5 roadblocks in money management

By BankBazaar | April 29, 2015

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Managing money is like driving an ambulance through rush-hour traffic – there is a roadblock at every turn of the wheel.

We give you five common roadblocks you may face while managing your finances.

1: Consistent breaches of monthly budget: Overshooting the monthly budget is a common enough occurrence. But, if you are consistently breaching your monthly budget, it is time to re-plan and recalibrate. Ask yourself these questions: Are there any expenses that I may have missed to plan? Am I overspending on something that can be avoided? Are my expense estimates in line with market reality?

Answering such fundamental questions honestly helps to bring back your budget on track without having to spend sleepless nights trying making both ends meet.

2: Less Liquidity: A well made financial plan always makes sure that there is some liquid cash available at all times. But many people underestimate its significance only to realize their folly when faced with a liquidity crunch. Be it the down payment for a house or car, an event at home, home repair or a medical need, depending on your personal network or costly loans can only push you into the red.

The smart way to preempt this is to divert some amount every month to create an emergency fund. It can be parked in savings account or liquid funds.

3: Unexpected Expenses: Unexpected expenses are always around the corner – more so around the nearest corner. This may include breakdown of your PC, a bathroom leak that needs to be fixed, or a sudden hospitalization, which may be enough to put all your financial planning into disarray.

When faced with an unexpected expense, counter the challenge intelligently. Make sure to exercise the right option to raise finances to bypass it, without disturbing your investments. For example, rather than requesting for a personal loan or breaking up of your bank fixed deposit, you can consider taking a loan against the fixed deposits. This would not only ensure lower interest rates but would also ensure the continuity of your investment principal amount.

4: Investments shape-shifting into a burden: A well-chalked out financial plan is one which balances investments within your income, giving you enough breathing room. Sometimes, there may be a tendency to over-invest, which may stretch your wallet at the seams. If it is a regular investment plan like an insurance premium, defaulting it only turns for the worse.

If you find that your investments have morphed into a burden, stress on extricating yourself from the situation instead of getting stressed. Try out different options like splitting up annual payments to monthly or quarterly, investing in flexible one-time products, converting lump sum to EMI options, etc.

5: Conservative Thinking: Conservative thinking is often an enemy of financial planning success. This includes long-held beliefs such as not looking beyond bank saving accounts and fixed deposits, blindly banking on real estate as a reliable investment option, relying on your neighbourhood agent for financial planning advice, etc.

Some of these options have gone out of the window in current times. The benchmarks and parameters to measure have changed. Look for not just safety of returns but ways to beat inflation. For example, while fixed deposits are good financial instruments, there are other equally safe investment options that can make more money within the same timeframe. Have an open mind and keen eye on investment matters to reap substantial returns without high risk.

Financial roadblocks are a given for even the best-laid financial plans. The key is to acknowledge the roadblock, understand its root cause, circumvent it for the present, and make amends to bypass it in the future.

And, keep your ambulance siren on, so that others know you’re coming through!

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