10 major financial mistakes

You are not saving money

It seems that only lazy people haven’t written about this financial life hack. save 10% of your gross income every month. Follow three important rules: First, the calculated amount, regardless of its size, should be withdrawn immediately when it enters your budget. Second, 10% is not a fixed amount, it can be proportional to the income.

In other words, it’s okay if your salary is cut next month and you earn 20% less, which means you’ll save 20% less. Third, it must be done strictly every month, with no exceptions or discounts on a new electric scooter, a half-wall TV, or a rare set of Turbo gum candy wrappers. The main thing here is not even that you will gradually develop some kind of financial cushion, the more important thing is that saving money will become a habit, the same as brushing your teeth on Monday. Believe me, the habit of financial matters will be useful to us.

By the way, if 10% is too much for your salary, start with 5% or even 2% (now, we repeat, the main thing is to develop a pattern of behavior). And don’t be afraid to be considered an impostor among your fellow hussars. saving money is not the same as saving. One of the basic rules for managing personal finances is: “Pay yourself first.”

Expert advice. To personally deprive yourself of the opportunity to spend all your money at once, from a psychological point of view, not everyone can resist. And if your parents forced you to brush your teeth, then in this case your faithful ally is automation. Ensure that accrual occurs as automatically as possible, without the need for your involvement.

Today, you can make a standing order at any bank to transfer a certain amount of money, for example, from your current account to a savings or investment account. And every time accounting transfers your paycheck, a portion of it will automatically go into savings. Russian banks, adopting the experience of their Western partners, also introduce additional services that make life easier for shopaholics on the road to recovery.

A second potential ally is gamification. Give yourself a reason for extraordinary savings. For example, the Japanese, a nation known for its frugality, have taken this process to an extreme. they can save coins with an issue year that matches a memorable date for them, they can save extra if their favorite sports team wins or; for example, every rainy day.

You have no savings for Black Day

The first mistake leads us smoothly to the second. the lack of procrastination means that when something unpleasant happens in this life, like an illness, an accident, or an alien invasion, you don’t have emergency money. to solve

As a result, you fall into debt to relatives, friends, employer, creditors or aliens. In the best case, the problem is solved, but instead of feeling a pleasant relief, you will have to return what you borrowed for a long time (depending on the amount of the debt). In the worst case, you have to return the money and at the same time continue to fight the problem.

In good sense, the financial reserve should be three to six of your monthly expenses (expenses, not salaries); such a buffer should help to overcome the most typical and common misfortunes. Know that you should keep your savings not in a jam jar or under a mattress, but in reliable assets – bank deposits that are necessarily insured by the DIA (Deposit Insurance Agency). Then, in case of bankruptcy of the bank serving you, you will be able to get back the invested amount, at least up to 1.4 million rubles for sure.

Expert advice. If you don’t have such a backup yet, you can create it using the method described in the first paragraph. Yes, many deposit products with attractive interest rates have a minimum threshold, sometimes quite high. But it is not an obstacle. take advantage of offers from banks that charge interest on your debit card balance.

An important point. as you know, a rainy day does not warn in advance about its visit. When choosing the terms of the deposit, you should remember that in case of early termination of the deposit agreement with the bank, as a rule, you lose the accrued interest on your deposit.

You keep your money in deposits. Only in deposits

Let’s say that someone here is so advanced that he not only saves money, but also has a certain significant amount, which, moreover, does not collect dust, but honestly multiplies on the bank deposit. Do you think it’s time to relax and rest on interest? Well, no. the income from your deposit is of course better than the lack of it from money lying lazily on the bed, but in the medium and long term the interest on the deposit is, at best, only claims. to offset part of the inflation.

What to do? What we have always taught you. look at the wider world. In this world, besides “grandfather” deposits, there are many other opportunities for financial investments. Take the stock market for example.

Expert advice. Yes, the stock market is a universe of possibilities. I will not talk about the fact that here you can become a shareholder of Tesla or Facebook (an extremist organization banned in Russia). Let’s talk about more mundane things.

When we take out a bank loan, we pay interest to use it. Interest on the deposit is also paid, only now the bank pays us for the money that we have given. But the deposit is not the only possibility to lend to the bank, the same can be done by buying bank bonds in the stock market. Essentially, bonds are the bank’s obligation to return your money with interest, only those obligations are written in securities.

Let’s compare the interest rates on deposits (at what percentage the bank is willing to take money through deposits) and the rate of return that can be obtained by buying bonds. suppose the maximum interest rate on a certain bank’s deposit in USD is 3.3% per annum. At the same time, bonds of the same bank, depending on the maturity date, can be purchased with an annual yield of 5% to 10% in US dollars.

You think you don’t have enough money to invest?

A stereotype straight from the last century. You see, in the past only the richest class of citizens had access to the securities market. in addition to significant financial assets, it was necessary to pay for the work of brokers, brokers and other expensive intermediaries. With the invention of the telegraph and then the telephone, the path to the stock market was opened to a much larger number of people, and with the advent of the Internet, the last qualifications for property collapsed.

Investing in the stock market has ceased to be an elitist activity, and online trading has replaced sleep, food, sex, and worst of all soap operas for many.

Expert advice. Today, you can buy and sell stocks without looking up from your tablet. To do this, it is enough to open a brokerage account and have money comparable to the price of two movie tickets or several business lunches. Here’s how much a share of many companies you’re familiar with is worth.

You don’t see the point in long-term investments

“You have to live here and now”, “Why bother, save and invest, if the money will still go to all sorts of scoundrels, for example, children and grandchildren?”, “Who are you and why do you speak for me? » These are typical excuses of worldly people who do not understand and are afraid to invest. You see, investing is an iterative process, an ongoing effort, not a one-time effort. Just like you can’t go to the gym once and work out for the rest of your life or eat so much that you don’t want to anymore, you can’t invest once and then sip a beer in the bathroom. .. Beer. We’ll cover this point in more detail in paragraph 8, but for now just remember: only long-term investments really make sense.

Expert advice. Indeed, small steps lead to big results. Set a goal for yourself and move towards it every time. Roughly speaking, just like a few hours of regular running a week is enough to prepare for a marathon in 3-4 months, an investment of less than 5000 every month (in the currency you are interested in), with an average return of 10 per year. % is enough to become a millionaire for up to 10 years. As an encouraging fact, Warren Buffett has earned 90% of his $70 billion fortune by the time he turns 50. But he first invested in securities worth $114.75 when he was only 11 years old.

You don’t know how to start investing?

This point is not so wrong as, firstly, a natural fear of the unknown, and secondly, a lack of normal conditions for investments. You see, apart from a sophisticated transport system, an efficient state apparatus and a decent football team, Russia still lacks a developed investment culture. For comparison, the ratio of private individuals’ assets to deposits and securities in the US is 1:2. In the Russian Federation, a devastating 75:1.

However, as Kirill rightly points out, “nothing, there was no sex in the USSR either, but everyone somehow managed.” Having reached this point, you can say that you have already begun to invest, if not in stocks, then at least in your own excellence; you already know a little more than most of our compatriots.

Expert advice. If you want to start with theory, read The Intelligent Investor’s Guide by John Bogle and The Investor’s Manifesto by William Bernstein. Prefer to do everything yourself? I advise you to start by opening a so-called demo account, almost every broker has such a service. By managing virtual money in such an account, you can try yourself as an investor without the risk of losing your earned money.

You have found a “genius” manager

A typical mistake of novice investors is to firmly believe in the experience and professionalism of brokers who quickly undertake to manage your money in the stock market. Remember, there are no freebies in this issue. Any broker definitely takes a commission – this is his main income, and the greater the number of transactions carried out by the client, the higher it is. This means that you will be encouraged to become a speculator, buying and selling based on the immediate state of stocks, which goes against the idea of ​​long-term investing. Print it and hang it on your wall. over the long term (that’s 10, 20, 30 or more years), stocks will always generate income, even if they drain your wealth significantly over some months and even years.

Another pitfall is the lack of transparency in the composition of your investment portfolio. roughly speaking, you give your money to strangers and they decide for themselves which securities to invest it in. Moreover, they only tell you the final result without explaining its success or failure. The solution is to abandon such “black boxes” in favor of financial products that you can understand on your own.

Expert advice. A number of studies confirm the fact that the vast majority of professional managers miss the general dynamics of the stock market for a long time. In 1970, there were 358 mutual funds in the United States, according to Research Affiliates. Over the past 44 years, only three of them have outperformed the S&P500 index by 2-3% per year (the rest have either underperformed or ceased to exist). Can you guess these top three funds? Theoretically, yes, with a 1:119 chance. If you are so sure of your luck, it would be more rational to go to the casino. the probability of guessing the number in roulette is 1:37.

Are there exceptions to this sad statistic? There are, but they don’t live very long – Google Bernard Madoff or Long Term Capital Management Fund at your leisure. Don’t trust any brilliant strategy that makes huge percentages of “constant and guaranteed” profits. most likely, this “genius” is only intended to justify exorbitant commissions. The same Warren Buffett we mentioned is the result of hard work, not one or two successful speculative deals.

Do you think that investing in “Apple” is only profitable?

Sure, you can try, but it’s unlikely that anything good will come of it. The chances of you buying stock in a small company that will become a tech giant in 5-10 years are less than, say, seeing Vera Brezhneva naked in your own kitchen right now (go check it out, by the way). It would be much wiser if you focus on diversifying your stock portfolio. this is when the stocks you buy include companies issuing from completely different sectors (pharmaceuticals, technology, finance, oil and gas, etc.).

Expert advice. “Horses will remain, but the automobile is just a passing fad,” the president of a Michigan savings bank encouraged his colleagues to invest in Ford Motor Co. in 1903. In 2002, Segway inventor Dean Kamen predicted that in a few years his brainchild would replace cars and cities would be rebuilt with its mass distribution in mind. Can you guess “that second Facebook” (extremist organization banned in Russia) or “iPhone killer”? The idea is extremely tempting, otherwise there wouldn’t be so many venture funds in the world that would invest in various startups. But even such professional companies cannot afford the luxury of investing in one or two companies, but they go for the path of diversification, that is, making a whole portfolio of investments.

For non-professional investors (which is me and you), this tactic is, in my opinion, the only correct one. The stories of chasing stocks that are expected to rise the most usually end sadly. So-called ETFs (Exchange Trade Funds) are ideal for building a broadly diversified portfolio on the stock market. By spending about 100 dollars on the acquisition of such a fund, you can get a portfolio of several thousand companies with “one click”.

Are you trying to guess when to buy and when to sell?

A hundred or two trades in a few hours is the absolute norm for professional traders who have spent more than a year studying to understand how the financial markets work. And yet, even they make a lot of mistakes. If the amateur gets down to business, most likely he will lose all the invested money in the same two hours.

Investing is a marathon, not a sprint. You don’t plan on winning the Olympics every now and then, do you? So leave every second game to professional traders and invest in a portfolio of selected stocks in a steady and systematic manner. That way, you’ll not only beat the market in the long run, but you’ll also stay in a job you love. Well, or at least you will save time to leave the one you don’t like and look for a new one.

Expert advice. Global stock market capitalization approaches $70 trillion with $5-8 trillion traded monthly. Imagine how much money banks, insurance companies and investment funds are investing in supercomputers, neural networks and other systems that help them beat everyone else in this market.

You may not have that kind of money at your disposal, but you do have a valuable tool: your brain. Unfortunately, it is by no means immune to viral attacks from our own emotions. As in everyday life, our investment decisions in the stock market are often quite irrational.

We listen to the opinions of others, read news feeds, and follow the opinions of the crowd. And this is one of the most common mistakes, often unprofessional investors buy stocks not because they have any strategy, but just because everyone around them is talking about the stock market going up. But as famous investor Burton Biggs aptly said: “A bull market is like sex. you feel your best right before it’s over.”

Regular investment of the same 10% of your income that we talked about at the beginning of the article in a widely diversified portfolio may bring you less emotions, but the economic result will be higher.

You haven’t started yet

Not that we are pressuring you, but investing pays more the sooner you start doing it. Youth is the immediate and most important advantage in this matter. This is proven not only by common sense, but also by mathematics; in finance, there is the concept of “interest capitalization”, the essence of which is to add interest for each accounting period, not to the amount of the initial deposit, but to the amount of the deposit. plus interest accrued in the previous reporting period.

That is, if you initially invest, say, 30,000 rubles at 5% per year, then at the end of the year you will have 30,000 rubles + 1,500 rubles. However, at the end of the second year of investment, 5% will be calculated not from the initial 30,000, but from 31,500 rubles. Accordingly, the income of the second year will not be 33,000 rubles, but 33,075 and so on. Let this example inspire your future investment wins. When you get rich, don’t forget about your favorite magazine.

Expert advice. According to the legend, the ruler of a country loved chess so much that he invited its inventor to give him a prize. As payment, he asked to place one grain of wheat on the first square, two on the second, four on the third, and so on, doubling the number of grains on each subsequent square of the chessboard. The ruler agreed without hesitation, not suspecting that he had just promised to give the sage 1.2 trillion tons of wheat (several thousand years of the world’s wheat harvest). This is a good example of how compound interest works. Albert Einstein called them “the most powerful force in the universe”, and the founder of the Rothschild dynasty called them “the eighth wonder of the world”.

The sooner you start investing, the more you can use this power to your advantage. How many board squares do you have in front of you?