OneInsure Blog
Post By Mariya Panwala
4 Money Rules That Have Lost Relevance in Today’s Times
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Financial Rules That Are No Longer Effective
Our grandfathers watched Doordarshan in black and white, owned the same mattress throughout their lives, and invested in FDs and property.
Are you your grandfather? Do you watch Doordarshan in black and white? Have you used just one mattress throughout your life? Then why invest in FDs and property, which were good investments 50 years ago??
The world is changing with every passing day. Many things that were relevant yesterday are irrelevant today. This is especially true in the world of finance and investments. Some of the money rules that our ancestors firmly believed in and followed have not passed the test of time. In this piece, we explore these conventional money rules and explain why you must shun them and embrace new alternatives that not only give higher returns but also cover you for other challenging situations like medical emergencies or an untimely death.
Owning a House
The sentimental value attached with owning a house over renting can be overpowering, especially for people who like permanency. Others prefer buying a house because they have held on to an age-old myth that buying a house is an investment while renting a house assures you’re never going to see that penny again.
But have you ever thought of the disadvantages that buying a house might bring?
- You’ll constantly be burdened with EMIs and high maintenance costs because of which you might have to compromise on other life goals
- It is highly likely that your real estate investment will grow very slowly (less than 5%) due to the entire industry being in the correction phase
- You might run out of savings and fail to create an emergency fund
- You might have to let go a great career opportunity because it requires you to switch cities
Contrarily, by renting a home:
- You get shelter for yourself and your family at a much cheaper rate, with no financial burdens
- You can move from one city, state, or country to another if your career demands so
- You can fulfill your other life goals, such as providing your child with the best education, taking your family to foreign trips, and so on with the money that you are resultantly saving
Before you decide to buy a house, calculate your financial obligations and keep in mind your career dreams. Experts suggest the housing loan EMI should never be more than 30% of your monthly income.
Also Read: Is Property Still a Viable Investment Option?
Investing in Age-old Instruments like FDs and PPFs
FDs and PPFs were the preferred investment options for our parents and grandparents. These low-risk investment options, however, fail to beat inflation. The gradual decline of interest rates on FDs over the last 30 years (from 13.5% to 6.5%), against rising inflation rates, has only emptied more pockets than actually providing inflation-beating returns. This scenario calls investors to look for alternatives.
A Unit Linked Insurance Plan (ULIP) is a perfect alternative that not only provides better returns but acts as a safety net by offering a death benefit to your family members in case of your untimely demise.
You might like to read: Better and Beyond FDs
Owning a Car
Like owning a house, owning a car has a sentimental value attached to it. Besides, owning a car does sound more convenient.
But, to begin with, owning a car is not an investment, since it does not appreciate. Additionally, you have to bear maintenance and insurance costs.
Instead, an app-based cab saves you a lot. If the annual cost of hiring a cab for your daily commute of 15 km in a metropolitan city like Mumbai comes close to INR 53,000, the annual cost in the case of owning a car comes to around INR 1,20,000 for a 4-seater sedan. Note also that modern healthcare research has conclusively found that stresses related to driving and traffic lead to lifestyle disorders like hypertension and high BP.
Retirement at 60
Refer to the old financial wisdom and you’ll learn that the best age to retire is 60. While retiring at 60 does sound like a good idea, one must consider the fact that it was easy to retire at 60 several decades back when life expectancy was much lower than what it is today. Increase in life expectancy indicates an increase in the number of post-retirement years. Considering the current average life expectancy, which is 75 to 80 years, one needs to either retire late (close to 65) or plan well in advance for at least 25 years of retired life by choosing the right retirement plans. Read further on How Much Money Is Enough Money for Retirement?
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