It is said that, to err is human. The defining feature of humanity is our individual and collective propensity to make mistakes, whether they be big or small. Some mistakes help us to grow into better people, while some have the potential to destroy us, especially the ones that involve money. Money is valuable and the best advice is to use it wisely. However, this rationality is not always possible, all thanks to the low level of awareness on the necessity to have the financial discipline or the methods that enable people to keep a strict watch over the ways in which they save and invest their money. In this article, we will talk on the seven common mistakes people tend to make in the case of personal finance, and what are the best methods to avoid them:
1. Whether to Insure or Invest: The first common mistake arises out of a confusion between the implications behind the terms “investment” and “insurance”, both of which have nothing to do with the other. They are different ways of managing your personal wealth. Whereas insurance is a great way to support yourself or your loved ones when the going gets tough, investment is just a means by which more wealth could be generated.
- Getting Into the Party Too Late: The second kind of mistake is a result of not investing your wealth at the earliest opportunity. This is a trend that is actually a consequence of people prioritizing saving and spending the saved amount for important occasions. However, if you are not an early bird you won’t catch the worm, that is, investing late would only provide very low returns on your investment, leaving you in a very sad state of affairs if you are nearing retirement. Remember, the advantages of early investment include not only compounding the amount that you had originally invested but also checking out other investment schemes before hitting upon the best investment option.
- Being Impulsive with Loans: Perhaps the most conspicuous feature of today’s financial behaviour pertains to the easy availability of personal loans and credit cards, which often end up tempting people borrow money without being responsible. Repaying one’s debts is not just a moral obligation, but it is also a legal obligation and defaulting on your loan can (and will) have legal consequences. It is always advisable to have your cloth cut according to your coat that is, borrowing up till a certain amount within which it would be easier for you to repay your financial obligations. It would be pretty ideal if you are able to borrow about 30% or 40% of the amount of your disposable income, as anything beyond this threshold would increase the chance of defaulting.
- Spreading Thin without Having Resources: There is a reason why military doctrine has often been the resort of those who are financially successful people, because both military strategy and financial discipline involves one common thing: common sense. It’s a bad idea to invest money when you are yet to pay off your debts. It is a Herculean task to not only pay the premium for the insurance but also to pay the instalment (along with interest) to pay off your debts, straining your financial resources way too thin. Even if you must invest while in the process of clearing off your debts, you must give serious thought and consideration to this before taking an actual step.
- Not Reading the Fine Print: It might be a tedious task on appearances when the prospect of going through all the terms and conditions of any financial instrument, especially that of loans, comes up. But doing so has a lot of obvious advantages, and you might wish to consider not signing the dotted line immediately. These advantages include gaining an insight into the product and know about its details and nuances, things which would obviously help you at arriving at the right decision. Don’t get swayed by the words of an insurance agent or a salesman, if you don’t wish to regret your decision later.
- Being Casual about Record Keeping: One of the necessary facets of maintaining financial discipline is maintaining a strict record of financial statements and bank records. It is important to keep these documents as they tend to become handy at various places, it could be useful for filing your tax returns or when you are involved in a dispute with a financial institution. Often, your financial statement records would also be useful when applying for a loan as you might be required them for calculating your eligibility for the loan. Besides, maintaining and checking these statements would also enable you to ensure that your personal details and effects are in order.
- Spending Beyond Than what You Have: One of the major fallacies when it comes to maintaining financial discipline is the habit of spending too much than what we have. As a human habit, it is quite commonplace to show off one’s status in the society, but that also involves a financial toll as well. It is not important to save up money but to also budget your saved amount to face sudden contingencies that might arise from time to time. It is only after doing these that you are free to spend your disposable income.
So, these are the 7 mistakes people make when it comes to maintaining personal finance. Although these mistakes are in themselves pretty commonplace, the onus lies with you for you to figure out your own weaknesses and determine how to overcome them as soon as possible. We hope that this list has helped you in understanding how can you avoid these mistakes yourself. If you are interested to know more or if you are looking for an in-depth take on personal finance issues, make sure to visit https://www.chqbook.com and avail the best kind of assistance you can find on the World Wide Web in today’s time and place.