Financial planning is extremely important so that you have great fortunes in the latter half of your life.
If an individual plans his or her finances well enough, then a good corpus can be generated out of it. However, some financial mistakes can make financial planning harder.
These mistakes may not be intentional but can be harmful!
5 financial mistakes to avoid at all costs
1. Spending unnecessarily
Most people do not plan their budgets well. It is a thumb rule that everyone should do their monthly budget planning as soon as they get their monthly income.
You can keep aside money for necessities like school fees, ration, electricity bills, rent, and so on.
Apart from these things, there are certain miscellaneous costs that are also extremely important. You should keep a tentative amount for that as well.
Make sure that you do not spend unnecessarily. If you do go overboard, try to cut off funds in different domains of requirement.
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2. Paying off debt through savings
This is considered to be one of the biggest blunders committed in the finance domain. People get a mortgage of 15%, and the return of the savings plan is just 7%.
So, people think that it is a good plan to pay off all the debts from the interest that is recovered through savings. You should never be doing that because if an individual takes money from their savings account, then they will tend to lose the interest that is earned by compounding.
Furthermore, they will also incur a penalty for taking out money from a retirement fund or fixed deposit.
3. Ignoring the credit score
Ignoring the credit score is the next big mistake that people tend to commit. If you maintain a good credit score, it can help you save a lot of money on interest rates.
Furthermore, maintaining a good credit score makes it easier to get a loan, and can fetch better rates of interest when you are buying a personal asset or getting a personal loan.
Inculcate a habit of checking your credit score every six months so that you can have a stable and progressive portfolio. Make changes according to the credit scores that are being offered.
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4. Not saving for child education
With the growing rate of education inflation, if you miss out on saving and investing properly for your child’s education, then it might prove to be a heavy burden for you later.
Hence, you should make sure that you are setting aside a certain amount every month that is invested in your child’s higher education. Moreover, the pandemic has also led to an increase in tuition fees of colleges in India and abroad.
If you start investing early enough, you will be able to generate a good corpus for your child’s higher education which will ensure no financial burden on him or her.
5. No savings plan for retirement
Retirement is a phase of a person’s life where he or she lives on what has been earned and invested until now. Hence, it is a crucial thing to plan and save wisely for retirement.
It is best to start saving as early as possible. If you are still young and earn less income, then start small but be consistent and disciplined. Start a SIP for Rs. 100 or a PPF account.
The earlier you start, the bigger the amount that you will be able to generate.
Furthermore, 15% to 20% of your annual income should go to retirement. This will make sure that you have a good future once you retire and you do not have to work anymore.
These are some financial mistakes to avoid if you want to secure a fine future for your family!
FAQs
Why is financial planning important for parents?
Financial planning ensures a secure future, especially in the latter years of life, and helps create a substantial corpus.
What is the biggest blunder when paying off debts using savings?
The mistake is using savings with lower returns to pay off high-interest debts, leading to loss of interest and possible penalties.
Why should you pay attention to your credit score?
A good credit score saves money on interest rates, facilitates loans, and offers better interest rates for personal assets and loans.
Why is it crucial to saving for your child’s education?
Rising education costs can create a significant financial burden. Saving for higher education ensures a stable financial future for your child.
What’s the importance of a retirement savings plan?
Planning and saving for retirement are essential to ensure financial security during retirement. Starting early and being consistent in savings is vital for a comfortable future.
