My article on ‘The 6 most common Personal Finance Mistakes’ have become very popular among my blog readers. After reading this article, one of my blog readers has suggested me to publish an article on the ‘personal financial mistakes that I have committed ’.
In this post, I have shared about my personal financial mistakes and some of the investment or personal finance lessons that I have learnt over the past 10 years.
I got my first job in 2003. As soon as I completed my MBA, I got selected in a campus placement. It was with one of the top Job Portals in India.
In 2004, I had joined Infosys BPO. The salary which I used to get was sufficient to meet my monthly living expenses. So, no major savings or investments were done during this period.
Later in 2005, I had joined an US Mortgage Processing company in Bangalore with a good hike in my salary. This had resulted in good amount of monthly savings. Like any other employee, I too started worrying about my TDS (tax deducted at source).
I had started thinking – how to save taxes? Where to invest my savings? Which are best investment options? How to make quick bucks by investing my monthly savings? 🙂
In the same year (2005), I got married and my wife too was employed in the IT field. So, double income, more savings, more thoughts about investment planning..
I believe that I have committed most of my Personal Finance mistakes between 2005 to 2007 and took corrective action during 2008 to 2010. Below are the details;
Related latest article : “A comprehensive list of the most common MONEY mistakes!“
Mixing Insurance & Investment
I believe that this is the most and very common personal finance mistake that many of us commit. I invested in an ULIP (Unit Linked Plan) in 2005 for two reasons – i) to claim life insurance premium as tax deduction under section 80c & ii) one of my good friends was a Life insurance agent and wanted to help him achieve his business target 🙂
The ULIPs which were issued before Sep 2010 had very high cost structure. The charges (such as premium allocation, policy administration in ULIPs) are usually front-loaded, which means only a smaller proportion of my premiums were invested in the initial years. So, I was very disappointed looking at the returns generated by my ULIP. Finally, I had surrendered this policy in 2010.
I had also bought one Traditional Life insurance policy (Endowment plan) in my name in 2006. The reasons for buying this plan are same as with the case of ULIP. In 2010, I had realized that all I need is one Term insurance plan and there is no requirement to have high cost – low yielding Endowment plan. I had surrendered this policy in 2010.
(Read : Traditional Life Insurance Plan – a terrible Investment option?)
Short Term Trading & Intra-day trading
My first investment in stock markets was in Ashok Leyland scrip in 2004. I remained invested in this stock for just 3 days only. I would have monitored the price of this stock for atleast 100 times over those 3 days 🙂 . My aim was to get atleast 5% returns on this investment. I had lost patience and sold it for loss on the fourth day.
I lost huge amount of money by doing day-trading also. I have lost money trying to make a quick buck. I used to trade in stocks purely based on tips and recommendations given by the analysts. All this happened during 2004 to 2007. I played short-term investing game without knowing the rules of the game.
I had incurred a total loss of Rs 3,08,129 because of Intra-day trading (during 2005-2007 period).
Invested in lot of Mutual Fund NFOs (New Fund Offers)
I used to buy and sell Mutual fund units very frequently during 2005 to 2008. I had invested in way too many Mutual fund schemes (in total 15 MF Schemes) without any proper research. Also, I had invested in many New Fund offers (NFOs) when I had an option to invest in well performing funds with good long track record.
During 2009-10, I started tagging my financial goals with the investments and redeemed all the unwanted mutual fund investments.
In 2009, I had requested for a consolidated mutual fund account statement from my distributor to understand and quantify the loss that I had incurred. Yesterday, I had spent almost one hour to trace this statement and finally succeeded in finding it. Below are some of the screenshots of my NFO MF investments in 2005-2006.
Not claimed the speculative losses in Income Tax Returns
As shown in one of the above pics, I had incurred huge losses because of intra-day trading. This is categorized as speculative loss. The loss from speculative business can be set off against profit from another speculative business income. Also, un-absorbed speculation business loss can be carried forward for a period of 4 years. I had not set off my speculative losses against speculative profits (had a chance in one of the FYs).
Lent money to a Friend
A friend in need is a friend indeed. We generally approach our friends or close family members when we are in need of any financial help.
In 2005, one of my office colleagues (my immediate boss) had requested me to lend him money. He had told me that his mother was seriously ill (kidney related disease) and borrowed Rs 85,000 from me (I later came to know that it was a lie).
All I could get back is Rs 12,000 only. I tried all possible ways to get back my money but all proved to be in-vain.
Below are his hand-written agreement (got it in 2007) on plain paper and post-dated cheques (which I couldn’t en-cash).
I might have lost money doing share-trading but this mistake of mine has hurt me the most till date. He is now working for an Indian IT Company as a Senior level manager.
You can find similar cases like mine in the comments section of my article ‘What is Promissory Note?‘.
As Shakespeare wrote, “For loan oft loses both itself and friend.” If you lend money to a friend or family member, beware that you may not get your money back and your relationship may never go back to normal. So, you lose both friendship and money. Think twice before lending money to a friend. Sometimes its better not to lend money to a friend keeping their best interests in mind.
Below are some of the Investment or personal finance lessons that I have learnt over the last few years;
Did you make any personal finance mistake(s)? What are the Investment lessons that you have learnt in your financial life? Kindly share your views. Cheers!
(Image courtesy of Sira Anamwong at FreeDigitalPhotos.net) (Post published on : 12-Aug-2016)
This post was last modified on September 27, 2023 3:28 pm
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Real good advice.If your readers also give briefly the financial mistakes they commited in their life, it will benefit all to avoid such mistakes in future.
Dear Bharat..May I know if you have committed any mistakes in your Financial Life, do share (if any).
Sreekanth - hats off to you for revealing your own mistakes, you really took time & pain to educate us all. I am sure most of us have done similar or more and often dug it deep in our memories rather than learning from it. Your article spurs us to take it out and learn. Should I say that mistakes are our investments for better learning :-)
My 2 important takeaways:
The day when you feel happy and excited to invest more in stock markets for your long-term goals, that day you can consider yourself as a balanced and matured investor
It’s ok to make mistakes but don’t wait unnecessarily and compound your mistakes.
There are few quotes that I have heard worth mentioning:
1. Do not buy things (including investments, insurances, etc) that you DO NOT need, otherwise you will be forced to sell what you need (& love it so much)
2. Be fearful when others are greedy and be greedy when other are fearful
Dear Manja ..Thank you for sharing your views. Like the two quotes that you have shared :)
hello sreekanth,
i have been reading your articles on mutual funds and tax saving.
this recent article is very enlightning.
i have a few queries.
recently my FD have matured around 23lakhs.
now i want to invest in ELSS, MF MIP(as suggested by u earlier) and few amt to be kept for emergency fund.
also i want to tell that my 3 kids i'm planning to split the amt.
a] youngest son is studying and plans to go for MBA this year so i would need money for that in 1 year. 12LAKHS I'M INVESTING FOR YOUNGEST SON.
for him i'm doing a FD of 6 lakhs. 1.5lakhs in ELSS AXIS LONG TERM EQUITY FUND
HDFC BALANCED FUND 2 LAKHS
FRANKLIN INDIA SMALLER CO FUND MID CAP 1.5LAKH
ICICI PRUDENTIAL VALUE DISCOVERY FUND 1LAKH
ALL WOULD BE LUMP SUM DIRECT INVESTMENT
1.HAVE I CHOSEN THE RIGHT FUNDS
A)ELSS
B)BALANCED FUND)
C)EQUITY ORIENTED MIP FUNDS
2) IF THIS OK THEN I GIVE 5LAKHS TO MY DAUGHTER TO INVEST IN SIMILAR FUNDS ELSS MIP-MUF
ELSS FROM HER SALARY
MIP-MF FROM 5 LAKHS BREAKUP WUD BE:
2 LAKS BALANCED HDFC,
2LAKHS DIVERSIFIED ICICI ,
AND 1LKH FRANKLIN INDIA SMALLER CO FUND MID CAP 1.5LAKH
3)REMAINING 3 LAKH TO MY ELDER SON 1 LAKH IN EACH
PLZ REPLY FOR a), 1), 2) and 3)
Dear shashi Ji,
Thank you so much for following my Blog.
1)
If time horizon is 1 to 2 years, kindly stick to FD and/or Short-term debt funds / Arbitrage funds only. Suggest you not to invest in ELSS and other equity oriented schemes. Kindly note that ELSS funds have a lock-in period of 3 years.
Read:
Best Debt funds.
Best Arbitrage funds.
2) & 3)
Funds are fine but let her know that these are for long-term and needs to be monitored atleast once in 2 years.
Thanks to shreekanth for such a practical experiences with Advice .I have suffered a lot like you but now after many years i am able to make my self strong.I am encouraged with the blog reading first time
Dear janardan.. Its ok to commit mistakes and but lets not repeat them. Try to follow a simple and tax efficient investment plan to attain your financial goals.
Keep visiting!
Hi Sree,
Whatever you said is correct. While lending money to others we have to think without any emotion. If the loss is minimal we can come out of that. If its big who will bail out us. I would recommend you to tag the boss's social media id in your post with his photo. :) Just like loan defaulters announcement in bank notice board / news papers.
There are people who just spend lavishly without any second thought. During the month end they will go for a collection with near and dears. If anybody is serious about lending money then get a collateral and put an agreement in a stamp paper (not in blank paper). At least it will mitigate some risks.
Dear Arun,
Thank you for sharing your inputs.
Let me not tag my ex-friend :)
But I am sure he has read my article.
Hi Sreekanth,
Nice article again. I have also committed 2-3 mistakes from this last the biggest one are given loan to someone and taking an insurance product from someone who was very close to me.
Any way learning is a continuous process
Thanks for the advice
Dear Raman .. Learning is surely a continuous process more so if it is related to Finances :)
Glad that you have liked my article. Keep visiting!
Nice article Sreekant. Many of us learnt lot of lessons and sharing through these finance blogs which are really useful for investors not to burn fingers with such issues
Thank you dear Suresh. You are also doing a wonderful job. Keep blogging, cheers!
Interesting and well written. Am sure this will prove useful to many.
Have committed 2 of your mistakes. Giving loans to supposed friends - many a time. Earlier used to loan as much as I could. Later on only lent a small amount, an amount I was ready to forget about. The good thing of having lent is the friends am left with. are genuine ones. So one could use this "mistake" to weed out the bad ones.
Have taken a couple of policies to help others out, even though was aware of it's limitations. Was tempted to ask how is the commission the agent was making; so that I could pay him the commission and not pay for the whole policy.
Dear Sir,
Thank you very much for eye opener article. Out of 5 I committed 2-3 for sure.
Thank you very much for bringing this up to us.
I request you to kindly put a article for best financial habit like where how much money we should invest in which type of fund.
I did following
A) Taking Term plan of 1 cr.
B) Contributing to E.P.F like 10K/month
C) Having RD of 15K in SBI
D) Started SIP of 1100 in L&T Equity fund.
Will be lending loan for Home nearly 30 Lac by end of this year
I am very reluctant towards SIP and MF but also know I need to invest there for good return.
Could you please suggest good portfolio for salaried person.
Thanks
Ashish
Dear Ashish,
Glad to know that you have liked this blog post.
How much money we should invest/allocate depends on many factors, so it is not fair to generalize this.
RD of Rs 15,000 - Is it per month? Any specific reason for this? Is this towards your emergency fund accumulation?
Yes, one needs to invest in investment options like equity mutual funds to get decent real rate of return.
Dear Sir,
Thank you for reply
Yes 15K RD in SIP is monthly also it has started in 2012 (5K) and 2013 ( 10K). Initially it was for investment purpose because Rate of return was 9.25 and 8.75 respectively. RD is of 10 year of term.
Also I am deducting 30% of my basic as E.P.F.
What can I do to get better return.
Thanks
Ashish
Dear Ashish,
Kindly read: Why one should not invest in FDs/RDs for longer period? (especially if it is beyond your Emergency fund limit in terms of amount).
For long term goals like Retirement etc., investing or allocating higher portion of your investible surplus in Debt products may not be beneficial if you have to achieve better inflation adjusted returns.
Read:
List of best investment options.
Pakka... Learnt from Mistakes, that's the key for Success. Especially, on Financial Life.
That's the way i liked your blog, how you had described here
Thanks
Keep visiting dear saravanakumar.