Most people's New Year resolutions revolve around health and relationships, and generally exclude financial goals. They feel that they're doing everything right and that their financial situation is secure. However, experts beg to differ, claiming that most people aren't even aware of the financial pitfalls they're pushing themselves into.
It is said that every money decision you make will decide the state of your financial future. Bad financial planning can leave you at the end of your career drowning in debt, with no savings and no plan for retirement. While every person's decisions are based on their own unique perspectives, there are some common financial pitfalls that can land people in deep trouble. Here we list out 5 of the most common of these pitfalls that are best avoided by everyone.
5 Financial Pitfalls you must avoid
- Excessive Spending
While life should be enjoyed and passions followed, it is important to tread a middle path between miserliness and extravagance. The consumerist culture of today does not help, but it is up to each individual to resist falling into the trap of buying the latest gadget or car. Using credit cards is worse, as it is borrowed money and late payment can rack up massive penalties.
- Not Knowing your CIBIL Score
Your CIBIL TransUnion Score (or credit score) is a parameter based on which your credit worthiness is measured. It is what lenders check before deciding on whether to approve your loan application. Knowing your CIBIL score is essential to assess your standing with respect to interest rates. If your score is low, you need to take steps to improve it; being ignorant can pop up some nasty surprises while applying for a loan.
- Not Saving for Contingencies
We live in uncertain times, and it is never wise to overestimate your earning capacity. An emergency fund will have your back, should you fall upon hard times like losing a job, being ill or having an accident. An ideal contingency fund should have about 6 months' salary, or at least 3. This will help to support you and your family, till you are able to get back on your feet.
- Not Investing
While saving for emergencies is essential for personal financial planning, it is just as important to build wealth by investing in any of the various investment options out there. Locking up your money in an account just keeps it the same, while investing smartly makes your money work for you. And it helps to look at all the options, and invest according to your risk appetite and your age.
- Not Planning for Retirement or Illness
While it might be difficult for a 20-something executive to think of retirement planning, the truth is that the earlier one begins planning for it, an easier time they'll have while retiring. Illness is an unpredictable facet of life, and it helps to plan for medical insurance at a young age so that one is not left floundering when faced with enormous medical bills.
Being aware of one's financial health condition and working to keep it at an optimum level – these should be the basic financial goals of any individual. Avoiding these financial pitfalls will go a long way in keeping the future of you and your loved ones stable and strong.
Image source: Google, copyright-free image under Creative Commons License
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