Bad money habits ingrained as a child or picked up due to lack of awareness about personal finance may add hurdles in your path to financial success. All your aspirations and plans could fall apart despite your hard work. And if these habits are not rectified at the right time, you could incur huge losses in the long run, affecting your and your family’s financial health. Here are some common bad money habits you need to watch out for.
Impulsive shopping may seem momentarily exciting but it can have an adverse effect on your other financial investments and commitments.
This may, more often than not, lead to overspending, thus distracting you from achieving higher goals, and push you towards increased financial liabilities at one point. One effective way to control excess spending is by chalking out a budget based on the monthly income and sticking to it through the month. When you create the budget, make sure you allocate at least 20 per cent of your monthly income towards savings. Lock the savings away at the beginning of every month so that you don’t compromise on the savings amount. The remaining is at your disposal.
Ignoring insurance products
Life and health insurance often find a place in a portfolio to meet the tax saving requirements of an individual.
However, these products have much more to offer. They are the knights that keep you and your family financially safe from diseases and death.
Remember, in a lifetime, you cannot escape the grip of these eventualities. So sufficient insurance coverage is a must. For life insurance, you must seek for a sum assured of 10-20 times of your current annual salary to ensure your family is able to maintain the same quality of life financially after your demise. When it comes to health insurance, if you think a corporate cover is good enough to have your back, you might be overlooking the instances wherein you may be transitioning from one job to another or may be on an employment break. Also given the rising treatment cost, you must have a separate cover along with your corporate cover to ensure sufficient coverage.
Delay in investment
People often procrastinate when it comes to making an investment. While it’s never too late to start an investment, the earlier you start, the more time you give for the power of compounding to work on your corpus. Delaying by a few years or even months can slow down the process of arriving at your financial goals.
Undisciplined use of credit cards
Credit cards have many benefits to offer if used in a disciplined manner. On the other hand, over-leveraging your credit limit, and delaying and defaulting on repayment leads to financial trouble. The interest rates are quite high on credit cards but that applies only when you have an outstanding balance after crossing the due date.
Not having an emergency fund
While everyone dreams of a wealthy future, what many don’t foresee is the possibility of an emergency befalling upon them, draining out all their hard-earned savings. Emergencies as the name suggest come unannounced and if you don’t have a backup fund to face situations like a job loss or a sudden health hazard, you might be forced to break other funds dedicated to higher goals or land in a debt trap. Therefore, a contingency fund worth 6 to 12 months of your expense must be kept ready to help you sustain without a regular income until you find a way out of the situation.
(The writer is CEO, BankBazaar)