Financial planning is extremely important to ensure that you handle your money properly. Just earning a good amount is not enough, you need to know how to manage it properly so as to make the most out of it. One needs to understand that money can help you make more money. However, in order to do that you need to avoid some pitfalls.
People often make some very common financial mistakes which stops them from creating wealth. Wealth creation takes time and if you keep making mistakes with your money, you make lose the time and opportunity to help your money grow.
Here are 7 money mistakes that you need to avoid at all costs:
1. Excessive Spending: Overspending is one of the most common mistakes that people make with their money. One must remember that great fortunes are often lost one rupee at a time. Small expenses like a Rs 10 snacks packet or Rs 50 ramen cup a day may not seem like a big deal at the time, but every little item adds up. Rs 50 ramen cup every day for a month adds up to Rs 1,500 per month and Rs 18,000 per year. Just imagine, you could have saved or invested that Rs 18,000 to get handsome returns. If you're enduring financial hardship, avoiding this mistake matters. So, sit down and take note of unnecessary expenses that you make every month and you will be surprised by the amount that you could have saved.
2: Never-Ending Payments: With credit cards becoming increasingly popular, people nowadays buy stuff that they don't even need just because they know that they do not have to pay for the expenses immediately. Also, if you ask yourself whether you really need all the items that you keep paying for every month like cable television, music services or fancy gym memberships etc., you will find that you can do without these and it can help you stop paying unceasingly. Rather than having never-ending bills, subscription charges, it is better to save more. Creating a leaner lifestyle help you increase your savings.
3: Surviving on borrowed money: Borrowing money in times of crisis is normal. However, living and surviving on borrowed money could be the biggest mistake you make. Using credit cards to buy essentials has become somewhat normal. However, paying interest on fuel, groceries and a host of other essential items that are gone long before the bill is paid in full, is a stupid choice. Getting personal loans for unnecessary things is something you need to avoid because while you may get the money instantly, the high interest will stop you from saving any money and, in turn, will stop you from creating wealth
4: Buying a car without need: Millions of new cars are sold each year. However, only a few buyers can afford to pay for them in cash. Most car buyers lean on car loans to finance their car purchase. A lot of people consider having a car a status symbol so they try to buy one even if they do not need it. Some people go out of their way to buy a car which is way out of their budget.
Do not buy a car if you do not need it as the burden of car loan EMIs is not worth it. If you really have to buy one, evaluate your requirement and budget and stick to it. Also, remember that buying a car is not a one-time expense. You will have to bear other expenses that come with it like insurance cost, maintenance, fuel and repair charges etc.
5. Spending too much on your house: Note that when it comes to buying a house, bigger is not necessarily always better. A bigger house requires more maintenance, more furniture etc which increases the cost. So, unless you have a large family, choosing an extremely large house will only mean more expenses like taxes, maintenance, and utilities etc. Also, make sure to spend a reasonable amount on paint, woodwork, etc. Make a budget and stick to it so as to avoid unnecessary expenses on your house.
6. Living Paycheck to Paycheck: If you are someone who lives from paycheck to paycheck, you are in serious trouble because this means that you are not saving. If you are one of those people who no matter how much they plan their expenses, nothing is left of their previous salary by the time the next month salary comes into their account then you need to evaluate asap. Some might ask that what is so wrong about living paycheck to paycheck as long as you are living comfortably. Yes, for the time being, it might not seem like such a bad thing but when you think about the fact that you are neither saving nor investing then it should worry you.
You receive monthly paychecks today but you will retire one day and if you have not saved anything then you will have trouble in future. Also, if you lose your job or end up in a financial crisis, you will have no funds to fall back on and this will be problematic.
7. Not Investing: People often park their money in a savings account and leave it at that. However, savings account returns are not much and inflation will eat away your savings. If you do not get your money working for you through investment, you are making a mistake. Make sure to invest based on your financial goals, risk appetite and investment horizon. Making monthly contributions to designated retirement saving scheme is essential for a comfortable retirement. You can take advantage of the tax benefits offered to investors. Understand the time your investments will have to grow and how much risk you can tolerate.
