Have you wondered how you study, graduate, and learn to do many things, but nobody teaches or even tells you that financial management is also an essential life skill? No one teaches you financial management. Neither in schools nor at home, and once we start to earn, we make choices that cost us more in the future. Financial management is an essential life skill, but not even half of us know its basics. If you ask around, every person has a different opinion. The more suggestions you take, the more confused you get. The point is that to make informed financial decisions, you need to do thorough research, not only rely on different opinions. Yes, taking a second opinion is excellent, but it doesn’t always work. Too many tips can do more harm than good. When it comes to financial mistakes, they begin with our small habits and turn into big blunders.
Yes, ignorance is bliss, but not when it comes to financial planning. Ignoring to manage your money can cost you your financial freedom.
So, let us get to it and find out which financial mistakes you might be making.
Spending like there is no tomorrow
Unless you have a source of unlimited income, overspending is a colossal mistake. There is a thin line between things we need and things we want, and most of us cross that line every single day. Spending more than your means is one of the financial mistakes we ignore until we end up in the debt trap. Buying small things you do not need might not look like not a big deal, but when you multiply it by the expenditure of 52 weeks, it will sum up to be a significant amount of money you could have saved. So, to begin with, always check your “small” expenses. Please make sure they are small and do not end up taking a large sum of your income.
Believe it or not, budgeting can help you to save more than your expectations. Allocating jobs for your money before they arrive can also control overspending and impulse buying. Most of us do not realize how much we spend every month until our bank account goes nil a week before the salary day. Now, the biggest problem lies in the realization of our spending habits. So, first step should be analyzing your spending habits from the past few months and setting a budget aside.
Read Now: How to get started with your budget!
Choosing wrong insurance
Insurances play a vital role in Indian families; most people go for long-term life insurances without knowing the pros and cons. One of the significant financial mistakes people make in India is not buying medical and auto insurance. As per a report published by the Statista Research Department, only 35% of the Indian population had health insurance in (financial year) 2018. Even though health and auto insurance might not look like a big deal, they can save money in emergencies and unforeseen circumstances.
No emergency funds
Even if you have insurance, having an emergency fund is necessary. Keep in mind that your insurance does not mean you will not have any other emergencies. As we are in the middle of a pandemic, nobody saw it coming. Many people lost their jobs, had salary cuts, and whatnot; emergency funds help you to get through unexpected circumstances in your life. You should have enough money worth six months of expenditure in your emergency fund to help you get through any difficult situation.
The simplest way to grow your income is by investing it, but the wrong investment can cause more damage than you can imagine. First of all, you need to set two kinds of investment goals- long-term and short-term. Long-term investments cover your retirement plans and other purposes like buying a house, whereas short-term investment plans can include your other expenses. Investments are not limited to life cover or purchasing property; you need to plan your investments based on money requirements in the future. If you cannot manage your current liabilities, you will not sustain the investment as you would be in a debt trap before you can reap the fruits of your investment. Ensure to research well before investing your money.
Living paycheque to paycheque
Living paycheque to paycheque seems easy at first, but as you grow, you would understand that your expenses will increase, and an emergency can occur at any point in time. Paycheque to paycheque cycle would get you through every month, but it would drag you into the debt trap in case of emergencies. So, always ensure to save at least six months of your income for emergencies to become financially stable for the future.
Never-ending payment cycles
One of the problems that many people face is the never-ending payment cycles. It begins with one missing payment on your credit card, and you start to accrue interest on it which keeps on increasing month-on-month. People even miss payments on their utility bills, and things start to go downhill from there onward. People pay a minimum balance toward their credit cards to save themselves from late fees, but the interest rate keeps increasing, and they end up paying more than they should. The point is that you need to keep your finances sorted and make a financial plan, adhere to it so that you don’t end up in a never-ending payment cycle.
Sure, buying that new phone seems like a great idea, you have saved some extra money from last month, and you can afford to buy it right away, but what if there is an emergency next month? You will end up taking out money from your savings which would create an imbalance in your budget. It would be best if you plan your purchases. Are you planning to buy a new phone or a new car? Look for better options, discounts, and payment plans to not get into debt in the future.
These are just a few of the financial mistakes you could be making. The truth is there are many other things we do that land us in the debt trap in the future. Unfortunately, financial planning is neither taught nor explained to you by anyone, but you need to start somewhere. Usually, people start financial planning in their 30s, but the earlier you start, the better results you will get.
Sometimes conditions are such that you get into the debt trap, and once things go south, it becomes impossible for you to get out of it. However, if you are struggling with your debts and do not see any way out, we can help you. Debt settlement is an option that you can explore. Do you want to know more? Reach out to our debt counselors at 0124-666-3-666 or visit our website to learn more!