Financial Habits : What is it ??

Financial Planning is the process to create a road map for the achievement of all the defined financial goals keeping in mind the current financial situation and risks involved in life. But how you manage money is often linked to what habits you have. If, let’s say, you tend to over-eat, chances are you over-spend on fast food. Similarly, money habits decide how well, you manage money. 

Here is some money habits that you might not even realise you have, but are destroying your finances.

1. Spend high, Earn Low: This is the worst habit that hurts your financial well-being, when you constantly go beyond your limits. It also means you are spending more on credit cards, You are buying latest gadgets and electronics on EMI’s & you are spending all of it on bad liabilities and paying interest and processing fees, late fees for same.

Solutions:

ü  Make a budget, try to maintain

ü  Start monitoring and recording your families spending habit

ü  Say no to EMI’s

ü  Get in Systematic investments and spend what is left after investing

ü  Plan your future expenses in advance

ü  Take a look at your expenses and separate them into 2 categories - need based and want based.

ü  Discuss Family’s financial budget in presence of your kids and spouse

ü  Need to focus on increasing your income for your need based expenses.

2. Postponing financial decisions for a tomorrow that never comes: Every time we convince ourself that “I will start investments from next month”. This is the very dangerous thing postponing good financial decisions is worse than making bad ones. With time, since money earns returns and generates additional income for you, the earlier you start, the more you accumulate. Albert Einstein Said “Compounding is the eighth wonder of world, he who understands it -- earns it, and one who doesn’t pays lifetime for it”.

Solutions:

ü The best time to invest is now.

ü The longer you delay investment, the lower your final corpus

ü Think about Time-in the investment, rather timing the investment

ü Give your investments enough time to grow, keep patience

ü Once you start don’t withdraw it for purposes other than your family’s financial Goal

3. Going into debt for which you don’t need:  It is a competitive world. Now it is a status maintain world. Often lifestyle based purchases that fulfil ego-driven functions, such as a luxury handbag or an expensive phone, force you into unnecessary debt.

Solutions:

ü Debt is for essential and strategic purchases

ü Going into manageable debt to buy a house or your children’s education is all right, it’s a good liability

ü It’s not OK when it’s taken to fund your luxury lifestyle

4. Do Investing, not Gambling: Many people invest in the stock market without fully understanding what they are doing. Perhaps you got a tip that a particular stock is a good bet, or your colleague told you that Options are a great way to make money. However, if you are putting your savings into investments you don’t understand, or where you don’t understand the risk, and are just speculating, you are gambling and not investing. You will be surprised to know how many educated professionals make such uneducated moves.

Solutions:

ü Investments should be based on your goals.

ü Investments should be for long term as per your requirements

ü Stay away from investment options that seem too good to be true

5. Not saving regularly: lot of people save or at least try to save. Unfortunately, most of us can’t do this regularly. This is common if you tend to spend first and save what remains. I see most of people paying their EMI’s at start of the month than spending rest for their expenses. Best is to treat your Investments as EMI’s for your financial goals. For instance: EMI for Child’s education, EMI for Vacations, EMI for emergency and EMI for retirement.

Solutions:

ü  Decide on how much you can save regularly and set aside your savings as soon as you get your pay cheque. This will ensure that saving becomes a habit rather than spending.

ü  Use reminders to make all your utility payments on time, so that you don’t end up paying late fees or interest.

ü  Create a certain amount of Annual / Quarterly Expenses so that your budget remains on track every month. Best is to start a SIP or park your extra money in liquid fund  for School fees, Extracurricular activities, Annual Medical Check-up’s, Vacations, Birthdays etc.

6. Don’t pay your dues after the due date: If you constantly keep making late payments against your credit card bills or utility bills, you are simply increasing your expenses. In case of credit cards, late payments could potentially drive you broke, thanks to the hefty interest rates charged.

Solutions:

ü  Always pay your bills on time to avoid late payment charges.

ü  Assign your family member to manage the utility payments and keep a track of due dates.

ü  Whenever possible, set up auto debits for your bill to ensure you don’t miss out to pay them.

Take this article as an opportunity, to make a list of your financial resolutions this financial year and consider having a family discussion on managing money better and make it a regular habit!!

Stay Invested......