Money mistakes to avoid and ways to live within your means

You may recognize how much you earn but you don’t count how you spend. Expense management sheet may sound good for you.

“Money isn't everything...but it ranks right up there with oxygen.”― Rita Davenport

Not having a family budget is gross financial mistake.

When you do not maintain your own budget, you do not have control of your finances.

Because you don’t have a budget, you end up buying unnecessary stuffs lured by seemingly lucrative online/offline offers. If you track your cash outflow at every month-end, you’ll surely notice the “surprise bills” you pay which resulted due to your impulsive purchasing habit.

You need to ask yourself if you really need things for which you keep paying every month. The list includes streaming services like Netflix, Amazon Prime, Hotstar etc., music services, or fancy gym memberships. These can force you to pay relentlessly. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way.

When you use your credit cards to cover the shortfalls inyour spending, you can bump into huge amount of debt in a few months. People tend to spend more money when they are paying with credit cards. Having a logical budget in place restricts you from overspending.

We all have the temptation to own a residential property as we start our professional career (earning phase). You must try to resist your desire until you’re actually ready for the said commitment. With time, your priorities will become clearer. Owning a home is truly rewarding, but it demands time, money and a serious commitment (assuming you’ll take home loan). Leaping into commitments without analyzing own financial profile can be damaging.

The same goes for the desire to possess a car. Just because your office colleague or your friend or your neighbor owns a car, that doesn’t mean you’ll push yourself beyond your financial capabilities to buy one. Unnecessarily pressurizing yourself with debt burden (loan) will take a mental toll on you. Giving yourself time creates space to come to grips with what makes your heart beat faster–what is important to you. You must not misuseit by filling it with your temporary cravings.

Not maintaining contingency funds is a blunder.

Contingency funds help you to meet large expenses in unforeseen circumstances.

What if you decide to change your job? How will you meet your day to day expenses along with both fixed and variable monthly financial commitments? Practically, you may take 3 to 4 months to rejoin new workplace. If you have contingency funds in place, you can meet your necessary expenses during that interim period.

There can be slowdown or cut throat competition in any industry (Information Technology, Auto Mobile, Telecom, Pharma, etc.). The consequences of slowdown or cut throat competition can be so dramatic that one might end up losing his/her job in next couple of months. God forbid, but if he/she really does lose the job, can the financial goals – be it children’s education or retirement or owning a car, etc. be deferred? Things may appear to be going haywire, but funding household expenses, expenses towards dependents, insurance premiums including the EMIs for loans (if any) and investments towards the basic goals, etc. cannot be ignored at any cost. Contingency Funds will at least give you mental peace at the time of turmoil.

God forbid, in case you meet any unfortunate accident and you become bedridden for 6 to 8 months? You can make both ends meet only if you have contingency funds in place. Otherwise, you’ll have to liquidate your investments that were already assigned to your financial goals to run the kitchen till you can rejoin work.

Contingency fund saves you from taking additional debt with higher interest (like personal loan, credit card etc.) during liquidity requirements.

Not having insurance coverage is a sign of irresponsibility.

It’s a misjudgment to mix the concept of insurance with investment. You’re mistaken if you think insurance premiums (only pure insurance) are wastage of money.

Certain things are beyond our control. We should always make provisions for the worst occurrences because misfortune strikes when we least expect it.

On that note, to ensure that your financially dependent family members do not go through financial hardships in case of your untimely demise, you must opt for a term insurance policy for the right coverage.

What will happen if you meet an accident and fortunately you do not die, but you become permanently or temporarily disabled (total/partial)?

If you’re hospitalized due to illness or accident and you do not own a health insurance, the hospital bills will drain out your savings and you may have to liquidate your investments irrespective of market conditions at that time.

Disability insurance is a type of insurance that will provide income if you are unable to perform your work and earn money due to a disability. Otherwise, it will have tremendous impacts on the financial situation of the family.

While a death is covered by any term policy, a personal accident plan also compensates for loss of income due to accident, permanent complete disability or permanent partial disability.

Calamities can strike us any moment. Fire, aircraft, lightening, riots, strikes, storms, cyclones, flood, etc. can damage your residential property to a great extent. You’ve put a lot of time, hard work and considerable money into owning your residential property. To protect your residential property against such uncertainties you must get your Standard Fire and Special Perils insurance.

Quitting job without Startup plan reflects recklessness.

It’s very common nowadays wherein people are not satisfied with their current employment and they want to follow their passion independently. As you have responsibilities towards your financially dependent family members, it would be absurd to quit your current job and start off on your own without proper plan. A Startup plan will lay down the blueprint of your dream. You need to prepare bare bones budget for your family till you can run in full swing. Or else, consequences would be appalling. Change in your career path should not make you and your family members compromise on the predetermined financial goals.

No increment at work can hurt you with time.

A big financial mistake is choosing to stay at a dead end job. This can hurt you financially, because your day to expenses will increase every year on account of inflation. Trying to run the kitchen, you’ll not be left with enough surplus money to invest towards your financial goals.

You must invest in yourself and upgrade yourself. This will lead you to consistently increase your earnings and keep up with your time bound financial goals. Do whatever you feel would help position yourself for the breakthrough you are waiting for.

Tax saving avenues can allow you to save for your future requirements.

Having basic knowledge about the tax saving avenues can stop you from paying taxes unnecessarily. You can claim the refund of the excess tax paid/deducted during a financial year by filing your income tax returns for that year. You can utilize the refunded amount fruitfully by investing it towards your financial goals.

Financial assistance from parents can make you over-reliant.

If you have parents who are assisting you financially, do count your blessings. The voluntary assistance may dilute your ability to live within your means without help.

Neglecting importance of your personal financial plan can prove to be fatal.

Your personal financial plan is the road map of your life. It will reflect your present financial profile, what financial responsibilities you intend to fulfill and derive how you’ll need to achieve those financial responsibilities within stipulated time. Without a plan, you’ll notbe able to figure out where you stand now, where you need to reach and what is the remaining distance you need to cover. The action plans laid down in the plan would make your journey smoother and peaceful. You cannot ignore your financial commitments. You’ll not be able to postpone your child’s primary and higher education expenses – it’s time bound. You’ll not receive paychecks after you retire – you will have to retire one day. So, it’s evident that you need to have a financial plan in life.

“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” —Robert Kiyosaki

Bad decisions are costlier. 

It takes away both your hard-earned money and your time. You can’t offset those financial losses due to time constraints. You have limited time and resources with unlimited commitments and responsibilities.

Procrastination is one of your worst enemies. Sometimes you feel that you’ll be able to fulfill one requirement at later stage of your life. All of a sudden you may notice that it’s knocking at the door and you have no time left to fulfill it.

Following the basic guidelines related to your personal finance may help you to avoid unnecessary stress in life. Living within your means and the preparedness to distinguish between your needs and your wants enables you to lead towards financial wellness.

Disclaimer

Mind Map prepared, information and opinions expressed are completely personal.

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