In this article, we’ll be highlighting common financial mistakes that most people make, as reported by financial planners across the country. Read on to know more.
Financial planning is a must for one and all. But not many are aware of how to go about the whole financial planning exercise. Financial planners across the country have spotted certain mistakes that were common among most of their clients. In this article, we’ll be highlighting these common mistakes, so you can check if these hold true in your case (and probably even get them fixed, if so).
Without further ado, here are seven oft-repeated mistakes which have been observed by financial planners in around 90% of their clients.
Additional Reading: Meeting With A Financial Planner? Here’s What To Expect
No idea of non-recurring expenses
The most common mistake that was spotted among most of their clients was that they weren’t aware of their expenditures in different categories. While most clients did have a decent idea of their recurring monthly expenses such as rent, travel and groceries, they had hardly any idea about the money they were blowing on other stuff. This mistake could mostly be attributed to the lack of a stringent budget.
When it comes to financial planning, tracking your expenses takes priority. Unless and until you understand where and how you’re spending your money, you cannot layout a sound financial plan for yourself. And here’s where budgeting comes into the picture. Not sure how to get started with a budget? Read this.
No idea of where they stand financially
Yes, it’s true. People are so busy with their lives these days that they have no clue about a lot of things – their finances being one of them. One of the first tasks that a financial planner conducts is analysing a client’s finances to determine if they are doing good or bad financially.
And, to their surprise, the results of such analysis usually shocked their clients, especially coz most of them had literally no clue about their financial standing. Most of their clients had either underestimated or overestimated their finances. Some of them, although were sorted, worried too much about their finances, while some thought they were in a good position financially,, in reality, their finances were a mess.
Not thinking about retirement
Two big retirement mistakes that almost every second person makes are – not focussing on retirement savings and having no clue about how much corpus they need to easily sail through their retirement days.
Assume you’ve reached retirement age. You have another 30 to 40 years ahead of you and no income. Plus, you must spend the rest of your life catering to your expenses (even unexpected ones) without any debts, EMIs and other major financial commitments. Wouldn’t you need a rather big corpus to sail smoothly through your golden years? How much are we looking at – 1 crore, 5 crores?
It’s important to plan your retirement well in advance and it all starts with figuring out how much money you’ll need to stash away for those years.
Additional Reading: Are You Saving Enough For Retirement? Find Out.
Not having any financial goals
Majority of the clients knew that they would need a lot of money to achieve their financial goals, but hardly any of them were working towards their goals. Most claimed that they were living in the present and only dealt with financial goals as and when they arrive. You see the problem here, don’t you?
It’s necessary to properly plan your financial goals – this requires charting out the total amount required, assigning a period for each goal, and putting away a portion of your income every month towards achieving the goal within the time horizon.
Finding it hard to plan your financial goals? Read this article.
The ‘instant gratification’ issue
Most clients claimed that their financial decisions were usually based on instant gratification. They hardly weighed the pros and cons before making a financial decision. For instance, if everyone was investing in a product which claimed to provide high returns, they’d blindly invest in such a product (only to later regret their decision).
Financial decisions shouldn’t be based on instant gratification or short-term benefits. Rather, they should be properly researched and planned. We’re talking about your hard-earned money here – you wouldn’t want to risk it.
Taking too many financial products
With easy access to credit products, most clients found themselves reaching out to such products whenever there was a need or whenever they had extra funds. On average, each person had at least two Credit Cards, two loans, several Mutual Fund investments and Fixed Deposit accounts, and at least two insurance policies.
The problem with having so many financial products is that managing them can turn into a complex affair.
No (or) average Credit Score
And, lastly, we address the no or poor Credit Score issue. You may be wondering what’s wrong with not having a Credit Score, right? Well, no Credit Score basically means no credit history. Which means you haven’t availed any credit product such as a Credit Card or a loan till date.
That’s okay, but the problem will arise when you apply for a financial product such as a Credit Card or a loan in the future. Since you don’t have a credit history, there’s no data basis which lenders can evaluate your creditworthiness. And, hence, they’ll end up rejecting your application.
This is the same case with those who have a poor Credit Score. These are the ones who haven’t maintained a good credit record – they usually miss out on their Credit Card or loan repayments or make late payments. Their poor credit history leads to credit rejections in the future.
Additional Reading: The Banes Of Not Knowing Your Credit Score
So, what’s your Credit Score like? Haven’t checked it lately? Click the link below to check your Experian Credit Score for FREE and in less than three minutes.