However, it is also true that most of us make one too many mistakes before we learn how to manage them well.

Here’s highlighting the checklist of common financial planning mistakes so that you can learn from experts and begin on the right foot:

Mistake #1: Not having a budget.

The biggest financial mistake is to spend without a budget. A budget is an essential tool to plan out the monthly expenditures and to save money.
Creating a budget is a time-consuming process, but it will aid in achieving your financial goals. You can create a budget that’s convenient for you based on the 50/30/20 rule wherein you need to allocate 50% of your earnings to necessities of your life (housing, transportation, medical care, education of children), 20% to savings, and the rest of the amount to lifestyle and luxury choices.

Mistake #2: Not maintaining an emergency fund.

It is vital to create a fund for the contingencies. You may encounter difficult situations such as losing your job, a significant illness, or a car breakdown. An emergency fund can save you from taking on unnecessary debt at high rates of borrowing in such scenarios. Experts recommend creating a fund to sustain your lifestyle for at least 6 months.

Mistake #3: Going without Insurance

No matter what your financial position is today, one unpredictable event can change the entire story. A good insurance plan becomes a savior and assures a payout to you and your family in times of distress, such as losing a loved one, medical emergencies, natural disasters, or theft. Ensure you have auto, health, and life insurance from an early age.

Mistake #4: Skipping the retirement plan.

If you want to stop working in your 40s or retire at ease at 60, it’s necessary to start saving and investing early. In the absence of comprehensive government-sponsored plans for private employees, investing in retirement plans is inevitable. You can start by saving 15-20% of your earnings for your retirement fund. Save more and retire early!

Mistake #5: Not Investing.

Not investing in the early stages of life will impact your future financial security. Great wealth is created over some time, and hence it’s crucial to begin early. You can start small by investing in mutual funds through SIPs, recurring deposits, or Equity-linked savings scheme (ELSS). Monthly contributions to specific accounts can allow certain tax benefits. Investment in ELSS can also offer you tax exemption up to Rs.1,50,000 under section 80C of the Income Tax Act,1961.

Mistake #6: Rushing to Buy a house

A decision to buy a house in haste can drain out your wealth drastically. It is necessary to understand that purchasing a new home requires you to have a well-planned budget. You might be able to afford your down payment today. But you need to consider your ability to service the loan for the rest of its tenure. So do not rush this decision. Consider every eventuality, create a backup plan and then proceed.

Mistake #7: Ignoring the Tax Implications

Keep an eye on the tax benefits under the Income Tax Act, 1961, or else you will end up losing money. Tax exemptions can be claimed by investing in ELSS, deposit in PPF (Public provident fund), Atal Pension Yojana Scheme, and medical expenses under section 80C and 80D of the Income Tax Act,1961.

Paison ki Seedhi Baat

While we cannot completely safeguard ourselves from uncertain events with some financial discipline, we can reasonably secure ourselves and mitigate risks to the maximum.

Download the MyMoney app and take control of your finances now.