In the following article I have elaborated certain mistakes that one does un-knowingly and ultimately leads to financial crises. Here are some of the reasons due to which a person is not able to save or invest.
1. CHOOSING WRONG INVESTMENTS
| MISTAKES | CORRECTIONS |
| Keeping money in bank account, F.D., R.D. you might be wrong if your investment is not in same pace with inflation. | Spread your allocation among debt, equity, real estate according to risk capacity. |
| If the money is easily available through bank account then you might freely use the amount. | Invested instruments might be such whose return should beat the inflation. |
2. NO SET FINANCIAL GOALS
| MISTAKES | CORRECTIONS |
| Working without budget & no plan for future spending for child marriage or retirement is not planned | Setting of financial goals for both long & short term is must. |
| Upon arrival of such goals when you don’t have corpus then one need to take expensive loans. | Even if the tenure is short do plan well time & amount as & when required, invest accordingly. |
3. NON – AUTOMATION OF INVESTMENT
| MISTAKES | CORRECTIONS |
| You are earning enough & have intention to save yet end up spending money. | Automate your investment which means the amount you want to save shall be directly invested as salary is credited |
| Spending has become easy as the money is easily available through bank accounts or cards. | Through E.C.S or SI (standing instructions) amount can be invested automatically which ensures saving before spending. |
4. IMPULSE PURCHASES
| MISTAKES | CORRECTIONS |
| Running your household with out budget, shopping with out list leads to impulsive buying. | Setting your financial goals with specific value & time horizon & invest accordingly. |
| It might be online shopping or shopping at malls it only encourages spending habits | Setting money aside for investment regularly will bring down impulsive purchases, which is not required. |
5. LOAN FINANCING
| MISTAKES | CORRECTIONS |
| Financing through credit cards easy availability of personal, home , vehicle,loan leads people to debt financing. | Remember all your Loan should not compromise of more than 50% of your total income. |
| People not only use this for full-filling needs but also fro their wants. | The most expensive loans such as credit card debt, personal loans should be avoided at all. |
6. THE SMALL FACTOR
| MISTAKES | CORRECTIONS |
| Spending small amounts on insignificant things impact saving in a big way. This small spending would create large corpus over years. | Identify your spending which are of no significant use & can be cut down. |
| If you invest Rs 500 per month for 20 years,return @12% would create a corpus of Rs 5 lakh. | Fixing of an amount for such spending will limit our un-necessary spending. |
7. TREATING WANTS AS NEEDS
| MISTAKES | CORRECTIONS |
| People fails to differentiate between wants & needs, when they get confuse they get very little to save or invest. | Spread your allocation among debt, equity, real estate according to risk capacity. |
| NEEDS include Housing, Food, healthcare, utilities. WANTS cover – travel, eating branded purchases. | Invested instruments might be such whose return should beat the inflation. |
8. BUYING DEPRECIATING ASSETS
| MISTAKES | CORRECTIONS |
| Those assets which reduce in value over a period of time. This is what you are spending not investing. | Buy an assets which grows in value over a period of time such as house gold stocks. |
| Putting money in cars, bikes, laptop, smartphones is not a smart purchase. | Try not to take loan it just increases the cost of assets without contributing to individuals net worth. |
Hope this article has highlighted common mistakes which will help in future planning for finances in terms of earning, spending & helps in saving money & creating a net worth by right investing.
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Good article.Very practical approach.Your article is well researched other than the
many CA’s who have only theoritical knowdledge.Totally useless in current situation.