Effective financial planning is about building your prosperity progressively and continually. It requires establishing specific objectives, saving regularly, making an investment for those benefits, defending your resources. There are, however, some worryingly typical financial planning errors that can keep you from doing any good to your cash.
If you are not working with a financial advisor that has the experience and know-how in your money matters, it is easy to get some things wrong. Often the errors occur because of bad information or because of false information that may be approved on by individuals that mean well but don’t understand what they are referring to.
Below are the 5 most common financial planning blunders that individuals make when trying to plan for their financial future on their own.
1. Making A Failure Plan
Many individuals earn, save, spend, and invest their income without a lot of thought or preparation. They have only unexplained objectives and don’t evaluate whether their limited cash is being put to the most effective use to achieve those objectives and offer financial balance. Without an operating strategy and associated tools such as a budget, you’re going to have difficulties knowing where you’re going or how best to get there.
2. Buying Investment From Buddies & Relatives
How many of us have been a victim of demands from our loved ones to purchase investment products from them – only to repent our decision later on? Not only do products more often than not end up being highly-priced, but you often get trapped on spending on the same type of investment plans that may hold no value some years down the line.
3. Buy From Friends Under Their Sales Pressure
Not only is this bad for your financial figure, but it also might result in a bigger loss – than of a friendship! While your buddy may have sold you a policy under ‘month-end sales pressure’, it just might result in a lasting break down of trust between you and him/her when you recognize that the product was not worth your expenditure.
4. Living on Borrowed Money
Using credit cards to fulfill requirements has become somewhat of a trend nowadays. More people are opting for it for the convenience that it offers of spending now and paying later. But this has led many people to fall into a debt trap as people spend more than what they can pay for. Once you don’t pay on time or make staggered payments, the credit card interest rates start playing havoc with your finances. They are usually very high and if not paid fully, can drain your finances and affect your CIBIL score.
5. Treating Home Equity Like a Piggy Bank
Refinancing and taking cash out on it means giving away possession to someone else. It also costs you lots of money in interest and fees. Smart property owners want to build equity, not create payments in perpetuity. Also, you’ll end up spending way more for your house than it’s worth, which virtually helps to ensure that you won’t come out on top when you decide to sell.
Failing to determine tax concerns – different investment plans offer different tax benefits at different times. Lots of individuals think that tax benefits now are valuable, but for some individuals, it may be more useful to pay the tax upfront and then take out the cash, without taxation, later on.
Talking with a financial advisor allows you to avoid these typical errors by having a goal, establishing and making the investments in a way that has the best outcome and lasting advantages for you and your family.