10 money myths that are keeping you from maximising your financial worth

Time of India

6 hours ago

Myth #1
Myth #2
Academy
Empower your mind, elevate your skills
Myth #3
Myth #4
Myth #5
Myth #6
Myth #7
Myth #8
Myth #9
Myth #10
For every person who aspires to a smooth financial journey, there are five who stumble their way through it, frequently hitting roadblocks— running short of their goal corpus, making tax blunders , failing to cover health risks, planning succession poorly, making wrong career decisions, among many others. While ignorance and disinterest are often to blame for financial hiccups , misplaced notions and money myths also frequently serve as poor guides. This Independence Day, we help you break free of 10 myths that are keeping you from maximising your financial worth 'The notion that young people don't need health insurance is outdated. Even those in their 20s and 30s can face sudden health setbacks. Accidents, viral infections and illnesses like Covid don't wait for age to catch up,' says Siddharth Singhal, Head of Health Insurance at Policybazaar. Not to mention the rise in lifestyle diseases and chronic conditions like diabetes and hypertension among youngsters. A cover at an early age also means you can serve out the waiting periods for pre-existing diseases while you're healthy and use it without waiting when you actually need it.Increasing life expectancy means more number of years after retirement and a bigger corpus to sustain it. While debt investments like fixed deposits may seem like a safe bet when there is no income generation, you will need the boost of equity to grow your portfolio to keep up with inflation. 'This is why you need a bucket strategy, wherein a portion of the portfolio that you won't need for at least five years is invested in equity,' says Atul Shinghal, Founder and CEO, Scripbox. So equity as an inflation hedge should be an integral part of your portfolio.You can avoid filing tax returns only if your taxable income is below the basic exemption limit. 'Under the new tax regime, this limit is Rs.3 lakh, and Rs.2.5 lakh in the old regime for those below 60,' says Amit Maheshwari, Tax Partner, AKM Global. Under the new tax regime, a tax rebate under Section 87A is available for resident individuals with a taxable income of up to Rs.12 lakh (raised from Rs.7 lakh). This rebate is applied to your calculated tax, effectively making your tax liability zero. In the old regime, the rebate is available for taxable incomes up to Rs.5 lakh. This doesn't mean you don't have to file returns. Besides, if you have incurred certain expenses (over Rs.2 lakh in foreign travel, Rs.1 lakh in electricity consumption, etc.), it is mandatory to file returns. Also, if you are eligible for a tax or TDS refund, or have to carry forward losses, you will not be able to claim it without filing returns.Over the years, home loan repayment has offered significant tax benefits—Rs.2 lakh deduction for interest payment under Section 24B and Rs.1.5 lakh for principal repayment under Section 80C. This has led most people to extend the loan repayment to full term. In the new tax regime, however, these tax benefits can pale in comparison to the total deductions available, especially since last year's Budget changes. After the Section 87A rebate, incomes up to Rs.12 lakh can be tax-free. If you enjoy higher tax benefits in the new regime, you can move out of the old regime, giving up the home loan tax advantage (Section 24B deduction is available only on let-out property in new regime). So if you wish to prepay the loan or reduce its tenure, you can do so and enjoy the mental peace that comes from being debt-free.The turmoil in the job market that began a few years ago with Covid and ChatGPT has intensified due to AI disruption and economic uncertainty. While the tech sector has witnessed higher volatility, as seen in the recent mass lay-offs by TCS, job uncertainty has become the norm, calling for a back-up in the form of multiple income streams. 'You are just one company downsizing, accident, or an industry disruption away from financial insecurity. Create a safety net with multiple income streams. Start small. Rent out a room at home. Offer a weekend tuition. Save money from your salary to invest in a dividend-generating fund,' says Devashish Chakravarty, Founder & CEO, SalaryNext.com, a job loss assurance company.Mutual funds invest in a combination of securities and asset classes, be it stocks, bonds or money market instruments. As such, they have a certain amount of risk associated with all of these. They are perceived to be low-risk instruments only in comparison to direct stock investments. The fact that they invest in assets that are linked to the market means there is no 'risk-free' mutual fund. 'Even a passive index fund that invests in an index like the BSE Sensex or Nifty has equity risk, while debt funds can face interest rate risk, credit risk and liquidity risk,' says Shinghal of Scripbox.Writing a will has little to do with age and more to do with the assets you have. Even if you are young and have built financial assets in your name, or have an inheritance, or digital assets, it is best to write a will so you can be sure these will be passed on to the people you want if something were to happen to you. Besides, you can always alter the will whenever you want. 'Many young adults today financially support both their parents and children. Their sudden demise can leave dependants vulnerable. Also, if a spouse remarries, the original family's future may be compromised. Without a will, distribution becomes chaotic— it's not about age, it's about responsibility,' says Raj Lakhotia, Managing Partner, LABH & Associates.For years, Indian parents have taken upon themselves the financial responsibility not only of their children's education, but also of their weddings. However, it may not be the best financial decision if the parents are compromising their own retirement by diverting the funds to the wedding, or banking on their children to take care of them in retirement. Sponsoring the kids' education and enabling them to become financially independent adults means the children can save for their own weddings or at least bear the costs partially. Busting this myth can be the difference between financial independence in later life and dependence on children.While a financial adviser guides you with investments and achievement of goals, it's still your money and you need to monitor how it is being deployed. 'As an involved investor, it is important to understand and check your portfolio periodically, especially in the context of timesensitive goals,' says Shinghal. So, keep an eye on the asset classes being invested in, market conditions, policy changes, and whether you are on track for your goals. Don't try to micromanage, but know the macros and be aware of the portfolio performance.If you are taking most financial decisions in the family regarding savings and investments, it's crucial that you share this information with your spouse as well, whether (s)he is earning or a homemaker. In case of an eventuality, the uninformed spouse is often left in the lurch, unable to access funds or at the mercy of relatives or strangers to manage them. It's crucial to keep the spouse in the loop not only about all the investments, but also the account numbers, log-ins and passwords to be able to access these.