Do people make serious financial mistakes?

Difficult question to answer, and it also depends on whom to ask. However the question should be framed slightly differently.

“Have you made any serious financial mistake? And if you are saying NO, do you understand what you are saying?’

My interaction with people of various ages shows the following mistakes:

1. Living beyond their means: No, no, they do not borrow to live, but they spend all their money without providing for all their goals. This means they are not serious about their goals (so it is a dream, not a goal?) or they think that some magic will happen later on!

2. Not tracking their expenses: they have no clue on what they are earning or what they are spending! ‘Only Rs. 4459 for a full gown sir’ – I wonder whether I understand the meaning of the word only in this context. Her net take home salary? Rs. 26,000. And I think she is over paid. No jokes. She also has a 24000 Rupee cell phone. Logic? ‘Subra Sir I am just his wife -HE is the primary provider’ . Women! Then do not seek equality everywhere?

3. Not investing, because they do not want to learn: ‘Sir my father asked me to buy the LIC policy and open a PPF, so all my money goes into these 2 assets only. He says ‘share markets are not for us middle class people’. She is a MBA, in finance, works in a bank. Sells mutual funds, ulips, …..well, well, nothing more to say.

4. The older generation refuses to accept that the biggest mistake in their life is not investing in equities. Many of them have exhausted their money, are dependent on their kids, but refuse to accept their mistakes. Many, many, of them are lucky to be getting a pension from the Govt of India. However their junior colleagues will not be so lucky. Sad, but if you are a govt. servant aged 45 or thereabouts, chances are the govt will default on pensions.


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  1. Interesting post. Let’s go back to basics.

    Why do people need to work/earn money

    1) food to eat (basic monthly expense)
    2) so they have home to stay (mortgage/rent)
    3) if have family – provide for their needs (health, education, social customs)
    4) to provide beyond active working life (retirement exp, health+term life+vehical+ etc insurance)

    Now if one family (wife+kid) has

    1) fully paid up home or two
    2) enough to provide kid’s education
    3) enough to take care daily needs
    4) enough for healthcare needs
    5) enough cover for emergency (natural or manmade disaster, economic meltdown(e.g. min amt withdrwal limit by central bank or reduction in interest rates) This may require planning like doomsday preppers (google the term), having enough gold/ability to go out of disaster zone for certain time till things move to somewhat normal, living of the land survival skills)

    Now by definition “enough” means inflation adjusted. i.e. is able to save money equal to at least 30% of monthly expenses at ay given point of time. (monthly earning-monthly needs= 30%)

    Plus the great indian Jugad mentality to somehow get things done.

    Can we say that person is in right frame of mind to even think about retirement?

    or still missing plenty? 🙂

  2. Pt 2 !!!

    I know !!! I always wonder if I am in the minority when I think buying a cell phone ( or gown or saree or jewellery or car !! ) that costs a bomb is not the thing to do especially when one cannot afford it.

    And how about the fallacy to change it to the “latest model” and getting a loan for that ? And that too a personal loan ?

  3. The biggest problem with financial mistakes is that people will never know they made a mistake. A person who puts money in an endowment insurance plan will be happy when he gets an accumulated amount at the end of the term. He never bother to calculate CAGR and compare it with inflation rate. So, he is happy out of his ignorance.



  4. Jitender Singh Mehra

    In today’s lifestyle after getting job or mostly after getting married most of us tend to do another Financial blunder of leaving a nicely settled parents’ owned house and living on rent or in a self owned mortgaged flat/house. For a simple reason ‘Life on our own terms.’ We never calculate the cost of rent, EMIs’, maintenance, car, Kids etc..etc. Life becomes busy in earning for these end use expenses leaving no room for saving and investments.

  5. if you are a govt. servant aged 45 or thereabouts, chances are the govt will default on pensions.

    Do you mean the contribution pension for new employees or will the govt run out of funds to pay pension

  6. New employees pension will not be a problem – the risk is already on the NEW employee. For people who think they will get an indexed pension, the gvt, will surely delay and default….

  7. regarding the 4th point, Won’t the govt be able to print the money? I don’t think the govt will default. Only thing is that money value is useless.

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