4 Most common but disastrous financial mistakes people do
The idea to retire before you turn 40 became a trend for millennials, however, in reality, people often ignore the fact that being financially stable requires a lot of sacrifices. They want to be independent but are not ready to take any action that could potentially give benefits at the later stage and all plans to be a millionaire stay in the dream forever. They find that it is impossible to achieve, but in reality, they make some terrible decisions that often slash their dreams. The problem starts from the early 20s could last forever where to clear the debts you may have to work till the sixties. Here are 4 Most common but disastrous financial mistakes people do.
Everyone knows that excessive spending will never help you no matter whether you are born with a silver spoon or in a middle-class family, your spending habits decide your future. We have countless examples where great fortunes lost due to bad spending, and multimillionaires broke due to the unnecessary lavish lifestyle. While spending, people misunderstood and even unable to differentiate between wants and needs. The simple explanation, the former is not required, and you can live happily without it, but in order to sustain, the later is essential.
The first way to become financially secure is to control the spending habits, but that doesn’t mean you should live like a monk. All you need to adopt smart spending habits and the first rule is earn before you spend. If you don’t want to change the lifestyle, adopt a different strategy where every single rupee matters whether you buy gadgets or vegetables. If your focus is on numbers, don’t hesitate to take the discount while purchasing your favourite gadget even if it’s a few hundred rupees.
The biggest financial disasters people make is by letting their emotion to control them that often forced to take them disastrous financial decisions for which they suffer at the later stage of life.
The real problem is people prefer to show off their assets that is never going to add value in the future, and in fact, it decreases as the time passes. An emotional purchase could be anything from a gadget to a house where you don’t need still buy because of the fondness.
Buying a Car
A car is necessary but if it eats your monthly salary, think twice before you make a decision and even if you prepare yourself for it, consider to give a full-payment. When you offer a full-payment, there is a scope for negotiation that definitely helps you to get some cash back. However, you should always consider the fact about the necessity of a car and its price, and you can’t afford a full payment means it’s time to refrain yourself from such purchase. Keep in mind that it’s an asset, not an investment that means you can sell it during the emergency, but the value will be diminishing. In short, you should not buy a car on EMI, if you can’t afford the full-payment.
Buying a house
Most of the people won’t agree with it as they consider an investment in real estate is worth especially for salaried people. In reality, we become emotionally trapped by the brokers and loan agents who show the dream of owning a house and people fall in the trap by thinking they no need to pay rent. Just like a car, home is an asset that could help you to get some cash, but there is no guarantee you can get the same value especially during the emergency. It’s an under-performance and unpredictable asset that could either make you lucky or unlucky depending on the circumstances. Before a decade, buying a villa in the metro could make sense, but now it’s better to stay close to the working place considering the fact of increased traffic.
As a working-class person, buying a house means you have to work for 20 years on an average especially in a country like India, it’s plain stupidity.
On average, the price of a 2 BHK flat in the metro costs almost one million dollars where you have to pay at least three times more than your monthly rent for 20 years. Think again whether you want to spend 3 times more than you earn for 20 years just for the sake of emotion of owning a house in the big city.
Though there is no straight forward approach when it comes to buying a house and in short, buy a home only when you are fully prepared yourself, and your down payment should not eat a large amount. It means you must have enough savings for the down payment plus an additional source of income to manage other expenses, and as per financial planners, your housing amount should not cross 25% from your budget.
In conclusion, you need to monitor your financial progress and spending habits where you should have the ability to afford the loss in case the situation goes against you. Being financially stable is not easy, but it’s not impossible either.