5 money mistakes to avoid

Help yourself and your family financially by not falling prey to these, says Naval Goel

Illustration: Uttam Ghosh/Rediff.com

Financial mistakes and blunders can happen at any age. With every new financial responsibility, comes a whole lot of ways to mess with your money. Well, you are not alone.

All of us, irrespective of age have committed money mistakes sometime or the other.

The momentary happiness at the sight of salary credit message sags pretty soon due to financial mismanagement.

With that in mind, we have compiled the following list of common money mistakes that are best avoided. Be aware of them and we are sure you can save fair bit every month.

1. Living beyond means

Day in and out, we are continuously shown people who live in style by our media and TV soaps. And now, more than ever, many middle-income people are trying to keep up with the flashy lifestyle of the super-rich, complete with multiple cars, a big house and frequent expensive vacations.

Credit is easily available today and many feel it’s harmless to take a personal loan to fund a holiday.

Living beyond means is a major money mistake. We continue doing it, and realise our blunder only when the expenses shoot through the roof.

Try living within means and save your income by adopting frugality over flashiness.

2. Paying only the minimum credit card dues

While we all enjoy using our credit cards for shopping and other activities, you may soon find yourself facing an abyss if you cannot pay off the outstanding.

Although paying the minimum due is wiser than paying nothing at all, you may have to brace for serious consequences, if you continue doing so.

Credit cards usually charge a high rate of interest at 3.49 per cent each month on your dues, which adds up to a whopping 41 percent, annually, even when calculated at simple rate.

It will take many years to clear the interest alone, leave alone the principal, and that will bite off a large part of your income.

Avoid spending on your credit card, unless it’s an emergency. Pay with cash instead.

3. Not adhering to a budget

This is perhaps the most common mistake. Many people just don’t know how much they spend on a monthly basis on groceries, utility bills and others things.

Even if you have a fair idea about the expenditure, you are more likely to overspend each month, and your debts will spiral out of control.

Most people don’t make a budget out of the fear that they may have to cut down on some essential stuff. But in fact, it’s just the opposite.

A budget is a tool which helps avoid unwarranted expenses.

It helps in showcasing, in black and white, your expenses vis-a-vis your income. You are in a much better position to calculate the money you will have after meeting your mandatory expenses.

4. Not saving for retirement

You career is going great and you have no worries. Sadly, most Indians in the age bracket of 30-35 years spend all their income and have little bank balance at the time of retirement.

It may be tempting to spend your money on things you like, but in another 30 years, you may be left to rue for not having enough to pay off recurring expenses.

This is where it's important to plan for your retirement.

Start contributing to a retirement plan when you are still on the right side of 30. You will have another 30 years to compound your money. Just set aside 10 per cent from your salary every month and see the difference.

5. Not saving for emergencies

Emergencies never come knocking but they sure can come to anyone.

Flood, earthquake, ill health and accidents can happen any time. If you are not prepared to handle these expenses, you may plunge deeper in debt.

In worst scenarios, you may have to borrow from friends and relatives.

Start with saving some monthly amount. Be it Rs 500 or Rs 5,000, make it a habit. What happens is that you are building a financial safety net to tide over hard times, as and when they come.

Managing money could be tricky, especially if you have just started earning or new at it but its no rocket science. Try to control the urge to spend.

It often holds the key to avoiding money related mistakes.

Naval Goel is CEO and Founder, PolicyX.com