It is quite amazing but true that many of us do not prepare a proper financial plan to avoid any future financial damage. We often keep a blind eye on various financial mistakes which sometimes arise as a result of ignorance, fear, ego, desire for immediate gratification and many more.
Well, mistakes are the best teachers, as the lessons learned are ingrained by the outcome of our failures. Finances in the same way let you learn what to do and what not to do. To achieve financial goals even a single financial mistake may be a detrimental one.
This post in intended to highlight some common mistakes that need to be avoided for a better financial planning:
No Proper Financial Plan: Lack of a financial plan, and not setting any financial goals can bring a lot of financial problems. A properly written plan with all short-term and long-term goals surely results into success. Reevaluation of the plan and tracking the progress often are basic ingredients of a proper financial planning.
Improper or No Insurance: A financial plan is incomplete without adequate life insurance plan. One major goal of a financial plan is to maintain the life style of your family whether you are with them or not. A common mistake we make is buying life insurance policies such as endowment plans or money back to save tax, also hoping to reap returns. Returns from such policies are much less compared to traditional investment products such as stocks, mutual funds, gold or real estate.
No Diversification: Do not put all eggs in one basket. This mistake arises when a major part of portfolio is invested in a single or same type of financial instrument which increases risks resulting into high losses/profits. The right portfolio should be built by optimum allocation into different asset classes.
Tax Saving Without Consideration: Many taxpayers try to withheld too much from their paycheck for income taxes. They think of it as a way to save. Investing in different financial products on the consideration of tax saving without evaluating other parameters of financial products is one of the major financial mistakes.
Idle Money: Money lying idle in cash or saving bank accounts generates negative returns. This is one of the biggest financial mistakes which we often make by ignoring the effect of inflation on the money invested. Insufficient funds in the saving bank account for emergency purposes.
No Investment: Spending money blindly and not considering about any investment is another bad money idea. Increase the investment amount as your income increases. Don’t wait for a lump sum amount to be accumulated to invest and don’t try to time the market. Develop a regular and disciplined investment approach.
High Debt: Small amounts of debt, or house mortgages and auto loans may be comfortable but realize that these can be hard to handle if money is tight. If you do acquire new debt, do so cautiously and after researching the best loan options. Always prepare a plan to keep a tight leash on personal loans and credit card debt.