Managing your personal finances is undeniably complex. Unfortunately, the mistakes you commit when handling your money can end up costing you thousands of rupees without you even realizing it. For instance, when was the last time you analyzed your account statement? Are you aware of how much interest you are paying on a credit card? These are all minor things that can be easily fixed – and possibly improve your financial literacy. Learn about the five money mistakes you could be making right now and what you can do about them.
Having a higher limit on a credit card isn’t always the best thing: research has shown that people are prone to spend a lot more when paying with a credit card as compared to cash. If you have the tendency to purchase that “extra something”, you are, in a way, increasing your impulse spending risk. What’s even worse is spending with an intent to earn a cashback or rewards, without considering if you really need to buy that item. One thing you can do to prevent using a credit card, as well as overspending, is leaving your card at home and withdrawing cash, especially for small-ticket items like groceries, shopping, traveling, and other leisure activities.
Getting into credit card debt is the worst financial mistake you can commit because credit card interest rates are exorbitantly high. In fact, the Annual Percentage Rate (APR) on Axis Bank and Citi Premier Miles credit cards as of 2022 are 49% and 45% respectively. With such interest rates, you can’t afford to make all your purchases on credit cards, because that would mean that you will end up paying double the original cost of the product. Don’t use your credit card for anything you can’t pay off when the bill arrives. If you already have some credit card debt, try clearing more than the minimum until it’s paid off completely, and consider transferring the balance on your card leveraging a 0% balance transfer offer so that the interest rate can be reduced to 0% as you continue paying off your debt.
A buy-and-hold investing strategy offers a lot of advantages, but the best part is that it requires relatively less time and effort at your end to maintain. However, this does not mean that you can set up an automatic investment plan and then not pay attention to it for the next two decades. At a minimum, assess your investments at least once in a year to understand whether or not you are satisfied with the performance. This annual assessment will help you rearrange your portfolio and get rid of plans that underperform or no longer meet your needs. For example, if you have recently retired and about 60% of your portfolio features stocks, a sudden market crash will entirely burn down your savings right in front of you. Here’s where timely review of portfolio and readjustments would have helped.
There’s nothing wrong with indulging in a dance class, a round of golf, a karaoke session, or a weekend getaway trip every once in a while, but it’s important to be wary of the total expense of your recreational activities. Factors like entry fees, training costs, equipment charges, and transportation when summed up can become a huge expense. Instead, the ideal thing to do is to consider activities that fit into your budget comfortably and look for ways to grab discounts and occasional special offers. For instance, if you love salsa, try attending a group session instead of a private one to save some money. Likewise, if you are fond of playing golf, try borrowing or renting out the equipment instead of purchasing them, at least until you are sure of pursuing that activity long term.
Everyone knows the importance of having a health and life insurance policy in today’s time and age. To say it is a great long-term investment instrument would be an understatement. Yet, a lot of people very casually forget to renew their health and life insurance on time, despite the grace period, which then leads to severe complexities such as policy lapse and absence of coverage, and loss of other premium benefits. Consequently, as the policy expires, you will have to invest in a new one with a new waiting period, higher premium, interruption in coverage, loss of cumulative bonus, and repeated medical check-up as defined by the insurance company.
By avoiding money mistakes that cause you to pay high interest, hurt your credit score, or make it difficult to save for the future, you can get closer to achieving greater financial success. The best part is, now you know the mistakes to avoid. This will help you save yourself thousands of rupees and won’t affect your financial life. To make matters easier, sit down with a wealth manager or finance expert from a reliable financial consulting firm like Dezerv to safeguard your personal finances.