11 Money management mistakes that you should avoid
In today’s busy world earning good money is not enough you should be be aware of how to manage your money as well. This becomes very important especially when you are spoiled with too many choice on how you can spend your money by having a luxurious lifestyle, buy anything at one click online etc.
Let’s look at a few common money management mistakes that we do mainly because of a lack of awareness.
1. Not having a good term insurance768w, https://weinvestsmart.com/wp-content/uploads/2020/03/insurance-1536x1308.png 1536w, https://weinvestsmart.com/wp-content/uploads/2020/03/insurance.png 1920w" sizes="(max-width: 366px) 100vw, 366px">
People often get confused when it comes to term insurance. Most of the people are not aware of existence of term insurance at all and they stick with the conventional endowment policies from company like LIC.
In today’s busy life with unhealthy habits like long working hours, bad food choice, inactive body – you never too sure about your future. You should get a proper insurance for yourself which provides you insurance cover of at least 10 times of your annual income. Term insurance is a great product which gives you a good life cover with minimal cost.
You should always make sure that you get the term insurance for yourself as early as possible as the insurance premium depends on age. And also with age your body starts deteriorating – once you start having any serious disease like diabetes then you will not be able to get a term insurance for yourself!
2. Company health cover is sufficient
Most of the companies now a days offer a good health insurance coverage. As an employee you have a choice to upgrade the health insurance coverage as well as add your dependents in the coverage as well. Unfortunately this is not enough! what everyone forgets to realize is – the health insurance is only valid till you are working in that company. If you leave the company or get laid off then you lose your health insurance as well!
So it is really important to have additional protection which you must purchase on your own to protect yourself from unforeseen circumstances!
3. Buying insurance policies for investment
One of the other biggest money management mistake people do is they mix insurance with investments. They just blindly purchase an insurance product which was sold to them with a hope of getting good returns in the future. insurance plans like traditions plans, pension plans, unit link insurance plans (ULIPs) are loaded with heavy charges which erode your return. Buy a term plan and investment in mutual funds for better returns or invest directly in stocks for better returns.
4. Not focusing on monthly expenses
Ever since the online world dominated the sales in India like Grand sale and Big sales day. People get trapped into credit card debts and they often purchase things which are not really needed. They just purchased because it was on sale!
Track your monthly expenses – build a budget plan like 50-30-20 plan.
- 50% of your earnings should be spent on your needs!
- 30% of your earnings should be spent on your wants!
- 20% of your earnings should go towards savings!
Have a look at top 7 Budgeting Tools To Better Manage Your Money
5. Use of credit cards
No-cost EMI. This term probably has been the biggest personal finance killer of all time. People buy things which are unaffordable just because there is No-cost EMI for that product and end up going in credit card trap.
One must remember that Credit card EMIs have the highest interest rate in the world. Some of the credit cards charge up to 36% p.a. as interest cost for your EMIs. So you should be very careful on your credit card expenses and should never buy things which you can’t afford!
6. Lack of emergency funds
We have talked about emergency funds in details here – What is an Emergency Fund and why you must have one?
You must make sure to understand the significance of emergency funds and should build right away!
7. Savings & Investing without predefined goals
If you are managing your money with out any goals then you will end up working your entire life to make ends need. A goal is very critical for your money management.
You should have short-term, medium-term, long-term goals for your needs and put your money to work to meet those goals.
Without goal based investment create confusion and pre-matured withdrawals which ultimately creates indiscipline in your personal finance. Investing to just save your taxes should not be your goal.
8. Relying on friends or relatives or open-source of advice
If you have invested in stocks then probably you can relate to this quickly. How often it has happened to you that your friend has tipped with a good stock suggestion but you lost a lot of money with that tip?
Ask yourself – you are not taking medicines by searching on google or asking friends and relatives because you know each one has different heath parameters then why are you taking chances in your investments?
Always make sure you understand the investment instrument you are getting into. If you are unsure then consult a financial advisor to help you!
9. Putting all eggs in one basket
The last thing you want to do is put all of your money in one investment instrument such as investing in real estate. This can prove disastrous for you. Always make sure you diversify your investments in multiple instruments so that you do not get hurt when that instrument fails to make any money for you.
Always divide your investments into risk-free, medium-risk and high-risk category. Take money management decisions based on your personal conditions and ability to take risk!
10. Not having a customised financial life plan
You should have your financial life plan which gives you roadmap in your financial journey.
Create a financial plan which can help you steer you life smoothly and you can plan you spending in a way that you live a stress free life. This helps you in the same way as when you travel and use maps and navigation to reach your destination.
You must keep in mind to take care of people who depend on you. Do not make an assumption that you will not face any unforeseen circumstances!
These are some eye-opener questions that you need to ask yourself. Having a customized financial life plan helps you to overcome these questions and ambiguities.
11. Not reviewing your personal finance periodically
Like you do health check ups regular to make sure you are healthy, similarly you should review your financial plan periodically to make sure you are meeting the objective. Always remember that when it comes to money things change as per time. The financial plan which you have made last year may not be the right one for you with your current situation.
Money management mistakes – Closing thoughts
In today’s world, it’s not important how much you earn, it’s really important to understand what you are doing with your hard-earned money.
Are you making the above money management mistakes unknowingly? You may be doing a lot of harm to yourself unknowingly by just ignoring a few basics things.
Always remember postponing your financial decision is only going to haunt you back in the future, so don’t wait for a trigger to take the first step.
Go ahead and check if you can avoid any of the money management mistakes we talked about here!