Minimum debt, maximum investments hold the premise for a rewarding financial life. Reduced debt allows you to spare enough for things that may be more important to you. Whereas maximum investments would ensure the future is in safe hands! Although these principles may sound simple, many fail to execute these in real time, thereby putting themselves behind others. The uncertain nature of life may account for poor execution. But mostly, the mistakes committed by people, maybe unknowingly, are a chief reason for all the financial mess they face. Remember, the effect of financial scars can be immense if not corrected on time. So, if you’ve erred financially but don’t know how to recover, this post is for you! Let’s discuss the plausible ways to correct loan & investment mistakes.
Let’s Check First the Common Loan & Investment Mistakes People Commit
At a time when the loan is available for everything, people often apply for unnecessary credits and burden themselves. Not only that, most don’t even give a second thought to evaluating the loan online. It’s all the more surprising as we Indians are embracing the digital revolution! Investments, on the other hand, largely witness a laidback approach from most youth. They fancy spending on luxury items and look to be at par with their peers in terms of everything they do. The result is reduced savings and the subsequent struggle to fulfill the needs. But life gives you a chance to correct your mistakes, and we’re here to help you do so. Let’s begin correcting loan & investment mistakes you may have committed.
Chosen an Expensive Loan? Do a Balance Transfer to Feel at Ease
A loan comes with interest charges, which if are high, can cause you more harm than good, financially. Failing to compare the loan interest rates is a prime reason for this mess. If you’ve mistakenly picked the loan at a higher interest rate, you can anyway do a balance transfer to another bank or NBFC at a lower rate.
While doing a personal loan balance transfer, the offered rate should be at least 4-6% lower than the existing one. Also, you should transfer within 2-3 years, assuming you’ve taken the loan for five years, for maximum savings. You can’t transfer it though if you’ve not paid the first 12 EMIs.
A home loan balance transfer, on the other hand, can be allowed anytime. Same as a personal loan, the balance transfer fetches home loan borrowers maximum savings when doing so early. In a home loan, even if the offered rate on a balance transfer is 0.25-0.50% lower, it could result in a savings of INR 3-5 lakh if done within 2-3 years of taking a loan.
Multiple Loans Causing Repayment Issues? Consider Clearing Some with Savings
People servicing multiple loans and facing repayment issues, as a result, are usual these days. But they may face unusual problems in case they go on to default. Their credit scores will drop drastically and so will their credibility before the lender who could deny lending them later. Who knows that may be the time when you need the loan the most.
Defaulting on secured loans such as home loans can make someone lose their physical assets too. That will be even more disconcerting! So, look to pay off some loans from your savings to reduce your repayment burden. The money locked in fixed deposits, mutual funds can be used to clear loans. You can even think of doing a partial closure of the loan. This too will help!
Hope You’ve Not Taken a Loan for Investments
Taking a loan against investments is good but not the other way round! In the former, you get a reduced interest rate, whereas investing through the borrowed money may not only come with a higher rate but could also cause further issues for you later. Your investments may not earn you the expected sum given the market volatility, hence loan repayment would feel like a burden only. Investments need to keep up with the market challenges to stay strong. In case of prolonged weak market cues, you may lose your money and take much longer to recover the same.
In case you have taken a loan for investments, which are churning out losses for you, look to repay it with your salary for now. Also, if you’ve not invested the entire loan amount, you can stop investing the remaining amount. Instead, use the same to repay your loan. Also, keep investing from your salary to create a backup for you and avoid a potential loan default.
Haven’t Started Investing Yet? Start with a Bigger Amount to Achieve Your Goal Corpus
Starting to invest from your first salary helps you accumulate your retirement corpus on time. But call it the excitement of the first paycheque or the peer group pressure, investment comes last on the mind of youngsters. So, if you’re in your mid-30s and have not started investing yet, you may need to check the investment calculator first. Starting late obviously means a higher investment amount needed to achieve the goal corpus. But the important thing is to know the amount itself. That you can figure out by checking the calculator. So, if investing INR 5,000 a month from your first salary would have helped you achieve INR 1 crore at your retirement, maybe you need to put in INR 10,000 or even more now onward to accumulate the same. This is the adjustment you need to make.
Have Been Exposed Mostly to Low-yielding Financial Instruments? Make These Smart Changes
The fear of losing the money makes many sway away from equity investments that are volatile. These individuals take comfort from the regular income of bank & postal deposits. But what about inflation – will it make you feel secure with returns of around 5-7% per annum from these instruments? The return further reduces when taxes apply. With average inflation of around 6-8%, such returns count for nothing! You can put money there but that should account for only 10-20% of your investment portfolio. The rest should go to equity instruments that can help you make a large sum over time. Make these smart changes to your investment portfolio now else it might be too late!
Have Lost a Great Deal with Stock Investments? Consider Switching to Mutual Funds
Investing directly in stocks comes with the benefits of massive returns for the investors. But such investments are volatile too; persistent weak market cues could wipe out your earnings in no time and make you run for cover. If you’re a market expert and know how to rejig your portfolio at different times, you won’t bother with such falls. But many may not be so and would like to get portfolio management assistance from the market expert itself. Yes, you heard it right! Mutual funds and the professional fund managers who manage your portfolio to make it responsive at all times. Of course, they don’t share the investment risk with you. But such assistance ensures handsome profits and helps minimize your losses.