Building wealth is not just about earning more – it’s also about making smart financial choices and avoiding costly mistakes. Poor decisions, such as overspending, taking high-interest loans, investing in things you don’t understand, or buying unnecessary insurance, can erode savings and stall long-term financial growth.
By steering clear of these pitfalls, individuals can protect their capital, reduce financial stress, and maximise the benefits of compounding.
In a recent post on X (formerly Twitter), chartered accountant Nitin Kaushik offered a practical guide for individuals looking to strengthen their financial health, outlining the “Top 10 Money Mistakes You Must Avoid” and actionable alternatives to secure long-term wealth.
Kaushik, known for his straightforward financial advice, highlighted common pitfalls ranging from poor insurance choices to high-risk investments. His guidance emphasizes simplicity, discipline, and smart decision-making over flashy financial trends.
Key mistakes & Safer alternatives
- Buying whole life insurance: Kaushik warns that these policies offer low returns (around 4-5%) and come with high commissions. Instead, he recommends term insurance, which provides 10-12 times your annual income, is cost-effective, and genuinely protects your family.
- Investing in timeshares: With zero resale value and ongoing maintenance fees, timeshares can drain your finances. Kaushik suggests saving monthly for vacations or creating a dedicated travel fund, giving freedom without obligations.
- Co-signing loans: Risking your credit score for someone else’s loan can be dangerous. He advises offering financial guidance rather than co-signing.
- Paying only minimum on credit cards: High-interest rates (30-42% annually in India) can quickly trap borrowers in debt. Kaushik stresses paying full balances monthly and avoiding unnecessary credit card debt.
- Investing in things you don’t understand: FOMO-driven investing is a fast route to losses. His rule: if you can’t explain it to a 15-year-old, don’t invest. Stick to low-cost index funds and ETFs.
- Spending more than you earn: Lifestyle inflation can erode wealth. Tracking expenses, budgeting, and saving 20-30% of income is essential.
- Financing a brand-new car: New cars depreciate 15-20% immediately. Kaushik recommends buying a 2-3 year old car with cash to avoid instant loss.
- Going all-in on crypto: Extreme volatility means 90%+ coins fail. Limit crypto to 5-10% of your portfolio while focusing on equities, debt, REITs, and gold for core wealth.
- Stretching your mortgage: EMIs over 25-30% of income increase financial stress. Instead, buy a house within budget to ensure peace of mind.
- Taking payday loans: With APRs sometimes exceeding 200%, payday loans are financial poison. Kaushik advises building an emergency fund of six months’ expenses.
Kaushik’s overarching message: “Wealth isn’t built by chasing hacks. It’s built by avoiding costly mistakes consistently.” He urges individuals to focus on simple, boring, and consistent financial habits, allowing the power of compounding to do the heavy lifting.