Here we have listed some of the most common financial mistakes that often lead to major economic hardships.
- Waiting to start: There will never be a right time to start to save and invest money. If you’re waiting to save when you earn more, you’re making a foolish mistake, because you’re losing out on time. The most important factor in increasing your money with compounding is time. The sooner you begin, the more money you will end up having.
- Prioritizing spending over saving: As soon as you got your salary, you got tempted to buy the latest iPhone or a new pair of denim. Big mistake! One of the most important rules with money is to save first. And one of the most common mistakes is that we spend before we save. Spending can wait a little longer. Set aside money for saving before you spend it.
- Not automating: If you’re still thinking that you will manually put money aside into your savings account every month, you are kidding yourself. It is easy to go off track from your savings plan if the system is not automated. Automating ensures saving. For example, the SaveAbhi helps you automate savings by saving your spare change with every spending.
- Not diversifying your investment: It is not only a big mistake to not diversify, it is risky to invest all your money in one instrument or product. Choosing small and mid-cap funds, fixed deposits, savings accounts, bonds and other mutual funds options is the best thing to do with your money.
- Not keeping a check: Of course, automation is the best option when it comes to managing income, expenditure, payments and transfers. But leaving everything to automation and not checking your account regularly might mean a number of hidden or wrong charges are going unnoticed.
- Not paying off debts: You made a mistake by overspending on your credit card. But don’t even make the mistake of not paying off your credit bills. The reasons: your credit score get adversely affected for future, you might end up paying interest on interest if you avoid paying off your debts.
- Investing before building an emergency fund: Everything is uncertain and it would be foolish to not be prepared financially. Build an emergency fund that is sufficient for six months and only then invest. Investing before building your emergency fund will block your money, you could lose more money and you will be left with no money during an emergency situation.
- Forgetting important dates related to your money: Most of the bills when paid late have a late charge fee, which is a waste of your hard-earned money. Keep reminders on your phone, in your diary or make it a habit to check your payment schedules regularly so that you do not miss out paying important bills such as utility, EMIs, loan instalments, insurance premiums, and more.
- Maxing your credit cards: A credit card is a curse if not used wisely. It feels good to swipe your credit card and buy things and experience the feeling that money hasn’t deteriorated from your savings account. But it is only until the next billing date, and most times it’s too late because you do not have any money to pay off your credit card bill.
- Not creating a budget: Creating a budget gives you control over your money and helps you remain focused on your financial goals. You take intentional steps with your money if you have a budget made. Moreover, you avoid spending your money on unnecessary things.
- Spending more than your earnings: It may seem it’s impossible to spend more than you earn, but with generous friends to borrow money from, with fancy plastic money in the form of credit cards and EMI options that most online shopping platforms offer, it is most easy to spend more than you earn. It is one of the most common money mistakes.
- Depending on a single source of income: “Never depend on a single income”, says Warren Buffet; that is one of his secrets to becoming one of the richest men in the world. Depending on a single source of income will mean that your financial growth will be slow and difficult. Always look for new sources of income and more ways of making money. It could be by way of investment, finding a second job or doing a side gig.
- Not saving for retirement: If you don’t save for your retirement, nobody else is going to do it for you. Inflation will make it difficult for you to sustain your current lifestyle if you do not start saving for your retirement. Ideally, you should start your retirement fund the same year that you start your first job.
- Not knowing how much you should save for retirement: The question that you need to ask yourself when planning your retirement fund is not how much you can afford to save every month. Rather, ask yourself how much will you need to save. Based on your current expenditures, use an online calculator to ascertain the amount that you must have in your fund at retirement.
- Not having a health insurance plan: Health insurance is supposed to be considered an expense. But it is an investment for the long run. When thinking of health insurance a lot of people think what could possibly happen to them, but health insurance is one of the most important investments that one could make.
- Having too many loans: Chances are that you have a housing loan, a car loan and an education loan. Have you ever calculated how much interest you are paying to clear these loans? There is a large gap between the ratio of principal to interest and most of your instalment money is being paid towards interest. If you have the capacity, you should try to clear off your loan debts faster and not wait for the loan tenure. The best thing to do would be to not take out loans. The less you borrow, the better your financial status.
- Not doing your research/homework: You read in the newspapers about a particular company doing great in stocks, or you saw an advertisement for a new investment opportunity. Without doing your homework and research you got sucked into buying it. That’s a stupid mistake that many make. This is something that is easily avoidable.
- Missing payments or paying late: Have you ever calculated the amount of money you are paying because of avoidable mistakes such as late payments on your utility bills or your insurance premiums? When calculated it forms a large chunk of money, which could have been utilized on yourself or could have increased if invested.
- Paying unnecessary bank fees: Banks are smart. They are moneymakers. Banks charge you a number of hidden charges that directly get deducted from your account. These amounts are minuscule when seen individually, but when you put together the amount annually, it forms a large amount. Charges for phone and email alerts, transfer fees, ATM charges are among those fees, which can be easily avoided.
- Not planning for a house: You may be young today, moving cities and countries and so never felt the need to buy your own house. But you will soon reach a stage when it might become too difficult for you to invest in a house. With real estate prices skyrocketing, buying a house earlier is a smart choice.
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