Wealth Guide: 5 personal finance myths that could put your money at risk

Everyone remembers the first pay-check of their lives and how he gets lured into various ideas of shopping, international vacation, new gadget, EMI based purchases and many more such additions.

However, the idea of savings always takes a backseat. We come across random bits of advice for personal finance, therefore it’s important to declutter reality from the noise.

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Rahul Roy Chowdhury, Business Head- Wealth, Equirus helped us highlight 5 personal finance myths that need to be busted:

Myth 1: Savings = Savings Account + Fixed Deposit

We all know how easy it is to dip into a bank account or break FD, for those luring ideas that I have mentioned above. Even for folks who don’t break FDs, is it a Saving? In the words of Milton Friedman, Inflation is taxation without legislation.

Something that we don’t notice because it’s not forced upon us. For e.g., Bank FD rates are at 5-5.5%, and Monthly inflation (December 2021) is at 5.59%.

When inflation is more than the yield on your assets, it erodes your purchasing power. Hence, it is imperative to go beyond savings accounts and diversify our portfolio across asset classes.

Myth 2: Do I need a Retirement Plan or Why Should I invest towards retirement at 25?

Fun Fact: If you decided to invest just 5k per month at 8% rate of return from the age of 25, it would be 1.15crs at 60 (Total Invested 21L).

Alternatively, if you invest 10k per month from the age of 40, it would be 59.3L (Total Invested 24L) at the same age (60).

Hence, it is prudent to start investing earlier so that it can have a significant compounding impact on your savings by the time your reach the retirement age.

Time + Compounding = Retirement at ease! We often rely on our PF money to be our retirement support, however, it’s important to factor-in inflation across various expenses that are projected at retirement.

It is always wise to consult your financial advisor to create a plan in case you find it cumbersome.

Myth 3: Wealth Management & Wills are only for rich people!

A personal finance myth that I hear from my friends/folks around is that we need to have at least 50L/1cr to have wealth management advise or tons of wealth for creating a will.

Let me try to simplify this. Wealth management involves investment management and financial planning. It helps you to create, invest and track your money so that you can reach your goals.

In today’s landscape, one can invest with just INR 500 to start their financial journey.

Will is an important part of the wealth management exercise where you document your assets and its distribution to the respective beneficiaries post your demise.

Imagine the conflict and hassle an actual beneficiary goes through in our judicial system, in the absence of a will. Some people think they can skip making a will or estate plan until they have kids, a lot of money, or property.

But, if you don't have a will, you'll die in intestacy. Today, there are several online platforms that help you in creating this legal document at ease and in a cost-efficient manner.

Myth 4: Stock Market is considered as gambling. You can lose all your money.

Most of us have heard numerous stories from our parents, relatives, or friends of how people have lost their fortunes in stock markets and instilling that fear on day 1. As humans, we have a natural tendency to fear the unknown.

Firstly, stock markets are the NOT the only way to invest. Most importantly, there are experts who are available to assist you in finding the right opportunities.

Blaming others or not doing anything is not the option. One of the most proven ways to reduce risk is diversification.

Morgan Housel says in his book The Psychology of Money, “You pay a price for everything, nothing is for free”.

If you need your money to work harder, you need to put in the effort to understand the risk involved, reward attached to that risk, and then design a portfolio that you are comfortable with.

Myth 5: You don’t need an Emergency Fund.

I believe the last 1.5yrs has taught us enough lessons on personal finance i.e., Necessity of Health Insurance, Term Insurance, Emergency Fund, or Will creation.

The importance of emergency funds was highlighted when people lost jobs during a pandemic and had to rely upon PF/FDs for survival. Emergency situations demand that you have resources on hand to address them.

It’s advisable to have 6-12 months emergency fund basis your lifestyle or requirement, to survive through any Black Swan event in your career.

Always remember that personal finance is personal. Do your own research before you make an investment. While sharing your own experiences with money can help others, suggesting they follow your lead may not help them at all.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)