Let’s face it: money is a necessity. We need money in order to live. Human lives are centred around it. Financial folly can come at any age. With each financial breakthrough and responsibility comes a wave of a confusing labyrinth of temptations, options, dead ends and traps. But you can be assured that you’re not alone. You are surrounded by peers who have a history of monetary mishaps and poor financial choices.
It is up to you how you survive. To begin with, at least be cognizant about such snags. This can give you the confidence to handle your finances more effectively. If you want to abstain from taking a step backward for every step forward, you need to get on top of your finances. You need to sidestep common money mistakes that can drain your wealth, or misapply it. The best way you can circumvent these mistakes is to learn what they are.
Avoid these seven mistakes and be ahead of the financial race early on.
- Being financially illiterate
Just because you were not taught money management by your parents or school doesn’t mean that you should be debilitated by your finances. It is never too early or too late to begin developing financial literacy and taking control of your finances. Learn about saving, investing, budgeting, wealth management, repayment and retirement from financial advisors, books, websites and maybe even free classes in your area.
- Spending more than you earn
If you are spending more than you make, you’re in the red. You definitely need a budget to tighten the belt and buckle down. To calculate how much money you need to set aside each month as savings is simple: deduct the total annual expenditure you incur from your yearly inflow and divide it by the number of months. Make your budget your right hand man; your buddy. This way you will be able to control your spending and keep your expenses within the limits of your income.
- Impulsive buying
There you are, innocently window-shopping, when you spot a pair of fabulous shoes – 20 percent off! You just have to have it, don’t you? Shopping as per your whims and fancies can cost you more than you can imagine. While the occasional splurge may not ruin your plans for good money management, habitual impulsive buying will. You have to take charge of your wallet and resist the urge to splurge.
- Not investing money earned in financial instruments
Investing can be intimidating for those who don’t have a lot to invest. But let that not deter you from investing. Investing prevents your money from lying idle in the bank and grows it at a higher rate than a savings account would. It is not mandatory to have loads of money or a fancy financial advisor to help you invest. Instead, check with your bank and your relationship manager. You will find a whole range of investing and wealth management services from fixed and recurring deposits to mutual funds and insurance plans.
- Being scared of financial jargon
Most people are turned off by the extensive jargon in finance. It sure can confuse you. A term like CAGR is being used with increased frequency amongst finance professionals. If you look it up, it’s actually a simple word. It stands for compound annual growth rate, or the pace at which an amount (e.g. revenues) has increased annually over a given period of time. You do not need a very extensive academic background in finance just to be able to start investing. You just need to drive yourself in the right direction. All those who are considered financial experts by society started out not knowing anything about finance in the first place. You can learn too.
- Keeping up with the joneses
Take pride in your net worth instead of competing with your neighbours and peers. If your friend or neighbour has bought a new car or a fancy gadget, there is a chance he/she is signing up for another debt. Those who have showy items are not necessarily financially better off.
- Worrying about retirement
How about sailing smoothly into retirement? If you want to live comfortably when you are 65, start investing at least 3% of your annual pay towards a retirement fund. Invest into the PPF and NPS schemes which have the added benefit of being tax free investments. If retirement is a long time away for you have something very valuable on your side – time. Develop a systemic approach towards retirement planning based on the stage of your life. Invest a greater part into equities in your youth and scale up the investment into fixed income instruments as you near retirement. If you wanted to start saving for retirement years ago, but just never got around to it, you can sure catch up. Invest the maximum you can in your retirement fund each year. Finish off your major expenses by retirement (e.g. buying a house, car, etc.). Maintain health insurance to meet upcoming medical costs. You may not have a huge retirement fund, but at least you will have a healthy one.
Good money management has a wide scope – from knowing where you are spending your money today and living within your means to saving for short and long-term goals, having a realistic plan to pay off your debts and having a well thought out plan in place for where you want it to go in the future. Become financially savvy with your money and achieve financial success.