Some of these things have been mentioned by us before. But they are important enough to be reiterated. In fact, they are often forgotten. We’d like to take this opportunity to quickly take you through five things that you must watch out for when it comes to planning your personal finances.
Forget financial goals – Instead of trying to time the financial markets and depending on luck to secure you future, you should work with a financial advisor and set sound financial goals. This will enable you to have clarity about your investment requirements. Take your financial planning seriously and do not postpone investing for your financial goals.
Not have an Emergency fund – Nowadays, many young people spend too much on consumption. They don’t think about saving. This is a serious error. Emergencies don’t happen when you expect them. It is all very fine and fun to live in the present, but don’t lose sight of the fact that you need an emergency fund when things go wrong. And no matter how careful you are, things will go wrong. If you do not have an emergency fund, start saving in a Recurring Deposit or use your Sweep-in account to create your contingency fund.
Take a home loan to buy property when you are young – Sentiments should never drive your investment decisions. In India, the decision to buy gold or to invest in a property is more to do with sentiments rather than the actual requirements. We have met many people who invest in property when they are young and then struggle to create a good retirement plan. Don’t fall into this emotional trap.
Invest in Insurance Policy to save tax – Most of the new earners take insurance policy to save on tax. Insurance in pure terms is coverage, a tool to safeguard family in incident of loss of near ones. So when you buy insurance as a saving scheme it doesn’t solve the purpose of either protecting you enough or investment gives handsome returns, as typically insurance Coverage is less for these kind of policies and returns wont cross highest single digit number too. So one has to take pure term insurance to protect family and invest in tax saving scheme like Equity Liked saving scheme (ELSS) to save on tax. Put simply- keep investment and insurance separate.
Ignore health insurance – When I ask a salaried individual about his/her medical insurance plan, they often tell me that their employer takes care of it. With rising medical costs and unhealthy lifestyles, that is far from enough. What will happen to your health coverage if I you quit your job or lose it? Will I be able to get life insurance when I retire? What about health insurance for my family? No matter how healthy you are, you must invest in health insurance for yourself and your family. If you don’t, you run the risk of putting your other investments under pressure.