Managing personal finance can be a tedious and complicated task. It’s made it 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 so you should be able to manage it.
Here are a few personal finance mistakes you might be making and why should avoid them.
Not setting financial goals
Not setting a financial goal is like walking blindly towards something. If you don’t have well defined goals like ‘securing your next 6 months of expenses’ or ‘buying a house within the next 3 years’ you will have nothing to work towards. Goals like ‘making the most profit’ or ‘growing my wealth’ are too vague and don’t let you imagine the possibilities of using your assets to the fullest. 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.
Insurance has to be a priority if you crave a secure life with some peace of mind. If you think of insurance as expensive and unaffordable, and hence you can’t invest in it, then you need to reconsider that choice. The first rule of finance is to safeguard your money and insurance services are made for just that. 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 but all preparations today will bring you happiness tomorrow.
No Emergency Funds
Not creating an emergency fund is probably the worst mistake you can make – financially speaking. When it comes to financial securities there are hundreds of options available to safeguard one’s interest. However, they come with a price. In these situations you may end up paying more than what you bargained for. Throw in some unforeseen emergency and you’re ready to enter into financial debt. Hence, start creating an emergency fund as soon as possible. The best way to get started with this would be to start investing in a financial tool like a chit fund that would provide you easy access to funds that you haven’t yet saved up on your own.
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 short term and safe options like group savings and fixed deposits. Once you have enough in your pocket, you can 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 at night, knowing that you have a secure future.
Not keeping an eye on credit
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. 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.
Not considering financial options
Look around you and you’ll find many investment options available. Due to the lack of financial literacy we tend to only consider the mainstream investment options suggested by peers. That’s why people commonly opt for investment options like shares, fixed deposits, mutual funds etc. There are ample amount of options available that will cater to your needs and give you good results. Alternate options include group savings and borrowings scheme chit funds, REITS, National Pension Scheme etc.
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. Check out our simulator to compare financial tools to get a good understanding of how group savings and borrowing schemes can help.
In summary, one needs to be careful with personal finance and do everything in their power to be financially stable and healthy.