Financial planning

6 Financial Planning Mistakes that can change life

by Titas Ghosh on Financial Planning, Personal Wealth
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Investment is a process or an action undertaken with an expectation to generate profit in future. In the dynamic environment, we live in it has become a very common tool used by people at almost all the levels, making proper financial planning an integral part. However, the investment mistakes a person makes can change its life. Money is a very vital part so decisions regarding how to invest money and where to invest money should be taken with utmost care. Investments, if put to good use, can yield great benefits and vice-e-versa. Therefore this tool/process called investment should be used wisely.

“Failing to plan is planning to fail”-Alan lakein

Therefore proper financial planning is very important for safeguarding your and your loved one’s future.

Health is Wealth:

The basis on which a person’s life and activities rest is Health. Being the most important aspect it is the most vulnerable aspect as well and so it should be backed up by good financial planning.

For example, Mr. Shyam Agarwal is a man oriented to the service industry. He meets with an accident which led to the fracture of his leg and some other injuries. He had to be hospitalized and the hospital bill amounted to Rs.109000. He did not know about the situation in advance so had a lot of difficulties in paying the sum at once and did not have a health insurance to support it either.

Here health insurance comes into the picture, it as an insurance which ensures a certain percentage of coverage of medical bills in case of any unforeseen medical circumstances like disease, accident etc. in lieu of which it takes periodical payments called premiums.

You may also read: How To Choose A Best Health Insurance Plan?

Caring is good, Planning is better:

“life insurance is a combination of caring, commitment, and common sense” -Howard Wight

In families where there is only one earning member, the family is highly dependent on the person. Unforeseen circumstances can occur anytime anywhere, hence measures even for the worse should be taken. The best measure that can be taken is Term Insurance. It is an insurance which provides coverage for a defined period of time if the insured dies during the period the benefit is transferred to the nominee. In order to choose a good term plan the investor should check how good the company is, what is the cash settlement ratio, the factors of inflation in paying the premium and receiving benefits etc.

Start financial planning to save as much as you want to spend:

Where to invest money

“Do not save what is left after spending, but spend what is left after saving.” -Warren Buffet

Many people have a set lifestyle which they have created for themselves. It is generally very difficult for a person to alter their lifestyle, this makes it very important to save enough for future in order to be able to spend enough in future. It is very important to save but is more important to save the right amount in the right place. Savings is a must that a person should practice it for safety purpose whereas investment is done to gain profit. Where to invest money is very important to ponder on, there are many saving schemes that can be invested in by investors like Equity Linked Saving Scheme, National Savings Certificate, Mutual Fund etc. It is very important to choose the savings scheme wisely commensurate to the inflation rate.

Also Read: Basic Facts You Must Know About Mutual Fund Schemes

Over-expenditure on not so important things should be avoided. We should spend only as much as we can afford and so avoid spending with borrowing. Spending by borrowing fund may lead to increase in debt which in turn will lead to loss of money.

Gaining money or losing it?

It has been observed that the volume of investment among the general public is maximum in Fixed Deposits and Public Provident Funds. This makes FD and PPF the most common means of investment.  The reason may be the ease of understanding these vehicles. However, where to invest money should be considered very essential. But people fail to accurately measure the returns they are getting.

For example, Let us assume Mrs. Ahana Dutta puts Rs.1,00,000 in a fixed deposit which gives an interest of 6.20% per annum. At the end of one year, her invest becomes Rs.1,06,200. She views Rs.6200 as her returns but fails to realize that the inflation in the economy is around 5%. Therefore, the same basket of goods she would have bought before one year with Rs.1,00,000 can be bought now with Rs.105,000. Hence she ultimately gains only Rs.1200.

So a proper calculation and analysis should be done by investors before investing in any investment vehicle.

Know more about financial planning you may enroll at NSE Academy Certified Financial Planning & Wealth Management

Don’t be indebted to too much Debt:

Debt is the money you owe to a lender, who charges interest for lending you the money. Types of debt include Mortgages, Credit card debt, Bank loans etc. Debt is a form of borrowing with the highest cost involved in it. We see many times some companies are declared bankrupt and their property is seized due to inability to pay debt interest. So it is very important to analyze how much debt should we take and how do we take it. Besides having the highest cost it creates a mental pressure and burden on the borrower which in turn may affect the health. The lenders try to attract people by different schemes but it is very important for us to analyses it whether we require it or not, and if we require it then is that the right source.

For example, many people get attracted towards the credit card schemes, initially while using it they do not realize the fact as actual money is not going out of pocket. But this psychology serves as a trap for them when the companies send the bill along with added interest it becomes very difficult for them to pay the sum at once, and so the interest keeps on increasing.

Hence it becomes very important to take decisions regarding debt wisely. It is a concern of vital importance which can change life entirely.

Check your pocket before you spend:

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These are some lines which we often here on advertisements all around us. They are indeed very attractive and entice us. However, every coin has two sides and we fail to look at the hidden side. They are shown to people as a bait and many get trapped in the bounds of interests, payments etc. So it is very important to for us to be careful while spending the money we don’t have at present. We should not book our future expenses more than our income. This will create boundations for us and we will always feel indebted towards our expenses. This in turn will limit our freedom of deciding what to do with the money we earn.

The Bottom Line:

We may conclude that because of some wrong decisions the entire life can be affected. So it is of vital importance to take the right Investment decisions clubbed with right Investment ideas at the right time. Planning today is always a better option than regretting tomorrow. There are many advertisers in the market who will entice you, give offers etc., but we should not undertake any decision without proper analysis and requirements. The investment and saving requirements differ from person to person. That is why it is very important to plan and analyses the risk appetite, future requirements, the age of a person etc., before investing or saving.

There are consultants like financial advisors who analyze these factors and suggest the best option, people with less knowledge about the market can consult them for better Investment ideas.


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