This post is meant for everyone. I mean even though you’re planning to be in the corporate world or in a business for another 10-30 years, you cannot ignore the importance of preserving and growing your wealth.
It usually takes anywhere from 5 to 30 years to build a good chunk of savings and investments which will be sufficient for retiring comfortably. We need to be mindful of our actions that create or slowly erode our wealth.
I’m more concerned with the habits or actions that erode our wealth. These might not seem big but can significantly reduce our wealth over the years. Imagine a large water tank with tiny holes, you know what will happen to it eventually.
Let’s discuss the Top Five Money Leaks for now to keep it short and focused. I’ll discuss these briefly and will get into the details of each one later. I know my friends in the Insurance and Investment industry won’t like it but the Truth must be told. 🙂
So here are the Top Five:
1) Buying wrong Life insurance policy: Anything but Term insurance is not suitable for most of us. Remember: It is an Insurance, not an Investment. If you do buy anything other than the Term policy, your money is working for the agent and the company..not for you.
2) Hiring wrong Financial Advisor: The Big Financial advisory firms such as Goldman, Merrill, Credit Suisse and other prestigious ones are the Worst. Even the firms like Fidelity and Schwab that are portrayed as Customer Friendly are bad. Your best bet is to work with a Fee based Independent Financial Advisor.
3) Trading: Buying and selling stocks, MFs or ETFs based on the daily price movement, latest quarterly results or based on tips/news. It builds wealth for the brokerage firms, not for you. Don’t be a Trader unless it is your Full time job. It is also an addiction like Gambling, just that we don’t realize it. It can be a disorder for some, especially for Men. 🙂
4) Performance Chasing or Trying to time the markets: Everybody becomes overconfident when it comes to Investing. We think we can Buy Low and Sell High every time. We get in and out of Funds, chasing the recent performers. Even the best Money Managers can’t time the markets, so forget about it.
5) Creating and maintaining Bad Debt: I don’t have to mention much here, you all know better than me. We live in a nation that almost defaulted, how can we blame an individual? Latest I heard is that our dear Postal Service is next in line, let’s continue the Noble Cause of Charity!
Sorry, I got sidetracked. I’m concerned with the personal debt only at this point. I have been there, done that but I’m glad I got out just in time. This addiction is worse than the Trading! Don’t let yourself be the slave to all kinds of Debt: credit cards, house and car payments, educational loans..the list goes on!!
If we analyze the collective damage of above Top Five Money Leaks and give it another 5-30 years (true for most of us), we have significantly reduced our nest egg. It has shrunk to anywhere from one third to one fourth of what we would have achieved instead, had we been disciplined and stopped all the money leaks in the first place. In other words, we’re left with $250K if our goal was to have a million by the retirement age.
It is never too late to get our financial house back in order. Let’s focus and fix these five areas, we’re bound to end up Richer!!
Good summary of the top five leaks, easy to remember and follow.
Thanks Prashant. Yes, the idea is to keep it simple and easy to implement as the finance topics can be complicated, dry and boring.
Very nice points to remember. I know i have a financial advisor now. Wondering if he is fee based or friendly based 🙂
It is Free for you as always!! 🙂
agree … any pointers / suggestions on 2.
http://www.napfa.org/ is a good website to find a list of Fee only advisers. You can get more info by clicking on “helpful links”.
I’ll cover each topic in detail in my future posts and we can have further discussion on the same.
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You actually make it appear really easy along with your presentation but I find this matter to be really one thing which I feel I might by no means understand. It kind of feels too complicated and very vast for me. I am taking a look forward to your subsequent post, I will attempt to get the dangle of it!
Thanks for your honest feedback Sidney. You’re right, the finance/investment matters do seem complicated at first but with continuous learning..they become much easier. I suggest that you read all the posts under “Get Rich” category, I have simplified things as much as they can be. It is a vast subject indeed, will be writing more on the same as we go along.