When it comes to personal finance management, most people think that they are experts in handling their own finances. For them, running their household with their earnings and saving some bucks towards the end is successful financial management. However, what they ignore is long-term planning as they keep living paycheck to paycheck. While there are several money mistakes that people commit during their lives, some of them are listed here and must be paid attention to:
Life and Health Insurance: It’s important to have life insurance and health coverage not only for oneself but also for the family. Also, one should not link life insurance with investment. So, it’s better to have term insurance for life coverage and a family floater plan for health insurance in case of a nuclear family.
Not Starting Early: Though it’s never too late to start, if you don’t start investing early, you will not only miss out on major opportunities but will also lose out on the power of compounding. Also, if you start investing late, your risk-taking appetite reduces drastically.
Ignoring Emergency Fund: A crisis may dawn upon anyone at anytime. However, only those come out of it who plan for it well in advance. Investing and saving for an emergency fund helps you overcome crises easily and helps you avoid the derailment of your financial planning.
Frivolous Spending: Do you spend on things that never add any value to your portfolio? A coffee at the city’s renowned store and needless shopping in a mall may appear fun or necessary to you, but this ephemeral pleasure may thwart your financial planning goals. If you are really keen on shopping, you should look for investment instruments with better returns and then utilize your earnings, not savings, to fund your desires. Spending Rs 2000 per month on dining out costs you Rs 24,000 per year, which could go toward an extra credit card or auto payment or investment into SIP etc.
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Ignoring Money Management Rules: You must have heard or read about several financial planning rules like ‘Rule of 72′ or ’50-30-20 Rule’. (Click here to read about these rules) However, it may not have appeared important to you or you may have said to yourself that you will follow these rules from next year. These rules are simple and yet equally effective. Do give it a try.
