Terrible financial mistakes you should avoid at any cost
Mistakes are the part of human life, and we should learn from it, however, not every time we can afford to learn because in some cases it destroy us that we could face the hand-to-mouth situation. Though the purpose is not to scare, but to create awareness about the terrible financial mistakes people do which could make the situation worst.
Why people make financial mistakes
The first thing comes to the mind is during the internet era where we can find any information by doing a simple search still why people make financial mistakes? Especially, when the matter is related to finance, we should be careful, however, even the smartest people on the earth make terrible financial mistakes. There are numerous reasons regarding this from emotional attachment to unprepared future, wrong life partner to government policies; something which is hard to avoid, however, not impossible. Here are some possible reasons for making financial mistakes
It doesn’t matter whether you are the smartest and richest person on the earth still you can take terrible financial decisions if you don’t have control over the emotions. Often people take many disaster decisions based on their emotions without thinking twice when they are not prepared. People take emotional financial decisions based on anger, anxiety or excitement and at these moments they are unable to differentiate between facts and fictions. It is not bad to spend money on something that you like, but that should not create a burden on your financial health.
Wrong life partner
Choosing a wrong life partner could break you financially especially if the person is spending too much and doesn’t care/know about how to manage finance. The worst part is if you are in a legal battle with him/her and no matter whether you win or lose you have to bear lots of financial distress. It is impossible to manage or create wealth for a secure future if one is spending too much and in this case, you should know the priorities of a person. It is better to discuss your financial priorities and if both don’t have the same, time to rethink about it.
Though there is no easy escape root avoid when the government decision is going against you, and it is not advisable to follow any illegal path where you could face more trouble. If you are facing such problems better to consult professionals who have more knowledge about government laws and can help you to find ways that are acceptable legally.
While there are multiple factors involved in making the wrong financial decisions but most of the time problem comes due to negligence or lack of education. Here are some terrible financial mistakes people do as below.
Don’t have an emergency fund
No matter how secure your job and how much wealth, there is no guarantee about an uncertain future and whether it could be big or small you should have to bear it. From medical problem to mobile repair anything can come as an emergency, and if you don’t have an emergency fund, you have to borrow which is another financial mistake. You don’t need a high paycheck to save for an emergency fund, and you should aim to save for six months at least. Keep it safe and unless there is an emergency don’t use it. Keep in mind that an emergency fund is different and don’t confuse with your regular savings account.
The importance of insurance is not unknown but in a country like India, often people ignore it by citing the reason for low income. If you don’t have any insurance, you are in serious financial risk, and any wrong situation can wipe your major savings. Though you don’t need to put all your money in insurance still, there are some important categories you must not neglect any cost.
Most of the middle and lower income class Indians are still not aware of the importance of medical insurance in India. We often excuse ourselves by saying that the money will be a waste as the company won’t return unless you are in the hospital. But health insurance in India costs is not more than a monthly data plan for mobile, and on an average, medical insurance in India costs 500 INR per month for 4-5 lakh coverage.
Apart from health insurance, you should purchase auto, home, life and disability insurance.
Not having another source of income
Warren Buffet said, “Never depend on single income, make an investment to create a second source“.
We live in an uncertain era where no one can predict what disaster could happen and the best example is the 2008 financial crisis where mass layoff happened. Better you need to prepare yourself in advance for a sustainable income from another source and either you can do business or make some investment. If doing business seems difficult you should start investing in various schemes like mutual funds, monthly income scheme(MIS) or fixed deposit. A monthly income scheme is one of the best options to generate another source of income. You can have a monthly income scheme account through the Post Office Monthly Income Scheme (MIS) or a fixed deposit scheme provided by various banks. On an average monthly income scheme rate of interest is from 7% to 8% and you can visit different bank websites and compare the interest rates.
Save 10% of your income
The evergreen rule for a healthy financial life is to save at least 10% of your earning and in fact, you should not just continue with 10% savings, increase the amount with time. It is not a secret that you should spend less and save more to make progress financially and if you wait for more time to save chances of getting in trouble is high.