Financial planning is a necessity. It requires you to balance your life between the financially good, the financially bad, and everything in between. Good financial habits are essential. The bad ones need to be kept at bay.
As we celebrate Dussehra this year, let us look at ten bad habits we need to eliminate to prosper and be financially victorious.
Spending Without Budget
The first step to money management is budgeting. If you don’t have a budget, you tend to overspend. You cannot keep a tab on your expenses and earnings. A budget helps you identify essential expenses such as paying your credit card bills, EMIs, and groceries. You can also make better decisions about non-essential costs such as eating out or shopping. Having a budget will help you know your savings after expenses, and you can plan your investments wisely.
Ignoring Saving
Saving is the aim of financial planning. Every month you should start saving money before making any expenses. Aim to save at least 20% of your disposable income. Without mandatory savings, all your income becomes disposable.
Not Creating Emergency Fund
It is good to have 6-12 months of your monthly income saved as an emergency fund ready to tackle any financial emergency. It could be a job loss, illness, repairs, accidents, or other events we cannot foresee. Your emergency fund will help you handle these unforeseen events and allow you to overcome short-term setbacks effectively.
Not Paying Your Bills on Time
There are bills we should never delay. Your home loan EMI, utility bills, and credit card payments are items that should not be delayed due to penalties. It may not be easy to keep track of multiple payments. However, you can automate your payments and avoid penalties. You can set up your payments via net banking. This way, you won’t need reminders. The bill will automatically be deducted from your bank account. You will also save the hassle of manual payments and late fees.
Delaying Your Loan Repayments
Your credit score is significant to financial institutions. When you delay your loan repayments, it hurts your credit score. Delays could be due to simply forgetting to make the payment or for genuine reasons. Either way, your credit score will take a hit. You’ll have to borrow at very high-interest rates with a low score, which will hurt you financially.
Repaying Minimum Credit Card Bill
Every month when your credit card bill gets generated, you get two payment options: either pay the total amount due or the minimum due. Frequently paying the minimum credit card bill is not advisable as your debt gets larger, attracts interest, and is a drain on your finances. It will also hurt your credit history. You can use this minimum payment option only when you need to.
Not Buying Term Insurance
Many people think term life insurance is unnecessary and that paying for it will be in vain if they survive the term. However, life insurance protects families against financial uncertainties caused by the death of the primary earning member. It also helps the family pay off liabilities such as a home loan. After the breadwinner’s death, the life cover keeps the family safe from financial hardship. And while the policyholder is alive, it also provides tax benefits. Make sure you purchase life insurance according to your family’s requirements.
Ignoring Tax Planning
Tax planning is vital to saving money. If you don’t understand tax planning, you’ll probably end up paying much more taxes than you need to. You must factor in the effect of taxes on your investments. The lower the taxes on your investment, the easier it could get for you to create wealth in the long term. You could easily save taxes through a combination of tax-śsaving mutual funds, insurance, provident funds, and eligible expenses such as rent.
Buying Insufficient or Not Buying Health Insurance
Medical expenses are rising with each passing day. Nobody can afford to ignore good health insurance coverage considering the uncertainties of life. A medical emergency can strike anyone. To prepare for it, one must buy health insurance. It will allow them to cover hospital bills without financial hardship. Ensure that all your family members are adequately protected under the health insurance you decide to buy.
Not Planning for Retirement
Living in the present is great, but the future cannot be ignored when it comes to money management. Retirement planning is essential to enjoy the same lifestyle when your regular income ceases. You need to invest to save for retirement. The retirement fund needs to be an amount large enough to cover your golden years. Delayed retirement planning will make it challenging for you to save the same amount.
I hope you celebrate this Dussehra by eliminating these demons and doing better financial planning to live a prosperous life.
(Adhil Shetty is the CEO of Bankbazaar.com)
