Though financial planning is gaining popularity, there is one piece of advice that most investors overlook or ignore to a large extent. When done in the wrong way, may range from substandard quality of life to outright financial doom. However, with due diligence you can clear common blunders that could make you lose money.

People First Spend and Then Save

Initial earnings will always lead to frivolous spending. Such ‘small and insignificant’ expenditures could be a serious dent on overall finances. Therefore, it is wise to track your spending and cut down on wasteful expenses. This can be done if you stick to a pre-set budget. Once you have established your budget for the month, you have to ensure that the surplus income should be diverted towards savings. The best way to have discipline in savings is to start systematic investment plans or RD or Monthly Savings plan etc. This is an elementary step you need to take if you want your financial plan to be successful. 

Not Having Enough Liquidity

Events like pandemic are the uncertainties of life means that you could lose your job without any prior notice. The global crisis is a Black Swan event, which was unexpected by all of us. However, the financial plan ensures stability for the short term to ensure we have time to come out of the crises in the long term. This is why, it is necessary to keep at least 3 to 6 months expenses as emergency corpus. You’ll have something to fall back on rather than running pillar to post with worry. 

Having Many Liabilities at the Same Time

At home, your TV and AC require upgrading and it can be easily done because you have a credit card. Buying something on credit, i.e., not having to pay for it upfront, can be an easy task that anyone cannot resist. However, the interest rates that credit cards levy mean that you are paying a lot more for something that actually costs less. Similarly the dream of buying a bigger house with easy availability of loans and tax saving on that, has developed a habit of spending more than earning. So, always set aside savings for your critical requirements first rather than to fulfil your lavish goals.

Having Too Much of Liquidity in the Form of Cash/Bank Savings 

Earlier when banks were offering 4% returns in savings account and around 8% returns in bank FDs, it looked very attractive because of easy accessibility in times of need. In the present scenario Banks are slashing the returns in savings account and FDs. Keeping excess money after setting aside for an emergency corpus would impact your overall portfolio returns, required to achieve the goals and does not even beat inflation. Therefore, calculate how much money is enough to keep for emergency and short term goals and rest invest as per your risk appetite and diversified portfolio as per the goal requirements.

Adhoc Investments done without realizing the purpose and investing against your risk appetite

Dumping all your savings into one asset class is not a right approach. Have you identified for what purpose or for what goal are you really parking this money? This becomes an important factor while deciding where you should invest your money. For eg, if you are planning to save for your retirement, you need to invest in long term assets such as NPS, MF Equity, VPF etc. rather than investing in a FD or other short-term assets.  It is also important to understand how risk averse you are or to what extent you can take risk to determine the options of investing.

So make sure you don’t make the same mistake several investors fall prey to, and spend on liabilities that you do not need at the moment. If you find this difficult to follow, always remember to consult a certified financial planner or wealth management firm before making any significant financial decision. They will advise you on all the pros and cons and help you make an informed decision.