you think credit cards are your frenemy? But whether or not you have seen Rebecca Bloomwood getting buried in a pile of bills, credit cards generally tend to enjoy a bad reputation. And it is a tad unfair to blame American chick flicks for this.

The mainstream narrative around credit cards is designed around concerns of racking up debt and the potential to fluctuate your credit score. But credit cards can be a highly beneficial tool for your financial planning with swipe-moderation, being responsible, and making timely payments. Then some worry about having more than one plastic card for the fear of overspending. But multiple cards give you a higher credit limit that, in turn, reduces your credit utilisation ratio. It plays a major role in calculating your credit score.

#3 SIPs Are Risk-Free Investments

In an age of ever-accelerating volatility, you want to pin your bets on an investment strategy that will always give a slice of profit. It does not matter how big or small that slice of profit pie is but, you want to make a guaranteed investment that will not be a waste even in the worst situations. Here is a reality check: There is no such thing as a 100% risk-free investment strategy.

Systematic Investment Plans (SIPs) only reduce the risk of equity investing. They do not eliminate it. They safeguard against market volatility and help average out costs over time. It does not deride you from making losses. You benefit from SIPs by staying invested over different market cycles. A downturn is always followed by a rebound, which is when your investments stand to gain.

#4 Don’t Buy Because UncleJi Recommended On Your Family WhatsApp Chat

Do you know that saying about getting stock tips from your “paan-wala”? The same logic applies to that uncle in the family group chat. The one who keeps forwarding "buy" opportunities from gold to bitcoins. There is nothing wrong with following these recommendations if you can do your due diligence. But if not, then in all likelihood the paan-wala has been receiving these “tips” from someone else and, so would your uncle ji if he is not from the “finance background”. Under all circumstances, your best bet is to verify these “WhatsApp” recommendations from a wealth management advisor. There is a reason we have financial consultants.

#5 Debts Are Bad

There are bad debts that undermine your credit score. Some loans can sometimes help you grow your net worth and boost your earning potential. Some loans are better than impulse buying and consumer spending. In other news, it can also help you evade taxes. You want to do the math and figure out if the interest you are paying on the “said” loan for the creation of your asset class is a better option than shelling it out to the taxman!

Always be mindful of the type and amount of liabilities you take on - and have a plan for how you will pay it back. A job loss or a medical event can affect your income, savings, and ability to make payments.

(This article on personal finance is part of The Quint's 'Save and Grow' campaign)