- Published on Tuesday, 18 September 2012 00:59
- Written by Jagjit Singh
- Hits: 1256
MOST of the time, I concentrate on advising my avid readers as to what they must do with their money. Today I want to apply the reverse gear by highlighting certain actions which one must avoid when it comes to money matters.
Although these statements oppose each other, there certainly exists a co-relation between them.We often mistakenly mix the two opposing actions due to the level of understanding or misunderstanding on our part. For example, one of the things I normally advocate is to maximize returns, but in our pursuit to maximize returns, we should never ignore the other important element of 'safety'.
As I said earlier that these actions are deeply co-related and there is a thin line of demarcation between them. As an informed investor, one must clearly spot the so called "thin-line" to determine what one can do and one can't or should not do with their money. In case of any difficulty, help from an expert can always be sought (even if it is coming at a price) rather than making a mistake which can cost you dearly.
Sometimes the temptation of becoming rich overnight is so high that often people forget the basic principles of money management.It is therefore not only important for you to understand what you can do with your money but it is equally important to comprehend as to what you should not do with your money.
Otherwise you will be in a similar situation where a trainer had taught you as to how you can climb a tall tree but never explained that once you are up there on the top, how to slide down professionally without hurting yourself.We concentrate so much on learning what to do with our money, but spend less time in understanding what we must avoid doing.
It is almost a truism that most people need basic financial literacy and it's generally assumed that this literacy must take the form of knowing what to do with money. However, the truth could exactly be the opposite. It would be far more useful for people to instead learn what not to do with their money, an education that is not available anywhere.
Everything that passes for financial literacy involves teaching how the investment world works, what the different types of investments are, who they are useful for, how to fit them into your financial needs…. This is all good stuff investors must know, but it's not where people go seriously.
The first thing which one must avoid on money matters is the 'fear factor'. Never ever take your financial decisions based on an impending fear looming over your head. We all know that fear is an imaginary creature, which may happen or never happen at all. And it has been proved that the second possibility, that is, fear not happening at all is far greater than the first one. Here I can share a famous quote from President Franklin D. Roosevelt, who once said - "There is nothing to fear but fear itself," and the same applies to finances. Fear gets people to tune in, but it affects our behaviour. It usually gets us to go against the gain of buying low and selling high.
Another important thing on what not to attempt is - "don't try to catch up by raising the risk level". With portfolios taking hits in the stock market's turmoil, many boomers facing emotional distress may be compelled to chase riskier asset classes, much in the same way a gambler doubles his bets in an attempt to break even. During times of market instability, it is more important than ever to maintain a long-term outlook and stick with a prudent investment strategy.
Next thing on the list of what not to do is - "never invest blindly without a true plan." Everyone seems to have a financial planner, but no real plan. Know your objectives and how much you need to invest to make those goals fulfilled. If you have suddenly got bulk money, say from the sale of your house, don't be under pressure to place this fund without having a clear cut plan.
Money may remain idle for few days waiting for the right opportunity but just for the sake of investing don't invest into unworthy instruments.By continuing our journey of what not to do on money the next one is - "don't get on the ride before you know how wild it can be." Someone convinces you to get on a ride because you will reach your destination in one hour versus three hours. The problem is that, once on the ride, you find you are moving too fast and there are twists, turns and it goes upside down.
You can't stay on this ride and have to get off. It then takes you six hours to get to your destination when it could have taken three hours if you (had) taken the ride in which you could have been comfortable staying on. So what it basically means is when dealing with money, please don't take any short-cut, otherwise you never know your short-cut may soon get transformed into a long-cut.
And finally a small piece of advice - "don't loan money to friends and probably not to family". As mentioned in Shakespeare's 'Hamlet' – ‘neither a borrower nor a lender be, for loan often loses both itself and friend.’ Even most financial experts agree that the best way to lose your money -- and sometimes your relationship -- is to lend to a family member or friend. I know it is difficult to implement but when encountered with a similar situation adopt a cautious approach.
In conclusion I may state that for any human being not doing the wrong things on money matters should actually be learnt before doing the right things. Unfortunately, this is something that they're likely to learn the hard way. Hope our today's article will break the shackles of learning the harder way. Cheers!!!