Failing to plan is planning to fail. This holds true for everything in life. Those hoping to attain financial fitness will certainly agree to this. Are you sure you are on the right path of financial planning? If you fumbled to answer this one, something is certainly wrong. Figure out what!
These are 5 common financial planning mistakes that most people commit. Read and make sure you don’t ignore these flaws. Or at least mend them now!
1. The RIGHT time and method to start
It’s good to start early. If you begin when you’re young, you can not only save more money, but can start with smaller amounts and give more time to compounding. If you decide to begin financial planning post 30s or post 40s, the amount you will need to save will only keep mounting.
While it’s great to start young, aggressive saving is not good. Having said that, neither is being too cautious. So you have to strike a balance between all these factors.
Remember: The best time to plant a tree was 20 years ago. The second best time is now.
2. Forgetting all about inflation
This is one of the topmost financial planning blunders. Quite often, people ignore inflation rate altogether. Retirement plans are most affected by this, as it’s difficult to foresee too many years into the future.
But that’s not an excuse! You won’t be surprised to find out that in some cases, the inflation rate is higher than the investment return rate. This means that though you may receive interest, your actual profits will be negative.
If you ignore inflation, your savings will be eroded slowly but steadily.
3. Ignoring the true VALUE of insurance
Insurance helps save tax. Period. That’s all most people care about. Buying an insurance policy only to save tax is one of the worst financial decisions you can take.
Put the need to buy insurance over the tax benefits it offers and only then invest in it. It is essential to know what your insurance covers apart from helping you save tax.
4. Spend first, save later OVER save first, spend later
Are you having the time of your life but your Credit Card bills are a mess? While you can breathe a sigh of relief that you aren’t the only one out there, it’s time to buckle up. For what, you ask?
If you spend first and then think about saving, it’s time to do quite the opposite. Remember that the rich and wise save first and spend later, and if you want to join the club, you know what to do!
5. Plan and be prepared
It is very important to plan ahead. Be it for your wedding, property investment, children’s education or retirement, you must consider it all. And while these goals are the more obvious ones, you must not neglect emergencies.
Financial emergencies come uninvited. So you have to be prepared for them. Medical emergency, loss of job, loss due to a natural calamity or business loss – none of these will announce their arrival. And most people aren’t prepared to face situations like these, hence, jeopardizing their financial health.
On a parting note, we must add that it’s advisable to trust the knowledgeable than trusting your friends or relatives, when it’s related to your financial planning.