PRACTISING financial discipline isn’t easy. There are complex issues like taxation, investment returns, debt managing, budgeting, and spending. We often seek the shortest possible path to the attainment of financial goals. Here are some bad financial habits that you must guard against.
Spending without planning
Marketers target you with eye-catching offers and discounts. Anybody who does not plan his spending will believe such offers bring him value and discounts. Excess spending puts pressure on other aspects of personal finance such as investments and budgeting. If this habit is not corrected, you would accumulate large losses over a long period of time. Based on your income, have a monthly plan where you prioritise savings and investments above all spending.
The earlier you invest, the greater time you provide for the power of compounding to work on your corpus. Delaying investment by months or years will make it tougher for you to achieve your financial goals in the long term. Your goals would be short, medium and long term. Find the right investment product for each goal, and keep reviewing the performance of each product from time tot time to remain on track.
Undisciplined use of credit
Credit instruments should be used as tools to accomplish financial goals, but some people use it to fulfil their wants. Over-leveraging your credit-taking ability could spoil your credit score and diminish chances of getting further credit in the future. Unsecured debt products such as credit card and personal loan should be used only when all other spending options are closed.
Not having contingency fund
Many people think they can manage
future contingencies easily with their present income, which they think is sufficient to handle all uncertainties. Therefore, they ignore building a contingency fund. In an emergency though, they are often left with no
option but to mortgage assets and break into their investments. A contingency fund must be maintained with a view to sustain normal living for
at least 6-12 months without a regular income source.
Ignoring insurance products
There’s great antipathy to insurance products. Ignoring life and health insurance could land you and your dependents in serious financial trouble. While life and critical injury insurance ensures financial support for your family if you are seriously injured or permanently disabled, health insurance allows you the financial capacity to seek treatment for several illnesses and accidents.
You may not always have the funds for your treatment, therefore a health
cover can help you. Similarly, life policy can ensure financial support for your family in case of your demise. Therefore, ignoring such vital financial products is a habit you should correct before it’s too late.
The writer is CEO, BankBazaar.com