Beware of bad advice: Educate yourself

As humans, we tend to get influenced easily, especially about subjects about which we have little to no knowledge. Now, in case the topic is appealing, we might take some interest in getting to know more about it. However, when it comes to personal finance or tax or savings, we simply believe in the person we feel has past success. As boring as it may sound, though, such topics must catch your attention, especially when your hard-earned money is on the line. Each individual has different aspirations, income source, liabilities and, most importantly, distinct financial conditions. Therefore, blindly following anybody's advice can be fiscally fatal because what works for somebody else may not necessarily work for you. Just like a medical practitioner prescribes different medications to each individual even for the same cause, financial advice should also be taken after consideration of our needs and condition. Let us check out some of the most common bad advice, which even you may have followed, and learn how to tackle them in future.

1. “Invest in risk-free opportunities”: This statement can be true only in a perfect world. However, as long as we live in an uncertain world, this cannot hold true. Yes, there are certain investment avenues that possess very little risk such as fixed deposits or a savings account or government securities. But it is pertinent to note that even these instruments come with the risk of a change in government regulations or the issuer’s own economic conditions. Compared with stocks, mutual funds or corporate bonds, FDs or G-sec instruments carry very little risk. On the flip side, they fare badly in terms of returns. Therefore, instead of getting lured in the fake cloud of zero risk, take an optimum decision according to your expected returns and risk-taking capacity. The advice here should be that every investment involves some amount of risk, so invest as per your needs.

2. “Never use credit cards”: Many of you must be surprised as to how this is a bad suggestion. Credit cards, if used properly, serve three purposes. One, it improves your credit score or creates a credit history; two, it gives rewards in the form of cashback or rewards points or discount which is nothing but indirect savings; and lastly, you are able to use interest-free funds for 35-45 days depending upon the service provider. Therefore, if used cautiously and if all dues are paid within time, credit cards cannot be harmful. The takeaway here is to use them wisely and pay the outstanding on them timely.

3. “Every debt is wrong or poor financial planning”: This is a totally poor piece of advice. Debt taken to purchase an appreciable asset can never be wrong. In such cases, the price of the asset keeps rising and the debt keeps reducing. Moreover, you can also generate income from some such assets, for instance, real estate. And some of these debts also help in reducing your income tax liability to a considerable extent. Therefore, the recommendation here should be to take on debt that will later contribute to your net worth and will be in line with your financial planning.