8 Mistakes that Lead People to a Bad Financial Situation

Are you happy with your personal finance? Are you able to manage your money properly? If not, don’t worry. This article will help you point out your mistakes with your personal finance.

Many people like you, though earn a good salary, often struggle with their personal financial planning. In India, you can see many middle class people with no liquid cash for emergencies or saving accounts with minimum/no balance.

There are many reasons that make you fail in your personal financial planning. Following are few common mistakes.

Mistake #1: Lethargy
A person who is lazy and careless with his money will obviously have no idea on his spending. Such people are often found inactive or irresponsible towards their money. If you are lazy with your money, you will find yourself doing these things.

  • You go to your office by an auto/taxi, paying high charges daily, instead of using a fair transportation (bus/local train)
  • You delay paying your monthly bills, which attract late payment fee
  • You ignore depositing money in your savings account, as you feel lazy to go to bank – even if you know that your cheque will come for clearance

Mistake #2: Ignorance
Many Indian families neither talk about their financial issues together nor teach their children money management. Lack of knowledge about personal financial planning may lead you to take decisions out of ignorance and struggle with your money management. You are ignorant if you don’t know even basics like

  • Stages in personal financial planning
  • How to prepare a budget
  • How to cut expenses
  • How to save money and where to deploy

Sometimes you may take decisions based on other’s advice that may put you at risk.
Example:

  • Investing money in something which is being advised by a friend/relative, without knowing what actually the financial product is
  • You may blindly take insurance based on sales agent’s recommendations which may not be suitable for you

Mistake #3: High expenses
‘Expenses always exceed income’ – this is the case seen in many middle class Indian families. Nowadays many people are losing control over their spending. People are becoming spendthrifts– mostly the younger age groups are getting into shopping addiction . You think “income – expenses = savings”. You are one of those making unnecessary high expenditures on

  • Eating out in expensive restaurants
  • New and unnecessary gadgets
  • Unreasonably high priced clothes
  • Costly cosmetics

Mistake #4: Debt
Earlier, people forcibly used to take debt in case of an urgent need. But these days with emerging credit card and loan facilities, people are often encouraged to take debt. Purchasing things on debt is becoming a new way of living. You can see many people even making their routine purchases everyday on debt (using credit cards). You think debt is acceptable and part of life, you will find yourself doing these things

  • You take debt to give birthday party to friends
  • When in real need, you take more debt than required
  • You take debt to pay off previous debt

Mistake #5: Discipline
Discipline is very important in personal financial planning. You don’t have will power to have discipline regarding your personal finances – both earnings and expenditures. You are not mentally fixed about living below your means irrespective of the situation you are in.

  • You tend to overtake loan because banks/ friends are willing to give you
  • You set aside money for emergency situations at the end of the month when all others expenses are met – not on the day you get salary; sometimes you don’t save at all
  • You can’t control your impulses when your heart says buy something

Mistake #6: Documentation
The first and the most important aspect of personal financial planning is tracking the expenses and expenditures. In your case

  • You don’t track your expenses
  • You think you know all your earnings and expenses and there is no need to put on paper
  • You think the problem is with your earning and not with your spending
  • At the end of the month, you promise yourself to make a budget next time

Mistake #7: Priorities are wrong
Prioritising expenditure is very important to lead a financial-trouble free life. You may struggle with your money if your priorities are wrong.

  • You go for investing in stock markets before you have enough money for emergencies
  • You plan for retirement, without purchasing adequate insurance
  • You purchase a new pair of branded sports shoe (which you don’t need now) because it is on discount today

Mistake #8: Miss-out non-monthly items
This is one of the common mistakes that can create financial imbalance. Non-monthly expenses can eat up your savings or may make it difficult for you to spend on other important things in that month.

  • You will live on pay-check to pay-check – finish your earnings by the end of the month
  • You don’t plan for non-monthly items like purchasing a latest computer, medical expenses, birthday gift for your friend, etc. – you will assume time will take care of the things

By this time, you might have understood your mistakes that can affect your finances. Avoid them to whatever extent you can.

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