Are you finding it difficult to gain control over your finances despite putting a lot of time and effort planning your monthly budget? Well, read ahead for some common financial planning mistakes that people commit, especially when they don’t have a lot of experience handling money.
Creating an Impossibly Idealistic Plan
Ideally, we should spend money on our group insurance, necessities and should save the rest. A part of our savings should go into safe and secure long-term investments while another chunk should be diverted into high-risk high-return asset classes like equity. However, real-life financial transactions don’t always follow the idealistic path.
Planning what you intend to do with your monthly salary and executing the plan after you have received the credit in your account are two completely different things. It is natural to think of incurring impulsive expenses once you have the money in your hand.
If you are struggling to plan your finances, then chances are high that you have not provided for impulsive expenses. Set aside 10% to 15% of your monthly income for discretionary and even unnecessary expenses. Ignoring this may result in a situation where your financial life seems boring.
No Short-Term Financial Goals
Another common mistake is to always focus on the long-term when planning your money. Saving for retirement is a very smart thing to do irrespective of your age. However, that does not mean you should completely ignore short-term financial goals. How about a foreign vacation, or purchasing your house, or even purchasing a very attractive smart phone?
Planning your money is not a one-time exercise. It is something that you will have to execute on a regular basis. Setting goals, working towards them, and achieving the same can be very complicated tasks. With short-term goals, you will find it easier to get into the habit of financial planning and execution.
Not Planning for Bad Times
Would it not be wonderful if we never face financial emergencies in our lives? However, it is a sad but unavoidable truth that financial complications can and do arise. Creating a plan that does not provide for contingencies like loss of job or high medical expenses for treatment of a family member or even lack of growth in your salary can result in numerous complications.
While it is impossible to create a plan that will provide for all contingencies and emergencies, it does not make sense to ignore it altogether. Ideally, you should set aside 10 to 15% of your monthly income towards such contingencies.
Not Exploring New Investment Options
An investment strategy that worked well for your parents need not necessarily work for you. Your parents may never have thought of investing in bit coins. However, this is an asset class that you and every smart investor must consider. While you are perfectly entitled to avoid excessively risky investment options, you should explore new options to increase your chances of wealth as quickly as possible.
Getting your financial plan right can be a frustrating exercise. However, you cannot afford to quit this task. Focus on your mistakes, learn from them, and avoid them in your future plans to enjoy greater financial security in your life.