We are the masters of our money and have the right to decide on what each of us wants to do with it. However, there can be right and wrong ways of handling money. Each of us has to analyse our money-related habits and stay on the right track to value the money we have. There may be situations where we are not aware of where we are wrong, but financial matters seem to be off-track.
Here is a list of five bad money habits one must avoid and the tips to correct each of them:
1. No/Bad Budget Plan
Having a budget plan is essential to have an organised financial life, irrespective of the age. Preparing a budget plan may sound “old school” or not-so-cool. But, it helps you develop better money management skills and gives you a foresight on what expenses you may expect over the month or year. It is easy to feel a little lost without a budget.
Let me tell you how to lay down a budget plan. Just list down your income and expenses. It will then be simpler to analyse what share of your income is being spent on what expense. If you regret spending on something, you can make the necessary adjustments in your spending habits so that you won’t regret the next time.
Tip: Plan all your expenses for the month and distribute the money into the buckets. Do not forget to give yourself a share, more or less a reward for your hard work. Further, pay yourself before allocating money to other expenses. You could put this money aside in a literal piggy bank so you can buy that something you have been eyeing on a special occasion and celebrate! A well-deserved treat, you know.
2. I Don’t Need an Emergency Fund?!
Similar to paying yourself, creating an emergency fund is necessary. You may think that you have a good monthly salary coming in and a high-end credit card. So, there is no need to worry about handling emergencies.
COVID-19 has brought in the worst nightmares into reality for many people this year. One cannot predict a pay cut, job cut, or anything else for that matter. We do not know when we contract the infection and need to always stay careful and clean. Using a credit card for essential expenses and not being able to repay the credit may push you in deeper trouble.
Tip: It is essential to keep aside funds equivalent to the amount you require to survive for 6-12 months as the emergency corpus. That is, you should be able to survive with this money even though there is no other source of income.
3. Ignoring your Debts
We may have to get the mercy of debts, at some point in our lives, to accomplish something big. It may be to suit the tuition fees for a course you wish to take up, to buy an automobile, or even to get a shelter of our own. It is alright to have debts to pay, but letting it pile up unnecessarily is not the right way to deal with them. Do not just turn a blind eye towards the debts because you already have borrowed the money.
Tip: Set a reminder or two, so you pay the monthly instalments on time. If there is a way to reduce the interest rate, put in the effort to keep yourself up-to-date on the policy changes if any, and follow the procedure to keep the total cost of your debt at the minimum. Use the refinancing option with the same bank or another bank to reduce the cost.
4. Impulsive Spending on Credit Card
A credit card can turn out to be the worst mistake of life if you impulsively spend money on your card. While some people may have the ability to pay back the credit on time, some may have to struggle. In addition to repayment issues, your credit score may fall, leaving you with fewer options to get rid of the credit card debt. In the worst case, it may lead to you declaring bankruptcy.
Tip: It is possible to get over the impulsive spending habit when you consciously make an effort to stay away from over-spending. You may avoid opening the shopping apps, so you feel less like purchasing everything you see. Establish a strict limit on how much money you are allowed to use on the credit card. Creating a budget plan may also considerably help.
5. Investing in Stocks Without Research
Do not invest in stocks or mutual funds just because a friend has done. Every person will have different financial goals and risk appetite. The time they have to achieve their goals may also vary. Investing in anything without properly understanding the inner details of how it works can lead you to loss.
Tip: For beginners, investing in mutual funds can be a better option than in stocks. This is because mutual funds provide you with more options to diversify your portfolio and handle risk and return better. Further, research well on whatever you are investing on; consult an investment advisor before investing.
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