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When I was a kid, I mean a new kid of corporate life, it was an exciting new phase of my life! As I was enjoying the ever-desired freedom to spend, eat what you want, buy what you like, the old and wise monks from my immediate and extended family started giving me the caution mantra “every penny saved now will get you through on a rainy day”. It was the only middle-class value I kept getting for the initial happy hours of my corporate life.
In those days, as a ritual, we all used to buy LIC policies whenever we wanted to invest. There were no private insurance players then anyways. LIC always had those ever-attractive catchy titles for their ‘age old vintage wines in new bottles’ type products, such as “Dhan-Varsha”, “Jeevan Pragati” etc. One almost used to get a feeling that it can’t go wrong and there can’t be anything better than this! Most of these were endowments or ‘money back’ policies, where one used to sign up for a yearly premium and in return, used to get a portion of the sum assured on a regular basis or the full sum assured at the end of the policy term. If you are un-lucky enough to die during the course of the policy, the surviving members of the family used to get a handsome amount with bonuses and all. However, if you happened to live on, then you used to be getting some few thousand Rupees back every five years or so. It is much later in my life, that I realised that what I used to buy was neither a good insurance policy nor a decent investment policy. There existed pure term insurance plans in LIC. However, the smart agents whom I met, sold only those policies that assured them a hefty commission, not caring about my future.
Around the same time, my elder sister joined a newly established mutual fund. Everyone from my family used to constantly ask her questions such as – Mutual fund? What is that? We know only about provident fund! Are you sure they are not doing some kind of a fraudulent business? Is it safe to work there? Etc. Such was the state of financial literacy of me and my loved ones! Investing in the stock market was then considered almost as a crime. They used to call it as “wasting your hard-earned money in shares”! The middle-class used to consider it to be a dangerous proposition even to have a peek into the Dalal Street. It was a common perception amongst the masses that only people with illicit source of income dare to invest in shares and it is not for a commoner to even remotely think about it. I and my family were no exception to this! Neither we thought about stock markets seriously nor did we try and understand what my elder sister was doing for eight precious hours of her day in her mutual fund house.
However, as a kid, I prominently remember that my father used to invest in FDs of private companies such as Tatas, Birlas, Dorabjees, Siemens of the world. Normal bank FDs used to pay an interest of something like 12 - 13% p.a., whereas these private companies used to pay up to 18-20% p.a. You may ask, how on earth did I know about these lucrative investment avenues? My father used to receive those quarterly cheques of interests from these companies and I was the “chosen one” who was sent to deposit them in his bank! No wonder, having been brought up in such an environment, I was naturally attracted to FDs and more precisely FDs of private companies. It took me several years to realise that FDs may actually be instruments that could erode the purchasing power of your money, when you consider the adverse effects of inflation. But prior to these, my parents always thought they were growing their money leaps and bounds and so did I to begin with. A perfect example of ignorance is bliss!
I remember buying my first apartment in Mumbai way back in 2003, when the stock market was down from its earlier peak due to the dot com burst, and the real estate market was also down. It was a compact apartment just enough for me and my better half to stay. We both being in the software industry, frequent overseas travel was a part and parcel of our jobs. Many a times, it used to be a pick and choose situation for us to decide where we would want to settle for the rest of our lives. On one of such occasions, we were so sure that we would never be back in India, that we sold off our apartment in a haste without even discussing with anyone. The real estate market had started to recover and we got almost double the sum of the purchase price of my apartment! We left India and then I got a shocker from my CA later that year, flagging that I will have to pay a short-term capital gains tax on the sale price because I had sold it off in less than three years of purchase! It was a real heartburn and put a big hole in my pocket!
For a number of years of my working life, I was completely oblivious of the fact that the real power to grow your wealth was in earning a compounding interest over a longer period and in taking small steps such as systematic investment into good quality financial instruments at an early stage.
When I look back at all of these life experiences, here are the five financial blunders I made:
As I stand wiser and with a lot of grey hair, my salt-and-pepper wisdom tells me that not being financially aware has costed me my early retirement dream for sure! I hope others learn from my mistakes, so we don’t need to be subjected to the same situation as some of the characters from the movie 3 Idiots – “Give me some sunshine, give me some rain, give me another chance I wanna grow up once again”!