Want to have a healthy financial life? Avoid these 6 common financial mistakes
Financial planning plays a very integral role in one’s life. It helps one achieve their long and short-term goals. It helps you manage your income and build your wealth. But planning your finances is not as straight-forward as it may seem. In the hopes of putting money for a better tomorrow, we may over-commit to our investments, which can only riddle us with more financial burdens. It is therefore very essential to be prudent while planning our finances. Ensure you avoid these 6 common financial planning mistakes when you create your financial plan.
Mistake #1 – Piling on debt
All of us have several personal goals we hope to achieve whether it is becoming home-owners or buying the dream car we’ve always wanted. These goals are in no way small and require very high amounts of money. One of the best ways to fund these dreams is to take out a loan. However, when loans begin to multiply, financial stress begins to increase. To get out of this stress, people take on more loans to pay off older loans,and this vicious cycle continues. Piling on debt is perhaps one of the biggest financial mistakes one can make. You can take help from investment companies who can help you consolidate your debt and create a structured loan repayment plan.
Mistake #2 – Investing without planning
The golden rule of financial investments is that you should have a specific purpose for investment. Even if you have no specific purpose and are investing to save for your future, there should be a logical approach to the investment. Investing in a stock or a mutual fund or any other investment instrument, just because a friend or a family member suggested it, is not the right way to go. When you invest without adequate amounts of research, you are exposing your funds to risk. Instead of investing for the sake of it, it is better to seek advice from a financial advisor and create a financial plan.
Mistake #3 – Not investing enough
This is another common financial mistake. Most people wait until a certain age before they begin investing, thinking that they have a lot of time left. They spend frivolously until they realise they do not have much savings to show. It is imperative to inculcate discipline in your spending and saving habits early. Start with smaller investment plans like mutual fund SIPs and increase your savings and investments progressively. Many people make the mistake of thinking that their provident fund savings are enough for when they retire. However, you must remember that your PF savings do not account for inflation. This is why it is important to start investing as soon as possible and invest enough money so that you have enough when you retire.
Mistake #4 – Not accounting for inflation
Many people opt for the traditional means of savings. They think that putting away savings in public provident funds, recurring deposits and fixed deposits is enough. What they forget to factor in is that the present-time value of your savings loses value as time goes by. Remember that as time goes by, everyday expenses continue to rise. If you keep investing in the same savings, your money will not have any room to grow. To keep up with inflation, you need to let your money stop becoming stagnant and invest in more than just “comfortable options”. If you keep ignoring inflation, your savings will erode gradually, which will, in turn, affect your financial goals.
Mistake #5 – Not accepting the volatile nature of the equity market
Many investors who summon the courage of investing in equities often panic each time the share market drops. At such a time, they make a hasty decision and decide to exit from equity investments, which is a rather bigfinancial mistake. Remember that your equities investments can increase in value and earn you high profits, just as easilyas they fall. You must accept that volatility is an inherent part of the equity market,and you will soon find another great investment opportunity. It does you a world of good to stay invested instead of never risking share market investments again.
Mistake #6 – Not diversifying your portfolio enough
Another bad idea is to construct a simple investment portfolio featuring one specific asset class alone. When it comes to investment planning, diversifying your portfolio is a key element. Your investment portfolio should feature a mix of various asset classes be it equity stocks, different types of mutual funds, money market instruments, certificates of deposits and so on.
Avoiding these above mentioned financial mistakes is extremelyessential if you hope to build your wealth over a period of time.
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