Irrational financial choices or decisions taken in haste are common happenings in everyone’s life. There could be several reasons that can drive an individual towards imprudent choices, including lack of awareness about an investment alternative or blindly following conventional approach with savings. Whatever may be the reason, the only coherent step forward is to identify those mistakes and fix them at the earliest.
Here’s a list of few common financial mistakes that people make along with appropriate fixes for them.
1) Withdrawing from EPF Corpus - EPF becomes centre of focus every time an individual changes job. An individual almost plans everything to do with their EPF except using it for the purpose that fits it, i.e. retirement. More often than not, EPF credited in one’s bank account evaporates towards mindless objectives that can prove be disastrous in later years.
Corrective Action - To prevent such a mistake, its better to transfer PF account under new employer. Utmost care should be taken to distance oneself from the need of withdrawing EPF at any cost. An individual should have contingency plan in place to rule out the possibility of EPF withdrawal during emergencies.
2) Conventional Investing- When it comes to choosing between higher returns and lower risks, people tend to prefer lower risks as a response to fear of losing hard-earned money. Majority of Indians park their savings in fixed deposits, but fail to realize that inflation is fast depleting the value of their funds due to poor returns fixed deposits fetch. Apart from inflation, there are more disadvantages attached with fixed deposits. Firstly, except for tax-saving fixed deposits, interest earned from any fixed-deposit is not exempt under Section 80C while the maturity amount is also taxed. Hence, investors are losing both in terms of tax-benefit and returns.
Corrective Action- Investors should take informed decisions before investing into any product. Alternative options such as mutual funds and stocks exist that can help beat inflation and seek higher returns.
3) Missing fun quotient - It is not surprising to see that many of us rush to save a lot within a short-term without setting aside sum for fun or entertainment. Resultantly, such a strategy backfires when emotions reign in and lead to unnecessary spending.
Corrective Action - It is very important to allocate a portion of savings towards fun budget, such as shopping, movies or eating out. Such a provision can prove to be a big motivator for one to stay disciplined and not lose focus from savings.
4) Life Insurance for children - Many parents end up buying life insurance for their children to help secure their children’s education and future. But, these policies hardly solve the end-objective. In first place, premium charged for these policies are steep compared to returns. Secondly, these policies are highly incompetent in beating the effects of inflation over progressive years.
Corrective Action - It is better to exit such traditional policies at the earliest and invest the amount in alternative avenues such as mutual fund or stocks.
5) Peer pressure - New car bought by your neighbour or an extravagant holiday trip by your relative can generate extreme competitiveness. These emotions can often force individuals to deviate from their plan and plunge into regretful spending.
Corrective Action - Peer pressure can be overwhelming, which requires periodic evaluation of present income and limitations. Feeling of competitiveness can be suppressed if an individual carefully provisions for binge spending once or twice a year.
About The Author: Reenika Avasthi is associated with Inverika Investment Solutions LLP as a Content Writer and Financial Planner. Reenika Avasthi is a Certified Financial Planner and a freelance content writer in the field of personal finance. Her interest in writing and spreading investor awareness motivated her to start blogging.
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