

Every person
earns money with a purpose to fulfil their life goals. People use money for
purposes as simple as buying their daily household essentials or to buy
luxuries for a better life. People can save, accumulate and grow money to
accomplish their various financial goals. One aspect which is equally important
as saving money is to avoid financial mistakes at young age. Below are the
common financial mistakes which can have an impact on an individual's financial
well being in the long run. One should individually analyze and try to avoid
them at the earliest. As it is said if you find yourself in a hole stop digging
it further.
1. Excessive spending
Indian economy
is primarily a consumption-driven economy where we are encouraged to spend on
buying goods and services. Traditionally Indians were known for their saving
habits. The domestic savings rate of Indian households has been declining. With
a booming economy and surplus cash in hands of young working population,
spending is overtaking saving as a habit. Repeatedly we see people spending
excessively than what their budget should permit. Sometimes it is because of
our increased standard of living or peer pressure. One should remember that
people who live and spend beyond their means often find themselves stuck in a
financial black hole.
What's the solution?
Periodically one
should make a list of and analyze the expenses which were incurred but could
have been avoided. Try to cut off such expenses in subsequent periods. One
should remember that a rupee saved is as good as a rupee earned.
2. Getting into debt to buy
unproductive items
One of the
most common and biggest financial mistake which people make is getting into
debt to buy unproductive items. Using credit cards to buy essentials has become
somewhat normal. People often make purchases using their credit cards even when
they have sufficient cash in their wallets.
What's the solution?
One should abstain from taking loans for
unproductive purposes which will lead to saving of the interest expense. Credit
cards should be used only in the emergency situation. If an individual have
money to pay for the necessary items they should pay in full. If not, then it
is better to leave the items at the store.
3. Investing a lot in depreciating
assets
A depreciating
asset is an asset that has a limited life and expected to rapidly decline in
value over the time it is used. Depreciating assets include items such as motor
vehicles, electronic items, furniture etc. Even though not a necessity, often
we see people buying such trending depreciating assets.
What's the solution?
One should
avoid spending a lot on such rapidly depreciating assets. If needed one should
settle on something smaller and less expensive. If buying a car is a necessity,
one should settle buying a smaller and less expensive car which will help an
individual save substantially on road taxes, yearly maintenance, insurance
premiums etc. As it is said, if you buy things you do not need, soon you will
have to sell things you need.
4. Not starting Investing at an
early age
Handling
personal investments is boring and is last on the to-do list. By not investing the
money one may not be able to sustain the basic standard of living due to
inflation.
What's the solution?
One should get
their money work for them from an early age in the equity markets or through
other income-producing investments in order to have enough wealth when they
retire. One should form a goal based habit of investing on regular basis and
avoid looking the investment until the goal is achieved for which the
investment was made.
5. Not maintaining an emergency
fund
Most families
rely on their monthly paycheck for survival. In such cases, a disturbance like
a medical emergency or loss of job could result in a financial disaster.
Consider the current situation of Covid-19 where a wave of salary cuts and
large lays off has emerged. God forbid if one gets caught in such turmoil,
without an emergency fund one would not have enough money to meet even the
basic necessities of their family.
What's the solution?
An individual
should maintain an emergency fund to be used at the time of crisis or for meeting
unexpected and unplanned financial emergency. The fund should not be used for
meeting routine expenses.
6. Not having a financial plan for
retirement
Today one
would spend hours watching TV or scrolling through their social media feeds,
but setting aside two hours per week for their retirement financial planning is
out of question. One should remember that failing to plan is planning to fail.
What's the solution?
One should
make a priority to spend their time planning and arranging their personal
finances. Identifying proper financial goals and planning to achieve them in a
systematic way is the heart of financial planning.
The bottom line
While these are some of the common financial
mistakes, one must identify their weaknesses and work on them to keep their
finances on track. These mistakes can be avoided if we keep in mind our
financial goals. As time goes by, one will gain more experience and have more
control over their finances. The financial decisions one make today will
determine their future financial well being.
(KASHISH MEHTA)
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