5 Financial Mistakes You Need to Avoid

Most people would concede that planning for tomorrow is of paramount importance. There comes a stage in your life when you need to start thinking not only about your future finances but also about the impact your current spending habits are having on it. Setting specific financial goals and progressively working towards them will greatly enhance the quality of your life and alleviate many of your worries. And if you start this process early, you can tip the odds of having a secure future in your favour.

However, despite acknowledging that financial security is essential, a lot of us fail to accomplish our goals due to several factors. We are often imprudent with our money, especially while we are young, which leads to a plethora of problems. To make sure you don't fall prey to the unpredictability of life, let's look at a few common mistakes that you should avoid making:

1. Living Beyond Your Means

   We can easily concur that spending more than we earn is not wise. Buying things on credit isn't a terrible idea, but if you cannot supplement it with a secure and fixed income, you might get in trouble. Even if you are planning on leasing something, you should consider whether it's affordable or not. An inability to pay bills is a strong indicator that one is living beyond their means. Ideally, you should attempt to save 10 to 15 percent of your total income every month, and if you're paying off debts, save at least 5 percent.

2. Failing to Invest Your Savings

   Investing involves the process of utilising your saved or excess money to buy an asset that can generate potential returns in the future. You can invest in a variety of stocks, bonds, and even real estate. Investing wisely will enable you to multiply your money and provide excellent returns as compared to savings. This will help you keep abreast with the high inflation rate and greatly protect your purchasing power. If you're looking for a way to invest your funds safely, you could consider HDFC Life's Click2Invest ULIP, which offers market-linked returns along with financial protection in the form of insurance. Another advantage of this plan is that you'll be charged minimally and have 8 fund options to choose from. Plus, you will receive many tax benefits coupled with the liberty to choose your policy term.

3. Opting for Safe Investments

   It is a known fact that currently, fixed deposit interest rates are falling rapidly. Compound this with the rising inflation rate and your purchasing power and financial security are under threat. There are many other investment options that'll provide you with much higher returns, rendering them lucrative. Conducting exhaustive research regarding these options will benefit you significantly and provide you with the financial stability you need.

4. Ignoring Insurance

   Insurance is the only way you can protect your family's financial future against the uncertainties of life. While insurance cannot eliminate risk in your life, it can definitely help you deal with the impact of a major loss or a medical emergency. To safeguard your own savings, it's a good idea to purchase health insurance, which will help you deal with rising medical costs. With a good mediclaim policy, you are assured of quality healthcare, irrespective of your current bank balance. In a similar vein, life insurance provides your family members with some much-needed financial stability at a trying time. These insurance policies provide a lump sum payout to your nominee should anything happen to you. Of course, in situations where you outlive the policy term, you can also earn money on the premiums you've paid. HDFC Life offers both health and life insurance policies that you can select and customise to meet your individual needs.

5. Not Maintaining Contingency Funds

   Apart from your regular savings, it's important that you build up a contingency fund for emergencies. You can do this by putting a percentage of your funds in a separate savings account. This way, if you need money for any kind of emergency, you won't have to dip into your savings. Once you've dealt with the emergency, don't forget to build up the fund again.

   This list is by no means exhaustive, and there are a number of financial mistakes that could set you back. However, if you avoid these mistakes diligently, you're well on your way to a healthier and safer financial future.

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ARN: ED/12/19/17049