We all have had regrets at some point in life about the things we should’ve done, but didn’t; about not buying something before the prices shot up, and the list goes on! None of us are perfect and hence, are bound to make some mistakes. But when it comes to money matters, the scenario changes a bit. Making mistakes on the financial front can significantly affect your retirement plans and if you don’t want to live with some big regrets, you need to watch your money habits.
Additional Reading: 11 Things You Can Save Money On Every Month
We’ve compiled a list of common financial mistakes that most people make and regret in their later years. Through this article, we’ll tell you how to avoid these mistakes in order to become financially independent. Let’s begin.
I didn’t start investing at the right time.
Are you in your early 20’s? Have you just started working? Here’s a thought; invest in an SIP as soon as you can. By investing early, you won’t end up missing out on one of the best long-term investments. With every year that you delay starting your investments, your corpus will get smaller by a certain amount. The earlier you start saving money for your retirement, the more money you’ll have when you reach retirement.
Most young men and women cite their meagre income as the reason for not investing. This is a misconception! You can start investing a small amount now. (You can start investing in an SIP with as little as Rs. 100!) Over a period of time, even this small amount will grow into a huge amount (by compounding). Also, you can increase your investments as your income grows.
BB Tip: Spread your risks across different investments. Low yield FDs and savings plans are safe investment options, but equity investments can make your money grow at a higher rate.
Additional Reading: Financial Habits Of 20-Somethings: The Good And The Bad
I didn’t take my Credit Card bills seriously.
Two common mistakes that most Credit Card users make – paying just the minimum amount due every month and not making payments on time. Paying just the minimum amount can attract a lot of unwanted interest and you’ll end up paying a whole lot more than you were supposed to. Late payments not only attract penalty charges, but they also affect your credit rating. A low Credit Score makes it difficult for you to get a loan or a higher credit limit later. Avoid these issues by paying your full Credit Card outstanding amount every month and by the due date.
I used to live paycheque to paycheque.
One of the biggest financial mistakes that you might regret later is—not saving enough from your monthly salary. According to most experts, you should save at least 20% of your salary for a secure future ahead.
I didn’t set up an emergency fund.
How would you manage if you suddenly lost your job or there is a sudden medical emergency in the family? You could probably say that you’ll manage with your Credit Card. Yes, Credit Cards are a reliable source of funds when in a financial crisis. But, how are you going to pay a huge Credit Card bill? Stumped?
Avoid such situations by setting up an emergency fund as early as possible, especially if you don’t want to sell your other assets. You could opt for a sweep-in facility with your Savings Account or invest in debt funds (short-term). Whichever option you choose, make sure that you put away at least 15% of your monthly income into your emergency fund until you have half your annual pay saved and secured. Also, add extra monetary gains such as yearly bonuses or tax refunds to this.
Additional Reading: An Emergency Fund To Rescue Your Investments
I wasted my money on unnecessary items.
Spend less than what you earn! You might really like those designer shoes or that latest smartphone. But if you know you can’t afford it, put it down on your wish list and buy it when you have the means. Splurging on unnecessary items is financial hara-kiri. Inculcate the habit of saving money if you want to understand what it is to be financially free and independent.
I delayed my investment plans till I started earning a high income.
Just because you’re earning less, it doesn’t mean that you can’t invest. Don’t use low earnings as an excuse to delay your investment plans. The sooner you start investing, the better results you’ll get. Instead of waiting for that perfect dream job to become a reality, start investing now!
I was greedy and got fooled into investing in a fraudulent scheme.
Don’t let greed get you into trouble. If a scheme sounds too good to be true, it probably is. Don’t be lured by the promise of big bucks and go investing in unreliable money making schemes which are actually scams! Do your homework well before investing in anything. There are other ways of making money, like investing in equities. Try those, instead of falling prey to scams.
For example, before investing in a Mutual Fund scheme, check if it has been approved by SEBI. Fraudsters may show you the incorporation certificate and images of PAN cards, but these documents do not mean that the scheme has SEBI approval.
I discontinued my SIPs within a short-term.
One common mistake people make is investing in stocks for a short period of time. The reason they state for this is the ever-changing nature of markets. Whenever markets are down, most of us quickly stop our SIPs fearing that we won’t make money. Not only does this defeat the purpose of SIPs, but you also make less money than if you would if you had continued investing.
BB Tip: Start investing in stocks when markets tumble if you want to make a gargantuan sum of money. But do your research before investing.
I didn’t plan my short-term and long-term goals
If you don’t have a set of short-term and long-term goals planned, money management is going to be a tedious exercise for you in your 50s. When you have a goal, you tend to stay more focused, save better and enjoy more in the later years of your life.
I didn’t invest enough in my Life and Health Insurance cover.
Would you want your family members (or dependents) to suffer if anything were to happen to you? No, right? Then, please invest in an insurance policy with adequate cover (Life and Health). The cover should be big enough to take care of your family’s expenses, settle loans, and even provide for your children’s education or marriage. Also, invest in Life and Health insurance while you’re still in your 20s so that you won’t have to pay high premiums later on.
I withdrew my PF amount.
Even if you change your job every two years, you should not dip into your PF account ever. EPF is a great investment for your retirement. Treat your EPF account as sacrosanct.
I didn’t ask for professional advice.
If you have minimal knowledge about managing your finances, approach a professional financial advisor and get some valuable advice before you start investing. A financial advisor will help you save money and time by helping you come up with a good investment strategy.
If you’re making any of these mistakes, now is a great time to stop! For more tips on money management keep reading the BankBazaar Blog!