Investing is the method of generating 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 need to 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 described 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 an individual’s life 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 must be backed by insurance.
Let’s take an example:
Mr. Stanley Rosario is a hardworking military man who works in a marketing firm. One day 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, 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 many families, especially in India where there is only one person working and the whole family depends on that person. If this person dies, what will happen to the family’s financial needs?
“Most people don’t plan to fail, they don’t 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. The term insurance plan is less expensive than other life insurance policies. One should include the purchase of a term plan in one’s financial planning.
Save money and money will save you
The generation of young people in India 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 occur in which a huge amount 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 essential and if we don’t save we are making a mistake.
Are you 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 reserve funds because the workings of these instruments can be easily understood. But there are many other financial instruments available that give us a higher rate of return than fixed deposit like stocks, mutual funds, and government securities. We need to diversify our portfolio in order to earn more and also to reduce risk.
Stepping away from freedom
Debt is the amount 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 companies often go bankrupt because they are unable to pay their debts.
“Borrowing money is the most common way smart men go bankrupt” – Warren Buffet
On individuals, there is always the burden of paying interest and repaying the loan. Many borrowers try to attract individuals by introducing different types of plans and people get stuck in these plans. If we do good financial planning, we won’t be able to take on so much debt. We will not be in the stress of paying off these debts and we will be able to live a financially secure life 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 mind their money until it’s almost done, and others do the same with their time.” – Johann Wolfgang von Goethe
There are many schemes such as low cost IMEs, low interest credit cards, cheap loans etc. that get trapped. We have to be careful where we have to 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 have to spend our money wisely. Therefore, financial planning at an early stage is very important.
Bad decisions made in our life can affect us greatly. Therefore, it is very important to start financial planning as soon as we start earning. No individual has the same set goals. Financial planning will therefore differ from person to person. Depending on the financial requirements, you have to set their goals. If we do not have knowledge of investment products, we can use financial advisers. They help us do the financial planning.
If you have any questions, your financial planner is always ready to help you.