5 Things You Should Never Do With Your Money

You will find several money-management guides online that spell out the ‘must-dos’ with money. However, when it comes to things to avoid, the information is rather limited. As a new earner, it’s natural to wonder about what you should never do with your money. This article offers a comprehensive guide on things you should never do with your money to help you understand these aspects properly in the present so as to avoid financial setbacks in the future.

• Avoid spending heavily on luxury items and goods that depreciate over time.
• Never invest in products due to peer pressure or without thorough knowledge.
• Don’t delay investments and retirement planning even by a day.

Here’s a list of a few things you should avoid doing with your money:

Confuse liabilities and assets

One of the most valuable lessons of financial literacy is understanding the difference between liabilities and assets. Learning the concept of depreciation goes a long way in differentiating between assets that will give you returns and those that will require more money. For instance, buying a fancy car or gadget may seem prudent today, but these assets start losing their value as soon as they are out of the showroom. If there is one thing you should never do with your money, it’s purchasing depreciating assets that go beyond your means and tie you down with a loan burden. While buying a car or bike is not inherently a poor decision, it is imprudent to spend a fortune on such depreciating assets, especially when you need to secure high-interest loans to purchase them. Remember, your assets are investments like stocks, FD, and mutual funds that offer returns in the form of dividends, interest, and capital gains.  

Invest in products you don’t understand or spend on unnecessary luxuries

Another thing you should never do with your money is invest in products and instruments you do not understand. Generally, you should avoid making investment decisions due to peer pressure and invest in a product only if you understand it and deem it fit per your investment goals and risk appetite. Stay away from get-rich-quick schemes that promise to double or triple your investment over short periods. Remember that when it comes to wealth creation, there are no shortcuts other than disciplined and consistent investing. If you wish to invest in a financial product, conduct thorough research on the same to understand how it works, regulatory guidelines, risk exposure, and other such details. Apart from investing wisely, try avoiding unnecessary spending. While the allure of credit cards can be tempting to resist, it's best to use your card judiciously to avoid a debt spiral. Avoiding splurging on unnecessary items and adhering to responsible credit card practices, such as paying your bill in full before the due date, also helps keep your debt in check.

Buy insurance as an investment

Many people buy insurance and consider it an investment. In part, the sales pitch offered by insurance salesmen often positions it that way, misleading policyholders. While certain insurance products like ULIPs and endowment plans can double up as investments, not all insurance policies offer guaranteed returns or any returns. For instance, a regular pure-life term plan offers a sum assured cover that’s paid out as a death benefit to your nominee in the event of your untimely demise. No maturity proceeds are paid if you survive the policy term. Even for plans like ULIP that combine an insurance cover with an investment component, the premiums are much higher than regular term plans, plus the fund options and liquidity avenues are often limited. Therefore, you should purchase an insurance plan because you want protection and financial coverage, not because you want an alternative investment avenue.

Delay investment and retirement planning

Investing for your retirement seems premature to most earners in their 20s and 30s. However, delaying investments for this long-term goal is one thing you should never do with your money. When it comes to investments in general and retirement planning in particular, waiting for the right time is never the right approach. If you keep waiting to earn more, reduce expenses, or for better market conditions, you will lose out on the benefits of compounding long-term returns. Start with investment methods like SIPs to invest nominal sums at regular intervals, weather volatility, and benefit from rupee-cost averaging. Fortify your investments with fixed-income assets like high-interest-yielding corporate FDs to ensure stability for your investment portfolio.

Keep money idle in a savings account

Keeping your savings corpus deposited into a savings account does not help you in the long run. Savings bank accounts are liquid and easily accessible, making them great options for your emergency funds. However, when it comes to yields, they offer exceptionally low returns, averaging around 2.50%-3%. Since funds don’t grow at an inflation-beating rate, the real value of your stored corpus actually erodes over time in a savings bank account. Instead, invest in instruments like mutual funds that offer inflation-beating returns. Ideally, you should choose a mix of inflation-beating assets to properly hedge your portfolio to balance risk and returns.

When it comes to money management, there is no one-size-fits-all approach. However, understanding the core tenets of financial literacy, like the things you should never do with your money, helps make you more aware. Learning about these things helps you avoid them and make better investment and spending decisions.

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