Last Updated on June 28, 2020 at 9:44 am
Every year, tens of thousands of people start their careers and recognise the need to manage money. Yet another tens of thousands want to correct past mistakes and get their investments in order. A group just as strong is getting ready for retirement. All of them are rookies or newbies. Here is one rookie mistake that everyone should avoid while starting or restarting money management.
The number one rookie mistake is not buying too many mutual funds or investing without a plan or buying products for tax saving without proper understanding. Those are outcomes. The root cause for all these is impatience.
Impatience is the number one rookie mistake. A sense of urgency, a feeling that doing nothing is wrong is typically the cause behind poor investment choices. It is this urgency to choose that makes us focus on products and not needs.
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Look at how those getting ready to retire approach money management. The only question they ask is a generic, useless one like, “what are the investment options for a retired person?”. The impatience to “act” makes us want to get to the product stage as soon as possible without even the semblance of a plan. We shall say no more about older rookies other than that it is best they get unbiased commission-free advice from SEBI registered fee-only financial planners.
At least young earners who have realised the need to get rich or spend well forever have time on their side. They should not start investing until they can convince themselves with answers to:
- Why am I investing?
- Do I even need to save tax? Valid question with the new tax regime. At least for young earners, the obsession on section 80C can be eradicated. For older investors: New Tax Regime vs Old Tax Regime Calculator: Check which is better
- Where should I invest so that I can achieve my goal or at least stand a reasonable chance of doing so?
- How should I invest?
If these questions appear vague, then here is a specific checklist. Print this and check off each time: Download A Personal Finance Self-Evaluation Checklist
They can take up to a year to answer these and find solutions that would work for them. Seeking the best solution would be a year wasted. I can show you members of a certain forum who have wasted years trying to find the best solutions. Do not aspire for alchemy.
Even those who want to stick to the old tax-regime and lock up money in exchange for saving tax can/should take this “time off” and seek answers. In the meantime, they can dump some money in EPF (via VPF) or NPS or start a PPF. The tax saving plan can be redrawn once the above questions are answered right.
The new tax regime is a blessing for the young earner about to start earning. Opting for this would eliminate truckloads of useless choices and lead to truly minimalist investing. Will people choose it is another matter: Netizens say no to the new tax regime: prefer deductions
In case you are wondering, what about term insurance, health insurance, emergency fund etc., yes those come first. You can take six months to get those and another 12 months searching for clarity about what your goal is, and how you should achieve it, what are the risks etc. This ebook would help you get started step-by-step: Download Re-assemble e-book on our 6th birthday
People who say, “I have just started my career, I do not have any goals., I just want to invest” suffer from acute impatience disorder and have clearly not looked hard enough. Hint: financial independence is a mandatory goal
“I have already made some mistakes due to impatience. How do I correct them?” Start here: A Step-By-Step Guide to Long Term Goal-Based Investing and here: Investing in mutual funds for beginners: Basic MF questions answered
Also read: Have you started multiple SIPs for small amounts? Correct this mistake now!
Trust the process. Your time is coming. Just do the work and the results will handle themselves. – Tony Gaskins
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