For ensuring a secure future while maintaining your financial stability in the present, proper management of your personal finances is a must. A simple mistake created can cause a series of events which might hamper the achievement of your financial goals. While for certain individuals, this may seem to be a bit of an intimidating task, with a little effort and research, you could actually avoid some of the most common money mistakes that many people fall prey to.
When it comes to ‘minding your money’, it’s highly important you follow the right steps and take a well-thought decision that ensures your financial stability and secures your family’s future.
So, while you’re effectively managing your finances, here are some of the most common money mistakes that you should avoid at any cost:
Unsystematic Investment Pattern
Almost all of us reading this would have a proper source of income with a habit of saving money and also making investments. All such investments made should have a goal-based approach and accordingly one should arrive at a consensus of how much amount needs to be invested and for what period of time. Moreover, such investments should be staggered over a period of time in multiple financial instruments, while it should not be invested haphazardly or in the lump sum.
However, many individuals have a habit of saving what’s left after spending which is not the way to do. You should have a clear financial plan that lays the foundation for your investments and stagger your monthly investments spread across a few investment ideas in multiple asset classes depending on your risk appetite.
Tracking such investments is also equally important. You should have a track of the cost of acquisition of the financial instrument you have invested in and how is it faring according to the current market situations. If it does not generate the expected rate of return, you should look at rebalancing your portfolio. If you want to shift to other assets, make sure you are making a long-term call or short-term call based on your investment objectives and return expectations. Don’t keep rejigging the portfolio only because there were short-term price fluctuations.
Lack of Diversification
Many individuals simply satisfy themselves with safe and fixed income generating assets that usually yield low returns. Many times, when inflation is not accounted for, chances are you might even be making losses on such investments. This is because such investors fear the volatility of risky assets, say equities. However, a diversified investment portfolio is highly important for achieving both short-term as well as long-term goals. You should make investments in a mix of assets that will take into account investment cycles, market volatility, and economic changes. This will lead to better optimisation of returns leading you to secure your financial goals.
Racking up Your Credit Card Bills
Credit cards are best avoided. Imagine yourself carrying a debt every month even after you pay your bills. This is an indefinite debt that usually lures you to overspend beyond your capacity and the bills just keep up stacking. Put yourself out of such misery once and for all and pay down your debt. Such debt carries a high cost as the rate of interest of such instruments carry a high-interest rate on overdue payments while blacking out your credit future as it also lowers your credit score. So, avoid this type of ‘bad debt’ and incorporate a habit of smart spending.
No Retirement Planning
When it comes to retirement planning most individuals shy away from it, mentioning it’s too far a proposition. Experts claim that one should start his retirement planning and invest for it, the day he starts earning. One should take into account life expectancy, soaring medical costs and inflation to maintain a similar lifestyle what one leads now. There are many who have an aversion to investing in stocks, but they are forgoing on a stupendous income opportunity with minimum capital requirements. Stock markets tend to outperform over longer periods and retirement planning is certainly a very long period. Hence one should start early as it helps in accumulating a bigger amount at the time of retirement.
Not giving Importance to Emergency Fund
Surveys conducted found that a whopping 57% of individuals have a very little amount in their bank accounts while a frightening 37% have no savings at all. While you neglect your short-term financial requirements, the longer you take to develop a safety net, there’s a greater risk of you unknowingly putting your personal finances at risk. You should ideally aim for an emergency fund equivalent to almost three months of your living expenses for when things take a turn and you’re out of your job, you at least have the fund to spend a good three months’ time without the need of any aid. Meanwhile, you may already start searching for the next best job.
It’s not easy to adhere to some of them, but it’s important to start financial planning and investing for your retirement. Diversify your investment basket, always create an emergency fund and live within your means. If you don this, you can avoid falling into a major financial trap.