COVID-19 has driven a lot of importance towards health and wellness. While you might be paying attention to building your immunity and health, are you paying the same amount of attention to your financial wellbeing? After all, your financial wellbeing may have a big part to play in your overall wellbeing and state of mind, right?
Financial success is something everyone should aspire for. But there might be some pitfalls on your way to success that could cost you heavily.
We bring you 5 financial mistakes that you should avoid in 2022.
Failing to have a budget & financial plan
Being financially secure can help you achieve your dreams like buying a car, a gadget, a home, give your kids an excellent education or retire with enough money in your bank. These goals may be short-term or long-term in nature.
Calculating your expenses and charting out a budget for your monthly expenses is essential to know where you stand. Only when you know your budget can you save and plan for your future. Once your budget is in place and you are aware of expenses, calculating your savings and creating a financial plan for your goals gets easier.
Here, don’t forget to attach a figure and a timeline to your goals.
For example, you wish to send your child to a foreign university in 8 years. You should not consider the current cost of that education, but the cost in 8 years. Once you have a cost assigned to your goal, all you need to do is map your savings and investments towards the goal.
Not having an emergency fund
Emergencies can strike anytime. Take the example of Covid – it has turned our world upside down with thousands experiencing job losses or pay cuts. The only way you could have sailed through these tough times is with an emergency fund in tow.
An emergency fund should cater for your mandatory expenses like food, rent/EMIs, medical, and others like payment of school fees, etc. Emergencies may stretch into months, so catering for 3-6 months is a good practice. This figure also depends on the number of earning members and dependants in your family.
Do you see the link here between budgeting and saving for emergencies? Without a budget, you wouldn’t be able to put a figure to how much you need to save for emergencies.
Having more loans than you can easily payback
We live in a world where wants are many, and luckily enough, there are enough credit options to support. There are a plethora of credit options like EMI cards, Online Pay Later, credit cards, and easily accessible personal loans to fund all of your purchases.
It is very easy to overstep your budget and spend more than what you intend to when using credit than cash. Did you know interest rates on unpaid credit card outstanding amounts are between 30-48% p.a? Similarly, personal loans carry a higher rate of interest than other secured loans like a home loan or a car loan.
If you don’t keep a tab on your borrowings, then soon these loans can choke up your income and you may find it difficult to pay back all your loans. This could also take your credit score down and create further problems when you genuinely need credit.
So, this year promise yourself that you would avail credit only when you need it and pay it back promptly.
Missing out on health and life insurance
Among the other lessons that COVID has taught us, the need for health and life insurance is important.
Nothing can replace the loss of a dear one, but a life insurance policy can at least aim to replace the income and give some sort of support to the family. Experts recommend that you should go in for a life insurance cover, which is 10-15 times your yearly income. Some important points that you should factor in while going in for a life insurance cover are your debts, number of dependents, existing assets, etc.
Healthcare costs are rising by the day. We have seen many examples of families saddled with enormous bills on account of COVID or other treatments. Opting in for a health insurance plan that covers all your dependents is not a luxury that you can avoid anymore.
Not diversifying while investing
It is a known fact that you need your money to grow to meet your goals, and the only way to do it is to invest your savings. You must know that different avenues for savings offer varying returns. Some like equity offer higher returns but it can come in with higher risk. On the other hand, returns on a fixed deposit are low but are safer.
So, it is important that you spread out your risk across various forms of investments so that you are not taking excessive risks but also earning decent returns.
In your journey towards financial security, it is to make the right decisions, it is equally important to avoid mistakes. So take note of the financial mistakes you should avoid in 2021 and every year after.