Investing is the way to generate profit with the money we save. Money is the most important thing in the life of any individual. Without money, no one can survive. Therefore, we should start saving our money and investing. Financial planning is the first step to take. Financial planning helps us set long term and short term goals and based on those goals we can create a plan and spend our money accordingly. If financial planning is not properly designed, there are many mistakes that we can make that can dramatically affect our lives. Some of the mistakes we make are discussed below.
“The first wealth is health” – Ralph Waldo Emerson
In today’s world, not purchasing health insurance is the biggest mistake you can make. Due to pollution and unhealthy lifestyle, people are infected with so many diseases early in life. Health is one of the most crucial and important factors in the life of an individual and it should not be ignored. There is a saying that “health is wealth” and people are so busy making a living that they often ignore their wealth. Therefore, this crucial factor of life should be supported by insurance.
Let’s take an example :
Mr. Stanley Rosario is a hard working military man who works in a marketing company. One day, while on his way to work, he had an accident. He had so many injuries that he had to be hospitalized. His hospital costs were Rs 60,000, which is more than his monthly salary. Now, if he had done good financial planning and bought health insurance, he didn’t have to worry about hospital costs.
These days, deadly diseases like cancer are very common. The treatment of these diseases is very expensive. An ordinary man cannot afford to pay for these illnesses on his own. Health insurance plays a very important role in this case. Health insurance can cover the cost of treating this disease.
Doing financial planning from the day you start earning is very important and purchasing health insurance should be included in this financial planning.
Your best bet is to have term insurance
There are a lot of families especially in India, where there is only one person who works and the whole family depends on this person. If this person dies, what will happen to the financial needs of the family?
“Most people don’t plan to fail, they fail to plan” – John L. Beckley
Therefore, the winning member should buy a term plan in order to secure the financial needs of his family. A term plan is a kind of life insurance that provides coverage for a specified period. If the person dies during this period, the insured amount will be returned to the other family member. Term insurance is cheaper than other life insurance. One should include the purchase of a term plan in one’s financial planning.
Save money and money will save you
The young Indian generation has this mentality of spending all the money they earn rather than saving it. They believe in this philosophy that whatever happens they will see later, let’s enjoy life now. They don’t do financial planning. But it’s the biggest mistake they make by not thinking about the future.
Many unforeseen events can arise in which huge sums of money will be needed, so where will they get the money from? If we do not start saving today, we will not be able to maintain the standard of living. We also need money in an emergency and to avoid taking out loans in this situation. In today’s world saving is a must and if we don’t save we are making a mistake.
Too afraid of diversification?
We live in a world where there are a variety of financial instruments in which we can invest. People like to invest in fixed deposits and public provident fund because the workings of these instruments can be easily understood. But there are many other financial instruments available that offer us a higher rate of return than term deposits like stocks, mutual funds, and government securities. We need to diversify our portfolio in order to earn more and also to reduce risk.
A step away from freedom
Debt is the amount of money we borrow from other people when we are unable to meet our financial obligations. When we borrow debt, we also have to pay interest. There are many types of debt such as bank loans, mortgages, car loans, student loans, etc. Businesses take out loans to run their business. Individuals borrow to meet their needs. We have seen that many companies go bankrupt because they are unable to pay their debts.
“Borrowed money is the most common way smart guys can go bankrupt” – Warren Buffet
For individuals, there is always the burden of paying interest and repaying the loan. There are many borrowers who try to attract individuals by introducing different types of plans and people get stuck in these plans. If we plan our finances properly, we won’t be able to take on so much debt. We will not be stressed to pay off these debts and we will be able to live a life of financial security if financial planning is done early in life.
Control your impulses, when you’re broke
In this modern world, we are drawn to things that we don’t need. We shop for designer clothes, get attracted to gadgets, hang out with friends in expensive cafes, etc. We compete with other people in society to show how well off we are. But instead of spending unnecessary money, we should start investing in financial instruments.
“A lot of people don’t take care of their money until they’re almost done, and others do the same with their time.” – Johann Wolfgang von Goethe
There are many programs such as low cost IMEs, low interest credit cards, cheap loans, etc. We should be careful where we should spend our money. This should also be included in our financial planning. We should never over-spend our money as this will lead to borrowing in the future which will lead to more stress. We should be spending our money wisely. Therefore, financial planning at an early stage is very important.
Bad decisions made in our life can affect us drastically. Therefore, it is very important to start financial planning as soon as we start earning. No one has the same set goals. Financial planning will therefore be different from one person to another. Depending on the financial requirements, you have to define their objectives. If we have no knowledge about the investment products, we can take the help of the financial advisers. They help us do the financial planning.
Questions about finances?
If you have any questions, your financial planner is always ready to help.