Money mistakes that might haunt you in the future
Jan 28, 2014
Source : The Economic Times


MUMBAI: Making mistakes with our money is something we all are wary of but can never really be sure of avoiding. Even those of our friends who seem to have the smarts for handling their money, sometimes falter at problems that credit and financial planning bring along.

Never was money as simple as saving in a bank account, if you wanted to make the most out of it. Ranging from making investments in real estate, shares and new start ups to managing loans, credit debt and risk, one needs to balance it all.

Most financial planners would come to common conclusions regarding the financial mistakes that regular people make, normally, and would advise strictly not to fall for them.

Let's talk about a few money mistakes that hover around most of us, some time or the other, in life.

Choosing a college without proper planning

When it's time for your children to pursue higher education, you wish to give them the best. After all, that decision shapes their future. However, wishing the best for them does not justify financial decisions that are not well thought over.

For example, while listing down the options for graduate school applications, one has to be completely aware of the fee structure and expenses that the degree brings along. Comparing the Return on Investment to this value assists you to judge whether your money is bringing you the returns you expected. A thorough research on the school policy, scholarship and financial aid options are a must. Plunging into an unknown sea of expenses could get as dangerous as it sounds, especially in case your child is making applications to graduate schools abroad. Living expenses vary from city to city.

Many a times, popular schools are located in metro cities that cost the student a lot in terms of cost of living, in which case, students either turn towards

student loans or working part time. Student loans could also be tricky to understand. That is especially true for graduate schools that assure you of very high salaries. A student who loans the amount of, say, Rs 100,000 and is liable to pay an interest of 6.8% on the principal, could end up paying about Rs 1,100 every month for ten years to clear the dues for that loan.

So, unless one is completely aware and ready to take risks like that, they must weigh the options carefully. Similar situations apply when we talk about post graduate degrees.

Loaning More than is Affordable

It's but natural to give in to aspiration in life. Whether it is going for a swanky car or buying your dream house or anything at all, it requires a great deal of financial planning to turn these material dreams into reality.

The truth is that one has to very cautiously analyse one's sources of income from salary and other means before applying for a loan. If you have not planned and saved for your house or are getting into a deal prematurely, according to your financial plan, then you tend to take a loan, more often than not.

Home loans are easy to get in India in today's date. The catch is the EMIs that you have to pay for a long duration every month to clear that loan. Now, you have to make sure that even if you need to switch to a lesser paying job or divert a lot of money that you earn to an anticipated cause, like your child's education or family's health, etc., you understand that it requires a certain amount of financial backing to knock off those EMIs.

Today, a loan on the smallest home item is possible. However, whether or not it makes sense for you is the question you need to ask yourself.Failure in Retirement Savings Scheme

In-depth financial planning involves saving for your retirement and keeping money in hand for contingency.

To avoid failure in your retirement savings, one must take care of the following steps:

a) Save 10% of your income. If you are a regular salaried pension, it is a good idea to save about 12% of your income every month, which is what the EPF scheme requires you to do compulsorily and rightly.

b) Increase investment as your income increases. That helps a lot. Most of us experience good hikes in salaries from the mid to later parts of our careers and can afford to invest much more at such points and, hence, secure the future.

c) Carefully manage your investment portfolio at every stage of your life.

Understanding the common mistakes that we make with money ensures that we identify the common loopholes in our judgment and be aware of our money, at all times.

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