#FinancialBytes: 6 common financial mistakes we make, but should avoid
Each one of us aspires to smartly manage our finances. But, quite often we end up making some extremely common financial mistakes, which can be easily avoided. Sometimes it is lack of knowledge which leads to such gaffes, and often times it is pure carelessness. In any case, we have listed down 6 such common mistakes and the ways to avoid them.
Failing to plan is planning to fail
One of the most common mistakes is not planning the finances at all. In the absence of a strategy, things are obviously haywire. While there is no replacement to good old paper-and-pen strategy, but one also can make use of apps like 'Wallet', 'Monefy-Money Manager' and 'Money Manager Expense & Budget'. These apps essentially help you record your expenses in an efficient manner.
Not investing money
Another common financial mistake is to not make timely investments. If you're looking for a safe investment, you can choose an investment in government-backed schemes like Public Provident Fund or bank deposits. However, if you can take higher risks for higher returns, investments in the stock market or mutual funds are suitable. It is imperative to know the risks involved.
Putting all eggs in one basket
The other common financial mistake is to put all your eggs in one basket- that's investing all your money in a single or similar type of investment instruments. For instance, one can avoid the risk inherent in mutual funds by alongside investing in secured government-backed schemes like National Pension Scheme. One can also seek the advice of a financial adviser for diversification.
Not reviewing investments periodically
Just deciding the instruments of investments and investing in them do not guarantee that one can earn the desired returns. A periodic review of the investments is an extremely crucial step. For instance, one can monitor investments in mutual funds using apps like 'ETMoney' or investments in different stocks using the 'Moneycontrol' app. Again, one can hire a financial adviser to keep a track.
Focusing on tax saving than on wealth generation
In a bid to avail tax-saving benefits, people often get attracted to investments which do not offer good returns. For example, an investment in different pension plans offered by insurance companies with the motive of saving tax may not turn out to be smart decision due to high charges associated with them. One can rather opt for investment in low-cost National Pension Scheme (NPS).
Confusing insurance with investment
Another common financial mistake is to confuse insurance with investment. Insurance is taken with the intention of guarding against loss of life, property, health, theft or damage, whereas, investment is done with the sole motive of wealth generation. While insurance is a tool for damage control, investment is a tool for generating the cash flows which can fund the damage control process.
