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Top 5 Financial Lies You Need to Stop Telling Yourself

22 Aug 2016 |By: Team Finalaya

Financial Lies

To feel better, you often tell lies to yourself. The problem is if you continue telling these lies, you start believing them. Although lies in any situation never help, more issues are cropped up when you lie about your financial situation. Just give a quick glance around your surrounding and you will find people who are leading a difficult financial life because they were not honest with money. Well, to take the first step towards a secure financial future, recognize these lies and vow to stop them. So let’s start

#1. Lie: I will plan my investments from next month

Truth: Whether it is about hitting a gym, visiting a relative house or filling income tax returns, procrastinating things to a later date is the human tendency.

However, delaying your investment to a later date can cost you in the long run. For instance, if you start investing Rs 5000/month at the age of 30, you will get Rs 1.08 crore by the time you retire at 60 if the rate of return is 10%. However, if you start investing at the age of 35, you will get Rs 64.90 lakhs when you reach 60.

What to do: Stop procrastinating things and value time. The power of compounding which works magic on your investment also needs time to grow your wealth.

#2. Lie: My bank fixed deposits are equal to investment

Truth: Investment is made with an aim of wealth creation. Though, bank fixed deposits can give you safe and steady returns, but they are not able to beat the inflation impact. By putting money in bank FDs, you are giving more importance to safety over returns and liquidity.

What to do: Instead of putting all eggs in one basket, you should go for a diversified investment portfolio and consider PPF, equities, and mutual funds. A correct mix of investments in your portfolio can help you reap maximum benefits from the market and also reduce the risk to a great extent. If one investment is giving low returns, it can be offset by other investment generating high returns.

#3. Lie: I prefer to stay away from equities as I can’t understand stocks

Truth: Equities don’t mean stocks only.

What to do: If you want to invest in equity, then go for ULIPs where you can get all the benefits of an equity investment without getting into the nitty-gritties of each stock. Life insurance companies that sell ULIPs have experienced fund managers, who will manage your investments on your behalf. It is the job of a fund manager to keep a tab on market conditions and switch funds of an investor accordingly.

#4. Lie: I don’t want to invest in equities as they are risky

Truth: If you believe equities are risky then you must be judging equities on the basis of returns generated in last two or three years. Equities may be volatile in the short-term but over long-term, they can beat inflation and create wealth. Long term equities have given returns between 9% and 13% over the last few years, which are above than other investment options like PPF, bank fixed deposits, etc.

What to do: Buy ULIPs which invest a portion of your premium in equity funds and debt funds as per your risk appetite. Further, switching option allows you to switch your funds between equity and debt as per the market conditions. Moreover, ULIPs come with a capital guaranteed feature which ensures that you do not lose at least the invested amount.

#5. Lie: My corporate life insurance and health insurance policies are sufficient

Truth: Though, your employer may offer you life and health insurance policies, but do you think they are sufficient? The answer is No. Mostly companies’ offer coverage between Rs 2 and Rs 5 lakh under life insurance policies, however, this amount is insufficient to support your family financially, considering your current income and expenses. Similarly, under group health cover, the available coverage is between Rs 2 lakhs and Rs 4 lakhs, which may fall short considering the rising medical cost. Further, what if you do not die but diagnosed with a critical ailment and lose your earning capacity? As you are alive, your corporate life cover will not help you. Similarly, group health insurance will cover only hospitalization expenses but what about other expenses, like loan EMI, children fees, etc.; which you may find difficult to deal in the absence of income?

Remember, the time you change your job, you will also lose your insurance coverage. Moreover, corporate policies are not as extensive as individual policies. As corporate insurance plans cease to exist after retirement, you will find it difficult to buy fresh policies at that time. The insurance company will either refuse to give policies or will charge a high premium.

What to do: Instead of relying only on your employer to secure your life and health, it is good to buy individual life and health insurance policies to get complete coverage. Some policies like, ICICI Pru iProtect Smart, not only give financial protection to your family in case of your sudden demise but also secure your health against critical ailments. In case you are diagnosed with a critical ailment, like cancer, chronic kidney or liver issue, etc.; the insurer will give a fixed lump-sum amount that can be used to meet household expenses. Moreover, this policy enjoys double tax benefits under Section 80C and 80D.

When you tell financial lies, you are fooling only one person, and that is ‘You’. So watch out for financial lies in your life as they don’t only affect you but also people around you in the long run. Honesty is the only way through which you can secure your future completely.

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