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| 11 August, 2020, 06:22 PM IST | E-Paper
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    ET Wealth Wisdom Ep 28 (ET Online)

    Unfriend these 5 money habits

    Tania Jaleel and Shambhavi Mehrotra | 06:00 Min | September 17, 2019, 5:13 PM IST
    Some habits can exact a heavy toll on your finances. In this week's ET Wealth Wisdom podcast, we look at a few that investors should give up.
    Transcript
    Hosts: Tania Jaleel, Shambhavi Mehrotra
    Producer: Abhinav Tripathi
    Text by: Preeti Kulkarni

    Oye.. stop that..

    What..

    Don't bite your nails! It is such a bad habit!

    Oh ho.. quit being such a mother hen!

    You know what they say right.. we first make our habits, and then our habits make us.

    Wow, to what do I owe these morning moral lectures?

    You might just end up owing a lot… Biting your nails is only a minor bad habit.. there are a bunch of big bad money habits that can land you in a soup

    Hi everyone, I am TJ and with me is SM, and in this week's ET Wealth Wisdom podcast, we will enlighten you on the five money habits that can rob you blind

    Investing in stocks directly without research

    Many stocks have fallen to their 52-week lows after the budget. Even bluechips and index stocks have not remained insulated. Some stocks had gone into a tailspin much earlier and for entirely different reasons. On the other hand, mutual funds have not done so badly. Though equity funds will necessarily dip when markets fall, the diversification principle helps in cushioning the fall. Even the worst performing schemes from different categories have not fallen as much as the top losers in BSE 100 in the past one year.

    So the lesson here is that small investors should not invest in stocks directly unless they haven given enough time to research.
    Sticking to the subject of investing.. bad habit number 2 is buying too many stocks, funds to diversify

    Diversification spreads the risk thin across a basket of securities. But did you know that too much of it can end up being counterproductive.

    The modern portfolio theory says that 15-20 stocks from different sectors reduce the portfolio risk. But that's where it stops.
    The situation is no different when investing in mutual funds.

    Ideally, 6-8 equity funds focused on different segments give the portfolio all the diversification it needs. A well-diversified equity fund portfolio will have 40% of the corpus in 1-2 large-cap funds, followed by 30% in 1-2 multi-cap funds and 20% in 1-2 mid-cap funds. The balance 10% can be put in a small-cap fund as the return booster.

    Not saving for emergencies
    Rising lifestyle expenses and the proliferation of spending avenues can make people, especially the younger generation, oblivious to the basic necessities of life. A 2018 study by health insurance company Cigna says one in two respondents in India plan to use their retirement savings to fund their medical expenses in old age.

    Aiding the spending spree are credit cards and mobile wallets. While these are tools of convenience, irresponsible use can lead one into a debt trap.

    Life is so fast-paced in big cities and metros, there is seriously no time to withdraw cash, we just swipe away, ask me!

    Talking about metro cities, if you are living in one, look at a minimum cover of Rs 5 lakh, and top it up after a review every five years.
    Those with dependents should buy a pure risk life insurance cover that is at least 10-15 times their annual income, if not more. Ideally, it should be computed after taking into account your income, family's lifestyle and outstanding liabilities.

    Sticking to the subject of insurance.. here is bad habit number 4: Buying insurance to save tax

    Every year, millions of buyers pour crores of rupees into insurance plans they don't need. Most of them are lured by the "triple benefits" of tax deduction at the time of investment, life cover during the policy term and tax-free income on maturity. However, while traditional insurance plans do provide tax benefits, they neither offer sufficient insurance cover, nor give very good returns.

    That is right.. The real objective of the plan, the insurance cover offered in case of death, is the last thing on the mind of the average insurance buyer.

    Ignoring outstanding debt

    This is a big one

    Credit card frauds are now as everyday as the common cold. The banking ombudsman report says that credit card related complaints increased by over 50% in 2017-18. Of these, 30% pertained to wrong billing or debits and 8% to wrong or delayed reporting and non-updation of credit status to credit information bureaus.

    Here is what the average credit card will charge you: Balance rollover is 2-3% a month, late payment is Rs 250-500, cash withdrawal is 2.5% of amount (minimum Rs 250), and annual fee is Rs 500-1,500

    Ufff.. that is steep. Thank God I don't have a credit card

    Yeah.. thank your lucky stars

    Now, RBI rules mandate banks and card companies to send SMS alerts to customers. So, do not neglect these messages, particularly multiple transaction alerts. Report any unauthorised transactions within three working days to ensure zero liability for any fraud.

    So, these are the five financial habits that you should unfriend soon.

    And on that note, that will be all from us for this week. Do come back next week for more personal finance news, views, and cues
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