Managing your personal finance can be a tedious and complicated task. It’s made even more cumbersome as most of us don’t take the necessary time to plan and create an effective personal finance plan. But, once you get down to it, it isn’t rocket science.
Here are a few personal finance mistakes that you’re making and reasons to avoid them.
Not setting financial goals
Not setting a financial goal is like walking blindly towards something. You might reach your destination or you might just stumble and fall. What’s worse in some regards is setting goals like ‘making the most profit’ or ‘growing my wealth’ – vague targets that don’t let you imagine the possibilities of using your assets to the best. You need to realize the potential of money and where it can get you. So start listing down all your financial goals, when you want to achieve them, and how. You’re looking for well-defined goals like ‘I want to set aside 6 months of my expenses by the end of the year’ or ‘I want to buy a house worth Rs.XX within the next 3 years’.
Not investing in insurance
Insurance has to be a priority if you crave a secure life with some peace of mind. If your rationale is that insurance is expensive and unaffordable and hence you don’t invest in it, then you need to reconsider. Insurance services are made to secure you against situations that would otherwise be financially ruinous for you. It is imperative to start with medical insurance and other necessary insurances like accident, fire (for your house, office, etc), and life in order to safeguard yourself and your loved ones. It may be tough to cut back on your savings and pay insurance premiums but all preparations today will reap you happiness tomorrow.
Not having an Emergency Fund
Not creating an emergency fund is probably the worst mistake you can make financially speaking. When it comes to financial tools for emergencies there are hundreds of options available to help you out in times of need. However, they come at a price. In these situations you may end up paying more than what you bargained for. Throw in an unforeseen emergency in this scenario and you’re all ready to enter into financial debt.
Hence, it is imperative that you start creating an emergency fund as soon as possible. You can get started right away and build an emergency fund in 30 days or less.
Not having any investments
Shying away from investments will not help you make the most of your money and gain potential returns. Yes, the stock market is a volatile place and some investments can go bad. But using this as an excuse will only keep you from multiplying your wealth. If you are a new investor then you can start investing in the short term in safe options like group savings and fixed deposits (though fixed deposits won’t give you the best returns). Once, you have enough in your pockets then consider diversifying your portfolio.
If you are not comfortable with the stock market and prefer safer bets, you can always consider other investment tools like debt funds, post office schemes, chit funds, etc. Remember, the best financial plan is one that lets you sleep tonight, knowing that you have a secure future tomorrow.
Not keeping an eye on debt
A credit card can give you many benefits yes, but it’s not the solution to all your problems. Using a credit card can lead you to more debt than you can imagine with recurring interest rates and late payment charges. Therefore being careful with credit expenses is essential as it affects your credit score. And a low credit score can create eligibility issues for loans including the biggest decision you’ll have to make in life – the home loan. Try getting your credit report annually and work towards improving your score, planning your expenses accordingly.
The biggest challenge here is to sit down and create a plan so you know where your money is going and if that’s beneficial. Therefore, it is advisable to be prepared.