Behavioural biases that damage your investments!
In matters of investment, the sooner you acknowledge your mistakes, the sooner you'll find help in getting out of the soup. To break free from biases, the first step should be to identify those biases, says, Balwant Jain, Tax and Investment Expert.
Most people take out loans for practically anything they want to purchase but cannot pay in cash immediately. The burden of equated monthly instalment(EMI) begins when you take out a loan to buy a new home or car, establish or expand a business, pay for education, monthly bills, or a medical emergency.
You may feel trapped in a debt trap before you realise it. If you’re concerned about your high debt-to-income ratio, consider the following factors that will assist you in managing your money more effectively and living a debt-free life.
Make a list of all your debts
Before you can escape the debt trap, you must first make a list of all your loans. It could be a mortgage, a personal loan, a car loan, an education loan, a loan from a savings account, an insurance policy, a salary advance, or credit card dues. For each loan, you must know the exact amount owed, the current interest rate, the monthly payment, and the loan term.
Recognise and segregate your debts
Debts are classified into two categories: good and bad (not-so-good). A home loan, a personal loan for schooling or a medical emergency, and a company loan are all examples of acceptable debt. While these loans may create temporary inconvenience, they are an investment that can help you better your financial situation in the long run. Paying high interest rates on credit card bills, on the other hand, is an example of not-so-good debt.
Repay high-interest loans
Determine which debts have high interest rates and begin repaying them. Credit card interest rates are typically quite high in comparison to other types of lending.
“In case you already have a loan that you need to pay back, always give the priority to the one charging the highest interest, e.g., credit card, personal loan, or auto loan. Along with the ways mentioned above, paying off a big chunk every time you get an extra income like bonus, incentive or any windfall gain will help you close the loan early and save on interest amount in the long run,” said Manish P Hingar, Founder, Fintoo.
Make a strategy and stick to it
Create a debt payoff plan with multiple scenarios that account for medical crises, contingency funds, and the establishment of recurring savings deposits as you pay down your debt. Once you’ve finalised the plan, ensure that you adhere to it.
Avoid adding to your debt load
Make a commitment that you will not take out any new loans until you have completely paid off all your debts and kept your promise. Bear in mind that you will never be debt-free if you do not repay existing loans and continue to accrue new ones. Avoid falling victim to big discount days and cheap EMI offers in the future. Be committed to come out of debt and remain debt-free.
“The new mantra is Income – Investments = Expenses. Plan your investments into short / medium and long term buckets with a prudent asset allocation plan. Leveraging to buy a fixed asset like home, car, etc. is fine but remember never to over-leverage,” said Manish Mehta, Head Sales, and Marketing, Kotak Mahindra Asset Management.