7 Ways To Go Broke

Inflation

Doing nothing is the easiest way to lose money. By keeping your money in a bank account or at home, you lose money every second. Don’t believe me? Read this — ‘Inflation is the rate at which the prices, goods, and services in an economy rise, affecting the cost of living in a particular country. If the Inflation rate is 6 %, then in 12 years, you will be losing half the value of your money. The inflation rate of India for the financial year 20–21 was 5.1%. Along with this, we see our expenses rise by around 15% every year. So eventually, you are losing money.

Old is Gold!

People who don’t know much about investing feel that Fixed Deposit (FD)’s and buying Gold are the best way to make money. If you compare the interest rates that FDs give us and that of Inflation, they are almost the same. You are neither making money nor losing it, which will over time make you poor. Gold, considered one of the oldest forms of investing, may not necessarily be the best. A pile of Gold will always remain a pile of Gold, but if we invest it in a business (via the stock markets (maybe!)), it will generate wealth. Even when the price of gold increases, what actual benefit do you get from it unless you sell it.

Don’t Invest

Investing is so dull. It takes so much time to find good stocks and invest in them. Even in mutual funds, we have to worry about how to find them and buy them even though it might just take a few minutes, but we are so busy that we cannot even spare that much time. Nowadays, there are so many Mobile Applications (e.g. Roundups) by which you can buy and sell mutual funds and stocks with just a few clicks. *clearing throat* But this might give us less time to spend on social media, which might be disastrous for health. *wink wink*. So don’t be a fool — Get off Snapchat and start investing today!

Buying and Selling Based on ‘Tips’

Most people think that trading stocks based on tips is the most sure-shot way to become a millionaire. In reality, recommendations from friends and family are the best way to lose your money. People who watch News channels and get advice from different Whatsapp and Telegram Groups are under the impression that this will help them make money. Lazy investors don’t keep track of their trades; they depend on someone else to tell them when to buy and sell. Also, people are forgiving. They tend to remember that one profitable trade but lose sight of the ten loss-making ones. They keep adding money to losing stocks to average them out, but what they are actually doing is clinging on to a sinking ship. If you want to lose money this way, there are a few links to Whatsapp and telegram groups for Tips at the end of this article. (Please check them out!)

Don’t Have an Emergency Fund.

What is an emergency fund? It is a large sum of money that is kept aside if an emergency happens. If the probability of an actual emergency happening is super low, you don’t need to worry too much about having an emergency fund. FALSE! We must keep aside a small amount of money every month till it grows up to the size of 3 to 6 months of our expenses. Whenever an emergency comes, it will be painful, difficult and exhausting to figure out at the time.

‘Liquor, Ladies, and Leverage.’

“My partner Charlie Munger says there are only three ways a smart person can go broke: liquor, ladies, and leverage,” he said. “Now the truth is — the first two he just added because they started with L — it’s leverage.” When Warren Buffet thinks that this is the best way to lose money, how can we defy him? We should blindly follow him. Leverage is not bad, but it can be dangerous to use leverage with half knowledge. There are even a few great examples that prove this point. Bill Hwang had $20 Billion, Then Lost It All in Two Days, all due to leverage.

Living from Credit Card to Credit Card

Credit cards are weapons of Mass money destruction if used incorrectly and carelessly. They help us spend blindly since we don’t have to pay anything at the time of purchase, better known as ‘swiping’. Just Make sure that you (don’t) pay your minimum amount due and (don’t) go on spending in the next month. Credit card companies charge just between 20–24% interest annually on your outstanding credit card balances each month. And if your one card reaches its limit, (don’t) get another credit card and (don’t) continue spending.

Life is short so why not live it to the fullest and spend every penny. (NOT!) Why worry about retirement now? What is the worst that can happen? People who don’t invest or save will have sleepless nights when they are old and will work till their last breath. Amen.

Here are a few links that were used as references in the article

• https://www.investopedia.com/terms/i/inflation.asp
• https://www.bloomberg.com/news/features/2021-04-08/how-bill-hwang-of-archegos-capital-lost-20-billion-in-two-days
• https://www.cnbc.com/2018/02/26/buffett-says-out-of-the-three-ways-to-go-broke-liquor-ladies-and-leverage-leverage-is-the-worst.html
• https://economictimes.indiatimes.com/wealth/invest/why-gold-is-not-a-good-investment/articleshow/59296448.cms

Seriously!!?! you scrolled down all the way to find the links of Whatsapp and telegram groups??

“Earn Wisely Not Easily”

Written by: Akshat Shethia, ISME School of Management & Entrepreneurship
Edited by: Minakshi Todi