Financial Mistakes To Avoid
Financial problems are like many medical problems which are best when they are detected early. Some of the common personal financial problems are:
Human beings are born to procrastinate. That’s why we have deadlines (like July 31) — and deadline extensions (need another six months to file Income tax returns). But we have no explicit deadlines with our personal finances. We can allow our credit card debt to accumulate, leave our savings sitting in lousy investments for years. We can pay higher taxes, leave gaps in our retirement and insurance coverage, and overpay for financial products. Of course, planning our finances isn’t as much fun as planning a vacation, but doing the former can help we take more of the latter.
Simple arithmetic helps us determine that savings is the difference between what we earn and what we spend (assuming we are not spending more than we are earning!). To increase our savings, we either have to work more, increase our earning power through education or job advancement, get to know a wealthy family who wants to leave its fortune to us, or spend less. For most people, especially over the short-term, the careful approach is the key to building savings and wealth.
Buying with consumer credit
Even with the benefit of today’s lower interest rates, carrying a balance month-to-month on our credit card or buying a car on credit means that even more of our future earnings are going to be earmarked for debt repayment. Buying on credit encourages us to spend more than we can really afford.
Delaying saving for retirement
Most of us want to retire by our mid-60s or sooner. But in order to accomplish this goal, we need to save a reasonable chunk (around 20 percent) of our incomes starting sooner rather than later. The longer we wait to start saving for retirement, the harder reaching our goal will be.
Falling prey to financial sales pitches
Great deals that can’t wait for a little reflection or a second opinion are often disasters waiting to happen. A sucker may be born every minute, but a slick salesperson is pitching something every second! We must stay away from people who pressure us to make decisions, promise high investment returns, and lack the proper training and experience to help us.
Not doing our homework:
To get the best deal, shop around, read reviews, and get advice from objective third parties. We also need to check references and track records so that we don’t hire incompetent, self-serving, or fraudulent financial advisors. But with all the different financial products available, making informed financial decisions has become an overwhelming task.
Making decisions based on emotion
We are most vulnerable to making the wrong moves financially after a major life change (a job loss or divorce, for example) or when we feel pressure. Maybe our investments plunged in value. Or perhaps a recent divorce has us fearing that we won’t be able to afford to retire when we planned, so we pour thousands of rupees into some newfangled financial product. Take your time and keep your emotions out of the picture.
Not separating the wheat from the chaff
In any field in which we are not an expert, we run the danger of following the advice of someone we think is an expert but really isn’t. We should equip ourselves with knowledge to evaluate financial advice online and financial coverage in the mass media.)
Exposing ourselves to catastrophic risk
We are vulnerable if we and our family don’t have insurance to pay for financially devastating losses. People without a savings reserve and support network can end up homeless. Many people lack sufficient insurance coverage to replace their income. Don’t wait for a tragedy to strike to find out whether we have the right insurance coverage.
Focusing too much on money
Placing too much emphasis on making and saving money can distort our perspective on what’s important in life. Money is not the first or even second priority in happy people’s lives. Our health, relationships with family and friends, career satisfaction, and fulfilling interests should be more important. Money problems can be fixed over time with changes in our behavior.