Financial Planning is one of the most crucial skills to have once you start working. It’s also one you need to constantly keep using and updating. Sadly enough, no one talks about financial planning in schools or colleges or even at workplaces. It is because of this reason that it becomes such a big problem for the young professional who then runs from pillar to post to get some sound financial advice.
Even though the internet is filled with financial advice from all sorts of “financial gurus”, most people fail to recognize that financial advice can’t be followed blindly by everyone and hence end up committing some common financial mistakes. Make sure to leave behind all your toxic financial habits in 2020 and start 2021 on a more positive note.
Here’s a list of common financial mistakes committed by several people and also how to avoid making such mistakes:
- Working Without a Budget
Having a tentative budget is can be the bedrock of a sound financial plan. Lay down some specific numbers for different kinds of expenses – it’ll help you streamline your finances as the month (or year) progresses. It also stops you from making frivolous expenditures and frankly, inculcates discipline.
- Indulging in Emotional Spending
Emotional spending can be triggered by several psychological factors but it can wreak havoc on your personal finances. So, make sure to identify your triggers and learn how to curb them. Retail therapy may help you in the short term but is not advisable for further financial growth.
To know about how to curb the several psychological triggers, please refer to one of our earlier blogs here.
- Living on Debt
Even though credit cards and instant loans have made our lives fairly more simple, their excessive use can be detrimental to your financial health. In case you fail with the repayment or delay it, it can have a detrimental impact on your credit score.
Hence, it can impact your savings plan and hamper your long-term financial goals. So, make sure to avoid shopping or spending borrowed money extensively and plan ahead for any major expenditure.
- Choosing the Wrong Kind of Credit
Even though loans help make possible several dreams – the dream house, car, or that fancy vacation – it is very important to choose the right kind of loan. For instance, know the difference between a long-term and short-term loan and know what fits your bill. A short-term loan may make more sense in case the amount is not too huge as it will save you a lot of money in respect of interest payments. In addition to this, scout your lenders well. There are several banks and NBFCs which offer credit in the form of loans or salary advances. Make sure to do your due diligence before you take up a loan and do not fall into the trap of loan sharks.
- Not Investing Timely
No matter how much your salary is or how young you are, it is pivotal that you start making investments. Understandably, there may be several impediments to your investment plans, such as a large student loan looming on your head or the dream holiday you have been planning for a very long time. However, make sure to start investing in a planned manner. To know more about how to invest early on in your career, read one of our earlier blogs here.
- Working Without Financial Goals
Setting up realistic goals at the end of every year can be a good way to start financial planning. Having an achievable financial goal also keeps a check on your overspending and this way you can also save up for a secure future or build assets early on in your career which will benefit you for the years to come.
- Putting Yourself At Risk of Online Fraud
With the advent of digital transactions, instances of online fraud have also significantly risen. In fact, as much as $42 billion is lost in economic crimes and frauds and hence it is important to safeguard your money and follow protective digital practices. Make sure to keep all your digital transactions secured on a personal network, not fall prey to phishing, and not share passwords for online banking with anyone.
- Picking The Wrong Bank
Banks are, of course, no longer just the safehouse for your savings. They serve multiple other functions. They streamline digital transactions, help us save more effectively, and facilitate financial planning. Try to identify banks which for on convenient digital transaction options, a competent UI and UX on their apps and website, cashback, and other related incentives et al. You can also find if your bank gives you the overdraft facility or salary advances that can help you with financial planning.
Explore new developments in the banking sector, such as the Neo-Banking or the Open Banking system. One of India’s first comprehensive neo banking services providers is Salt. Join the waitlist and take your first step towards a financially sound future.
Financial planning is not simple. And it isn’t meant to be. It can be tricky. Having said that, it is perfectly okay if you stray from your financial goals, let’s say, during a holiday spending spree or annual sales. But make sure that you reassess and calibrate your goals and go on a financial detox if you need to. It is also important to keep yourselves updated with the latest financial trends of 2021 and to learn to handle your finances in a better manner to have a secure financial future.