Top 5 Financial Mistakes to avoid in the coming New Year – The Financial Express

The Financial Express
New Year is celebrated across lands and oceans as the season of resolution. It brings out hope that even though there is uncertainty in life, there’s a brighter tomorrow awaiting us. Having a defined and planned Financial Resolutiongives you clarity in life. Unachievable dreams become achievable with proper planning. Planning your finances involves determining how much you need to save, spend and invest to accumulate wealth.
We all hope to achieve our life goals; it takes finances to complete most of them, and there are several finance-driven mistakes we all have been making this past year. Therefore, financial planning is essential for ensuring you have the funds to fulfill your dreams.
So, let’s unveil the most commonly-made financial mistakes for better Financial Planning in the coming New Year 2023.
Rome wasn’t built in a day. Every great thing in life takes time; this stands true for investments. A PLAN stating your end goal with an achievable objective is nothing less than imperative. Most individuals invest purely for tax purposes or to maximize returns without having a proper goal. But, investments must be made with keeping an end goal in mind.
For example, when seeking an advanced degree, we usually consider how this particular curriculum can prepare us to achieve our professional goals. We reach the conclusion of choosing our degree after rigorous planning, so how can you invest without prior planning for your NEST EGG?
Also Read: Financial Planning: Six money lessons from year 2022
Twenty years from now, what will you remember? The amount you spent on the shoes on the Black Friday sale or the investment you made for brighter years ahead. You may not remember your shoes after wearing them a few times. Still, you will surely love the investment you made because commodities depreciate with time, but your investments appreciate with time. Ask yourself whether you need something or if it is just a want. Many times, we keep spending without a check. This spending seems the best idea then but remember that spending is quick; earning is slow.
The idea of savings set aside is Great! But given the current market volatility and double-digit inflation, with savings alone, you cannot enjoy the luxurious lifestyle you envisaged for. You should be committed to the 50-30-20 Rule of Spending to monitor your spending. Always allot 50% of your earnings for your needs, like Paying Bills, Rent, Insurance Premiums, Groceries, etc. The following 30% of your earnings should be reserved to fulfill all your wants, like spending on a beautiful outing with your loved ones, financing your travel escape, or a fun movie night. And the remaining 20% should be solely for your source of income, i.e., savings and investments that help you sustain and grow in today’s sky-soaring inflation and increased standard of living.
These days we are witnessing mass layoffs from prestigious global companies like Twitter, Amazon, and Alphabet. It is unimaginable what must happen in the laid-off employee’s mind. In a blink of an eye, their regular source of income was snatched; how will they survive without any income, at least by the time they find another job? Now in this situation, the employees that already had some kind of contingency fund in the form of a diversified portfolio would easily survive in difficult times.
Thus, it is essential to maintain a contingency or emergency fund that can fund your expenses for 4-6 months for your financial well-being. This fund can be invested in low-risk yet highly liquid assets such as money market funds in debt category so that it is readily available and easy to convert into cash in emergencies.
Also Read: Borrowings: How age impacts your loan eligibility
Life insurance is a necessity if you have people depending on you. Always consider your age, income, career, medical history, the number of dependents you have, and your average monthly expenses. Then decide on a term plan that can account for all these variables.
Selecting a term insurance plan with less coverage just because its premiums are lower will leave your loved ones without sufficient financial stimulus to sustain their lives in your absence. So be careful to purchase Insurance with sufficient coverage because the premium rates are low.
We all tend to postpone things for tomorrow. For example, when we start earning, we usually develop a frivolous spending habit and keep postponing the idea of investment to achieve our future goals.
We forget that “we are enjoying today because of yesterday.” So, as soon as you start earning money, you should start planning your finances. If you have missed that train, the second-best time is today, but beware of investing tomorrow because tomorrow never comes!
Tackling financial problems is easier if you have proper financial planning in place. Doing this regularly equips you to handle emergencies requiring immediate financial support and supports you in building Wealth. Planning is highly beneficial as it helps you comprehend your goals, stating why, what, when, and how it will affect your “Life Financially.”
So, this New Year, let’s take an oath to stay on top of your Financial Planning. Cross off all these mistakes from occurring anytime in the future.(
(By Rajiv Bajaj, Chairman & MD, Bajaj Capital Ltd)
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