Indeed, most of us have limited bucks and overwhelming financial plans against ever- burgeoning inflation ambience. And thus appears the concept of Financial Planning.
It aims to fix objectives, save, invest and grow fortune by practising smart economical habits. However, there are a lot of blunders that people may commit out of ignorance or unintentionally.
Therefore, it is better to learn what these mistakes are and how to avoid them.
Since there goes a famous adage, “a fool and his money are soon parted”, which makes us appreciate the significance of dealing wisely with our money.
This article discusses 5 most common financial planning mistakes people make.
Let’s get started!
1.Inadequate savings when you are young
When in early years, young people rarely consider being economical rather they are more into squandering their wealth recklessly.
Contrarily, the frequency of saving money ought to be higher as compared to the rate of expenses. One should design a legit financial plan to maximise savings and invest as much as possible in the wee days.
The sooner you start, the better it is, therefore begin penny- pinching at the earliest so that your money grows exponentially under the magical effect of compounding.
In addition to cutting unnecessary expenditures, you should also consider tax savings by opting relevant investment options, if your income becomes liable to release taxes.
2.Underestimating long-term investment concerning retirement
A plausible retirement plan involves considering advanced valuation and estimate of health services and other long- term costs as you near your no- income years.
Medical care and long-term expenses rise with age; thus, it is crucial to calculate these precisely and include them to draft a valid retirement plan.
Otherwise, mature years might end up scrimping and compromising savings and finances.
Building monetary plans without anticipating inflation trends might put them out of stride. “Inflation is an invisible thief”, as the practical value of their money depreciates over time.
While cost of living increases every year owing to regular surge in the price of usual commodities and services.
In such a scenario, resorting to so called secure investment options such as, bank FDs, government bonds, savings accounts, shall prove useless.
Since the returns on our money in these securities are extremely impotent to beat the pangs of inflation.
The negligible growth herein, could be seen as equitable to no growth. Therefore, Inflation must never be neglected while scheming financial plans.
Also Read: Can SIP make you Rich? The SIP Potential.
4.Unbalanced way of investing
It is generally advised to younger generations to save hard and invest hard. However, what is more important to mind is that be reasonable in making investments, that is neither overly intensive nor too tight-fisted.
Being an aggressive investor without heeding the risks involved may leave you with a bad taste in mouth experiencing losses. Whereas being a feeble investor has its drawbacks.
Keeping cold hard cash in savings account or FDs does not benefit the money in any way. Moreover, its value could highly likely be get beaten by the inflation.
Hence, fiscal securities are to be adopted with a view that it does not hamper the daily life of a person and is consistent with the respective financial objectives.
5.Believing that insurance is about tax saving
Most of the general population of India sustains a misconception that insurance is all about tax relief.
It must be clarified here that insurance is not an investment but expense and should be booked only when necessary.
Health cover, today, is a requirement for all, while life insurance should be taken for the earning members only.
Procuring insurance plans be it health cover or life cover in hope of saving taxes is a terrible decision to follow.
Thus, be a wise soul and buy insurance policies only when needed.
To err is human but being a dunce when you can afford apt financial advice is not viable.
Thanks to the globally ubiquitous internet connectivity that all sorts of knowledge have become immensely accessible.
Always strive to maintain a balanced approach while saving and investing for attaining big financial targets. Effective plans to allocate and manage money are essential to eschew trifling compromises and problems.