10mistakesthatcanderailyourfinanciallifeandwaystoavoidthem

Toerrishuman.Butsomemistakescancompletelyderailyourfinanciallife.Infact,managingyourfinancesand
makingsmartmoneydecisionscanbeachallengeanditisinevitablethatmistakeswillbemade.
However,"sometimesevenasinglefinancialmistakemaybedetrimentaltoyourfinancialgoals.Infact,forso
manyaspectsoffinancialplanning,thereisnogoingback,atleastwithoutsomesortofpenalty",accordingto
HarminderGarg,acertifiedfinancialplannerforFinancialPlanningStandardsBoardIndia.
Let'stakealookatsomeofthesemistakesandwaystoavoidthem:
Mistake#1:HavingNoFinancialPlan
Toomanypeopleputfinancialplanningonthebackburneruntiltheygetolder,whenpanicstartstosetin.But
havingnofinancialplanorputtingofffinancialplanningmaybethebiggestmistakeofall.
"Peoplegenerallyonlyseektheservicesofanaccountant,forexample,whentheyneedtofiletaxreturns.
Financialplanningissomethingyoucanputoffeasilyasthereisnorequirementforinstantgratificationunlikeif
youhaveapaininyourbody.However,justasputtingoffvisitstoadoctorcanleadtohugecomplications,so
candelayinganannualcheckupwithafinancialplanner.
Therefore,ifyouwanttoadequatelysaveforyourfamilyandyourfutureorsimplyretirerich,youfirstneedtoget
yourfinancialhouseinorderandthatcanbedoneonlythroughproperfinancialplanning.
"Financialplanningrequiresthinkingthroughandsettingoflifetimefinancialgoalswhichenableonetodetermine
theappropriateassetallocationrequiredforoneselfandone'sfamily.Ifthisassetallocationisfollowedina
disciplinedmanner,goalscanbeachievedwithouttheuncertaintiesofthemarket,"LovaiiNavlakhi,MD&Chief
FinancialPlanneroftheBangalorebasedInternationalMoneyMatters,says.
Therefore,figureoutwhereyouare,whereyouwanttobeandputinplacearealisticplanforgettingthere.
Mistake#2:NotStartingEarlyInLife
Evenifsomepeoplewanttoplanfortheirfuture,theygenerallythinktheyneednotplanearly.Dependingupon
theirindividualtimeframe,thus,theydonotlikeplanningformorethanthreeweeksorthreemonthsor,rarely,
threeyearsinadvance.
"Let'simaginethatwearekickingofffromthecentreinafootballmatch.Weneedtoscoreagoalmorethanthe
otherteamtowin.Youcan'thopethatyouwilldefendyourgoalfor89minutesandthenattackinthelastminute
andscorethewinninggoal,"Navlakhisays.
Itisjustlikeplanningfundsforretirementaboutayearbeforetheactualretirementdate,oreventakingalife
insurancepolicyamonthbeforeone'sdeath,accordingtoNavlakhi.Havingagoalandstartingearlytomeetthat
goalareabsolutemusts.
Mistake#3:NotInvestingSlowly&Systematically
Theproblemformanypeopleisthattheylivemonthtomonthanddon'tdevelophealthysavinghabitsuntilthey
areintheirthirtiesorforties.
"Contributionstoasavingsplanshouldberecognizedasthefirstofyournecessarymonthlyexpenses,sothat
moneysavedwillneverbethoughtofasmoneythatcanbespent.Evenifyoustartsavinginsmallamounts

now,youcanalwaysincreaseinthefuture,"Navlakhisays.
Mistake#4:PuttingAllEggsInOneBasket
Anothercommonmistakeisnondiversificationofportfolio.Inthiscase,amajorpartoftheportfolioisinvested
inasingleorsametypeoffinancialinstrumentwhichincreasesrisks,resultinginhighlosses/profits.
"Individualsshould,therefore,diversifytheirportfolio,i.e.allyourmoneyshouldnotbeinvestedinthesame
assetclass.Investmentportfoliosshouldbediversifiedinaccordancetoone'sriskappetite,"Gargsays.
Therearetwoprimaryreasonstodiversifyyourportfoliooneistotakemaximumadvantageofthemarket
conditions,andtheotheristoprotectyourselfagainstdownturns.Thebasicconceptistodivideyour
investmentsamongassetclasseswherereturnsareinverselyproportionaltoeachother.
Mistake#5:HavingUnrealisticExpectations
There'snothingwrongwithhopingforthe'best'fromyourinvestments,butyoucouldbeheadingfortroubleif
yourfinancialgoalsarebasedonunrealisticassumptions.
Forinstance,lotsofstockshavegeneratedmorethan50percentreturnsduringthebullruninrecentyears.
However,itdoesn'tmeanyoushouldalwaysexpectthesamekindofreturnfromthestockmarkets.Similarly,if
yourpropertypricesmorethandoubledduring200407,itdoesn'tmeanyoushouldexpectatleast30percent
annualreturnfromrealestateinthefuture.Theburstingofstockmarketbubblesisacaseinpoint.
Therefore,whenrenownedinvestorWarrenBuffettsaysearningmorethan12percentinastockispuredumb
luckandyoulaughatit,you'resurelyinfortrouble!
Mistake#6:NotStickingToTheBudget
Youaremorelikelytofacefinancialproblemsifyouhavebeenextravagantinyourexpenses.However,inabid
totideoverthecurrentcrisisandalsoavoidsuchcrisesinthefuture,youneedtoadheretosomefinancial
disciplinemakingabudgetandstickingtoitisoneofthem.However,todothatitisimportanttokeeptrackof
yourspendsonadaytodaybasistoensureyourmoneyisgoingtotherightplaces.Ifyouarealreadyinthe
habitofmakingbudgets,thenyoucanalsoreadjustyourbudgettosuityouraims.
Alwaysrememberthatarupeesavedisarupeeearned.Therefore,sticktodiscretionarybudgetssoyoucan
handletheuncertaintyinnondiscretionaryexpenses.
Mistake#7:HavingNoRainyDayFund
Theneedforhavinganemergencyfund,particularlykeepingsomecashathomeorinabankaccount,has
alwaysbeenemphasisedbyinvestmentplanners.
"Evenstandardfinancialprinciplessuggestthatyoushouldkeepasidecashtocoverthreetosixmonthsof
livingexpenses,whichwouldalsobeabletocovermostemergencyexpenses,"Gargsays.
Inreallife,however,veryfewpeopleseetheimportanceofkeepinganemergencyfundintheirportfolio.Forget
thosewhocan'taffordit.It'strueevenforthosewhoheavilyinvestinstocks,realestateandotherassetsand
sometimespayheavilyfortheirmistake.
Mistake#8:NotHavingAdequateCover
Itisprettyevidentthataneconomicrecession,apaycutorhigherinterestratesonloanswouldallhavemuch
lessofanegativeimpactonyourfamily'sfinancialfuturethanthedeathofthebreadwinnerofthefamily.

However,fewpeoplerealizetheimportanceofhavingsufficientriskcoverasmostpeoplelookatinsuranceasa
noreturninvestment.Also,asthefinancialneedsofindividualshaveevolvedovertime,thereisheightened
importanceofriskprotectioncombinedwithwealthcreation.
"Insuranceproductscanhelpprovideanimportantprotectiveshieldaroundone'sfinancialgoalsandretirement
savings.Theyalsohelpineffectivelymanagingadiversityofrisksandallowsonetoentertheirretirementyears
withmoreconfidence,"AtulSurana,CFPatCatalystFinancialPlanning,says.
Mistake#9:CountingonTomorrow'sIncome
Countingontomorrow'sincometospendtodayisabigmistakewhichhasalreadybeenprovedbythecurrent
crisis.Infact,untilthefinancialmeltdownhitus,thespendinglevelsofindividuals,especiallyinthe2535year
agegroup,havebeenalmostequaltotheirincome,ifnotmore.
"Witheasilyavailableloansandcreditcards,theyweretemptedtoindulgeevenwithoutbeingabletoaffordthe
expense.Nowwithpaycutsandjoblosses,theyarefacingtheworse.However,evenifyoukeepyourjobnow,
theprevalenceofpaycutsmakesitclearthatyoucan'tcountonaneverexpandingpaychecktomakeupfor
yourspending,"Navlakhisays.
Therefore,youshouldavoidcountingontomorrow'sincomeasfaraspossible.
Mistake#10:BeingGuidedByFear&Greed
Manyinvestorshavebeenlosingmoney,particularlyinstockmarkets,duetotheirinabilitytocontrolfearand
greed.Inabullmarket,forinstance,thelureofquickwealthisdifficulttoresist.Greedaugmentswheninvestors
hearstoriesoffabulousreturnsbeingmadeinthestockmarketinashortperiodoftime.
"Thisleadsthemtospeculate,buysharesofunknowncompaniesorcreateheavypositionsinthefutures
segmentwithoutreallyunderstandingtherisksinvolved,"AshishKapur,CEO,InvestShoppeIndia,says.
Insteadofcreatingwealth,suchinvestors,thus,burntheirfingersthemomentmarketsentimentreverses.Ina
bearmarket,ontheotherhand,investorspanicandselltheirsharesatrockbottomprices,thuslosingmoney
again.