Financial follies can come at any age. With every new financial responsibility and milestone, comes a whole lot of ways to mess up your money. The good news? You are not alone. All of us, irrespective of the generation we belong to, commit several money mistakes all through our lives. The smiling face that our salary begets at the beginning of the month, changes to a cry-baby at the end of it.
With that in mind, we have compiled the following list of common money mistakes that are best avoided. Be wary of them and we are sure you can save a fair bit every month.
1. Living beyond meansDay in and out, we are bombarded by the media with images of people living extravagantly. And now, more than ever, many middle-income people are trying to keep up with the flashy lifestyle of the superrich, 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 or buy an expensive new toy by swiping the credit card.
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 on your income. Adopt frugal habits. And as the old saying goes, cut your coat according to your cloth.
2. Paying only the minimum credit card duesWhile regularly swiping your credit card would help build a healthy credit history, you may soon find yourself in 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 attract a minimum retail interest of 3.49 percent each month on your dues, which adds up to a whopping 41 percent, even at a 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 budgetHonestly, this is perhaps the most common mistake. With no budget, you don't know your monthly expenses for rent, groceries, utility bills and others. 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 because they think that will deprive them of the things they enjoy. But in fact, it's just the opposite. A budget is a tool which helps to avoid unwarranted expenses. It reveals in black and white your expenses vis-à-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 retirementYour career may be on the upside and you are working and earning now, but a time will come when you have to step aside and allow the next generation to fill up the ranks. And it may be sooner than you think. World over, people are retiring sooner than expected, and India is no different. So when the time comes, are you ready for it? Sadly, most Indians below 30, 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 time, you may be left ruing of not having enough to pay off recurring expenses.
That said, you don't have to live a life of penance, abjuring everything you like and save for retirement. But start contributing to a retirement when you are still on the right side of 30. You will have another 30 years to let the compound interest work for you. Try contributing the maximum. If your company offers no retirement plan, start one of your own. Maybe you can set aside 10% from your pay cheque every month to a separate account. Even that will work.
5. Not saving for emergencies
Emergencies never warn before coming. But they will happen. A burst pipe or a leaking roof may flood your room, a card breakdown could happen in the middle of nowhere, or a freak accident could call for an urgent surgery. If you are not prepared to handle these expenses, you may plunge deeper in debt. If your income can barely meet your expenses, you have to borrow from friends, or swipe a high interest credit card.
An emergency fund can bail you out during times of unwarranted expenses. You will have a cushion to fall back on and don't have to depend on your credit card. Start saving small. Put away a small part of your income every day. Make it a habit. Whether you are contributing ?500 or ?5,000 doesn't matter. What matters is that you are building a financial safety net to tide you over the hard times, as and when they come.
6. No financial talk with your spouseMoney, despite a common cause of tension, is a difficult issue for conversation among couples. Many people are unaware of the fixed expenses of their spouse and a sudden demand for money often leads to frayed tempers and allegations and counter-allegations of unreasonable expenditures.
Having a healthy and frank financial discussion between the husband and wife resolves two things. First, it determines whether the two of you share the same thoughts regarding money and lifestyle. If you don't, you can discuss matters to arrive at a common ground. And second, a clear idea about your partner's financial goals will help you to get a clearer idea about yours. Both of you can then attain the goals together.
Managing money could be tricky, especially if you have just started earning. Try to control the urge to spend. It often holds the key to avoid money mistakes.
