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You may consider learning to manage your finances from your parents. It helps you make sound financial decisions and grow wealth over some time. Moreover, your parents may have vast experience in handling money.
You must understand your financial situation if you have to manage finances in the right way. Your parents may have gone through a similar situation and can help you with money management. For instance, you could ask your parents how they managed money at the start of their career.
You would find your parents saving and investing regularly to build wealth over some years. Moreover, they would save even when they earned a low salary. You may want to grow wealth faster than your parents. It leads to investing in financial products you don’t understand.
For instance, you may buy mid-cap and small-cap stocks even if you are a beginner in the stock market. You may panic if the stock market crashes and lose your money as you buy high and sell low.
You would find your parents sticking to financial products they understand and putting money based on investment objectives and risk tolerance. It would help if you regularly invested for the long run to achieve financial goals.
You can find your parents investing regularly and never postponing critical financial decisions. Moreover, they would have all the necessary financial documents in order. You may consider getting rid of investor inertia if you want to build wealth.
It involves regular investing without worrying about making the wrong financial decisions. Moreover, leaving your money idle in a savings bank account is never a good idea. You must invest to achieve financial goals depending on risk appetite if you want to build wealth over the long term.
You may find your parents having an emergency fund to tide over a financial crisis. It will help if you build your emergency corpus for sudden hospitalisation and any financial emergency. However, you could consider investing your emergency fund in a mix of liquid funds, sweep-in FD and savings bank accounts instead of having it only in cash and SB accounts.
You may feel tempted to spend now and pay later. It can lead to availing of high-interest loans such as personal loans and credit card debt. However, you would find your parents thrifty and leaving within their means. You could learn to prioritise needs over wants from your parents.
You may find your parents picking investments such as bank fixed deposits that offer guaranteed returns. However, these instruments fail to provide a return above inflation in the long run.
You could consider investing in financial products that offer inflation-beating return over some time. It helps if you pick the right investment based on investment objectives and risk tolerance.
For example, you could invest in equity funds if you understand them and the investment suits your risk profile. Moreover, you can invest in equity funds through systematic investment or the SIP. It is a disciplined approach that helps you invest fixed amounts regularly in mutual funds of your choice.
You would find your parents availing life insurance plans such as endowment life insurance plans and money-back policies. It is a mix of protection and savings. However, it would help if you never mixed insurance and investment.
You could avail of a term life insurance plan that covers the policyholders family for an untimely demise within the plan’s term. It is a low-premium and high mortality cover life insurance. However, you don’t get any money if you survive the tenure of the plan.
Term life insurance is an excellent protection plan. It serves the purpose of life insurance which is high mortality cover. Moreover, endowment life insurance and money-back policies don’t offer sufficient mortality cover. You may consider availing of term life insurance and invest in a financial product according to investment objectives rather than mix insurance and investment.