9 money mistakes you should avoid

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Many of us keep making financial mistakes till it becomes too late in life to rectify them and suffer from a lack of funds. Some of these tribulations are avoidable if we are a bit careful and disciplined. Money9 gives you a nine-point guide of money mistakes, which you should avoid.

Not having a plan

Having a budget is very important and there are no good reasons for not having a budget. So, budgeting is a good practice to get into.

Not having a budget is an example of poor money management. Your finances do not need to be complicated but you have to chalk out a plan according to your earnings, expenditure, leisure expenditure and save accordingly.

Look for ways to create excess cash, where income exceeds expenses, by as much as possible. Try to identify and reduce unnecessary spending.

Spending too much

You should keep your spending within a limit. Try not to spend more than 70% of your monthly income. Try to cut some unnecessary spending like frequently dining out, buying unnecessary things, etc.

You should be well aware of every expenditure and always try to cut it as far as possible.

Low investment

Investment is one of the main things for future planning. People at an early age do not bother about investment.

But if you start to invest from a very early age, then even small amounts such as Rs 300 or Rs 400 might make you a crorepati if invested ith discipline. But you have to know the right instruments and take risks according to your appetite.

Investing doesn’t have to be complicated. Start by investing in a retirement account. Then look for other investment options when cash permits. Not becoming an investor at a young age is one of the financial mistakes to avoid in your 20s.

Investing should be part of your money plan. Down the road, you will be glad that you did it. Having smart investments will solve a lot of potential money problems in the future.

Late retirement planning

Experts always advise that one should first plan for retirement because after the age of 60-65 years you will probably not be able to work.

So, retirement planning should be part of your long-term financial goals. Retirement is supposed to be one of the best times of life. But, if you are not financially prepared, retirement can also be a source of financial troubles.

Try to choose good retirement instruments like PPF, EPF, NPS, and others. These will give you safe, secure, and guaranteed returns.

Copying others

You are a unique person and your needs and risk-taking ability are different from others. Your responsibilities and your family profile, too, are different.

Therefore, blindly copying the investment strategy of others would be a mistake. You should go to an expert and set your goal. He/she would advise you accordingly.

Saving little

Not saving money is a financial mistake. It will most certainly lead to money management problems.

So, learn to pay yourself first. Cut out at least 10% of your income and save that money every month starting in your mid-twenties. Then, as your income increases, save a greater percentage of it.

Spending everything you earn is a frequent mistake that one should avoid. Plan your expenses, investment and spending accordingly.

Not creating emergency fund

Covid pandemic made us understand that how important an emergency fund can be. So, it is everyone’s duty to have an emergency fund above everything.

Keep aside 4-6 months of living expenses in cash. Put the cash in a savings account or in liquid funds.

The money will be there for you in case of an unexpected job loss, or an unexpected expense.

Huge debt

Having too much debt, or, the wrong kind of debt makes life difficult.

Credit card debt is a financial pitfall to avoid. Credit card debt is the worst kind of debt. It is typically piled up on consumer purchases because consumer goods carry very little value.

Also, credit card companies charge some of the highest interest rates around. Credit card debt will cause financial problems. So try to pay it off ASAP.

Besides, do not take EMI burden more than 25% of your total monthly income. It will overburden you and try not to take multiple loans at a time.

Ignoring insurance

Not carrying the right insurance in the proper amount is a huge financial risk. It is a financial mistake that must be avoided. On the other hand, remember not to over-insure.

Here is a simple thumb rule. Insure only what you can’t afford to lose. That means having enough insurance on big-ticket items like your vehicles and homes.

Have life insurance if others are financially dependent on you. You must go for term insurance not less than Rs 60 lakh for your successor.

Not carrying medical insurance is a money mistake to avoid. Health care services can be very expensive. So, it is a wise decision to buy a good amount of medical insurance.