Information technology (IT) is currently one of the most lucrative careers in India. Many IT professionals earn handsome salaries. However, we also see that they make several financial mistakes that hurt their finances.
In this article, we will see some of the major financial mistakes that IT professionals make:
1. Not having an emergency fund:
We see that many IT professionals take their salary for granted. They assume that they will continue to receive their salary every month. 2020 has shown us that the world is full of ups and downs with no job security.
In this scenario, not having an emergency fund is one of the top financial mistakes that IT professionals make. An emergency fund is a place where you park at least six months of expenses that helps you to tackle any uncertain situations such as job loss. Liquid mutual funds can be a good option to park your emergency fund.
2. Spending a high proportion of salary on EMI:
It is seen that most IT professionals spend a lot of money on gadgets and applications. Few even take loans to get their wants fulfilled. A high percentage of outgoing EMI means less money for investments for life goals. Moreover, unsecured debt can also adversely impact your credit score.
3. Overconfident about having expertise in the stock market:
On the back of recent gains, most IT professionals like to believe that they have more expertise in the stock market than reality. However, situations don’t remain the same. Hence, it is essential to be cautious while dealing directly with equities. One of the better ways to take exposure in the stock market is to invest in mutual funds or take professional help.
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4. Dependent on employer’s insurance policy
Health insurance is important as it covers medical expenses arising from hospitalisation. However, depending solely on the employer’s health plan for your health expenses may not be a wise decision. It is because the employer’s plan may not be sufficient for your medical costs and may come with several exceptions. Moreover, the benefits will no longer apply when you resign from the company. Hence, it is crucial to have a standalone health insurance plan that suits your needs.
5. Buying a house too early
Buying a house is considered a sign of financial success. Many IT professionals make the mistake of buying a home early in their career. As work can take you places, buying a house in this current globalised environment may not be the right option. Moreover, it is not a liquid asset, and the sale of a home may take years.
6. Not discussing money matters with partner
Discussing money matters, especially with your partner can be uncomfortable. Not discussing financial issues with the significant other is one of the financial mistakes that IT professionals make. Couples need to talk about their spending patterns and their investment avenues. This will help them understand if their savings and investments are contributing towards their life goals.
7. Not thinking about retirement planning
Retirement is the last thing on everyone’s mind. However, it is more certain than anything else. Don’t make the mistake of postponing retirement planning to your 50s. Because of the year-on-year inflation, retired phase can be an expensive period if not planned properly.
For instance, you will need around Rs.6 lakhs in 30 years to buy an item that currently cost Rs.1 lakh. Here, we have assumed a nominal rate of inflation of 6%. Health care inflation can be steeper.
One of the easiest ways to have a tension-free retirement is by investing early towards retirement. Thanks to compounding, the earlier you start investing for your retirement, the higher is the likelihood of building an attractive retirement fund kitty.
8. Not Teaching Their Kids about Personal Finance
Having basic personal financial skills is one of the most important things you can do to live a healthy, happy and secure life. Your level of understanding around the fundamentals of budgeting, saving, debt and investing will impact every part of your life and can mean the difference between prosperity or poverty.
High schools teach Geometry, Art, Latin, and Home Economics—all valuable to know for sure. But how often on a day to day basis do you need to calculate the area of a trapezoid? Personal finance is a necessary life skill that must be taught
Overall, personal finance isn’t one-size fits all. Teaching children basic financial knowledge will benefit them in the long run, but when it comes to making life’s big financial decisions, an expert perspective can be highly beneficial.
9. Banking on free advice
Last but not least, the mistake that IT professionals make is banking on free financial advice. Everything comes with a cost. While bankers may give free financial advice and products to invest, it may not be aligned with your financial goals. Most of the financial products suggested by bankers can come with a lock-in period. This means that you may not be able to liquidate your investments before five years or so. So, instead of repenting your decisions, take help from a fee-based financial planner to carve out a financial plan that suit your life stages and financial goals.