My career path has had lots of twists, blind turns, steep climbs, and sharp drops. This is also true as far as my financial state goes. I made a few key mistakes before I finally understood what is financial responsibility.
As someone who has learnt about money management and investing the hard way, I want to share my lessons with you by talking about the five biggest mistakes that I made when it comes to money.
Mistake#1: Not planning my career path effectively
We Indians as students are normally obsessed with becoming either a doctor or an engineer. At 17, I ran the medical entrance race but lost. Since then from graduation to MBA, my qualifications have not really been a result of well thought out career plans. The only thing I was aware of was that I was good at communication.
It might be safe to say that focusing on my core competency from the very beginning and working on entering a field of my interest (which I finally managed), would have put me in a far superior position financially.
Mistake#2: Living beyond my means and depending on parental financial cushion
My first job, at the age of 23, was as a journalist. I, however, was not happy with my salary. It barely covered rent and living expenses.
Being the son of an Army Officer, truth is that you don’t really have to deal with money. You have access to a lifestyle that in the civilian world only the very well off can afford.
In my early 20s I could not adjust to the idea of living within my means. I wanted the best of things without considering whether I could afford them. While most people like to turn to credit cards, I turned to my parents. Being an only child, convincing them wasn’t difficult.
This dependence remained even into my MBA, the second job, and only started abating when I entered my third job with a start-up.
Mistake#3: Inconsistent saving and using up my savings on wants rather than on investments or needs
I used to believe that I need to earn more to start saving. My savings were as and when they could be managed. They never went into investments of any kind, not even a bank FD. This was very true of my first two jobs. Only in my third job did I try saving regularly. The result of my savings laying in my savings account was that they ended up being used for gadgets or foreign trips.
If I had strictly invested in long term instruments, my savings would have multiplied manifold.
Mistake#4: Learning about practical finance and its management too late despite being an MBA
I graduated with a bachelors in commerce at the age of 22, pursued a degree in Journalism at 23 and finally pursued my MBA when I was 26. Even though I had theoretical knowledge of finance, I started learning about investments and managing them only when I quit my third job at the age of 29.
If I had been investing consistently since my first job at the age of 23, the money accumulated would have been worth enough to at least buy a small car without a loan.
Mistake #5: Not thinking long term – not investing in equity
I learnt the hard way that compounding is a friend you must adopt early. Even Rs 1000 saved 7 years earlier is roughly worth Rs 2050 now at 15% per annum returns.
I never really thought long term till I started reading and learning about investments, and especially how the greats such as Warren Buffett and Peter Lynch thought. At age 29, I finally started figuring out how wealth creation works.
Looking back at all the market rallies that have come and gone since 2006 (when I first started working) it’s worth pondering what my equity investments would look like now. If I had invested even minimal sums in equity funds with a long term track record, I would be 7 years ahead in my retirement planning.
The bright side:
While it seemed that I had dug myself into a hole, once I started understanding and adopting the best investment practices, the realization came that with some additional work, the damage of 7 years of inaction and poor financial choices can be repaired. The first step was finding a job that I loved and which could exploit my strengths.
Here are some hacks I am implementing that might help you too, to get your financial plans on track:
- Save at least 20% of your take home and directly invest in long term investments. ELSS is one of the best options I am aware of to save tax. The three year lock in means I can’t be irresponsible with my savings
- 10% of my take home is being put in a liquid fund which will build into an emergency fund . In my situation long term investments are as urgent as an emergency fund
- I have taken double health insurance (one personally and one given to by my employer) to take care of any emergencies related to health
- I monitor my expenses on a weekly basis and have strict limits on how much I can spend on wants.
- I invest time into constantly learning about finance and my specific career skills through online courses via e-learning sites. This ensures that my career skills are constantly being updated.