Common Financial Mistakes to avoid

I'm writing this article to share my thoughts for married couple. Even though we may have advanced in terms of technology, education, better standard of living we fail when it comes to financial decisions. No matter, how much we earn or how fat our bank balances is, as long as one does not have financial discipline it would end up wiping out one's wealth in matter of no time. 

Life is best lived when we are prepared to face the worst. Allow me to share some of the fundamental financial mistakes we continue to make despite all the education and knowledge we have acquired.  

1) Failing to purchase right financial product at right time

Let us answer the below mentioned questions

• How many of us have health or Term(Life) insurance policies?
• Even if we have it, how well are we aware of the policies for which we make regular premium payments? Are we aware of the various inclusions and exclusions covered in our policies we have taken?

Most of us fail to understand the importance of these quintessential financial products and purchase them in their later stages. 

Let us accept the fact that life is uncertain and thanks to the thriving insurance industry - with small premiums we can cover any major possible risks that arise. It is important to note here that these events such as health emergency happen rarely but have the possibility of wiping out our wealth accumulated across many years (at times, possibly more than a decade)! 

But why should one start at the early stages? Remember that with every year passing, the health risks for any individual increases and the chances of getting covered under an insurance reduces (or the number of risks in an insurance that can be covered reduces with the increasing age). Not to miss out on the point of premium payments - when started at an early stage the premiums are low and they increase when started in the later stages of life. 

2) Not making your immediate family member a 'partner' in every financial decision making

This does not mean we take financial decisions without their knowledge. It only points out to the lack of complete awareness by them of the various financial products we purchase. Take for example, a Term or Life Insurance we purchase - how well is our immediate family member aware of the term insurance policy - its inclusions or exclusions, sum covered. It is not enough if we educate them - it is more important to make them 'partners' in our financial decisions. Remember that in our sudden absence no amount of paper work or documents would give them a complete understanding and the needed confidence as much as when they are made 'partners' in our decision making!

To make sure they are well aware of the financial products we purchase, including insurance policies or Mutual funds or properties, it is always better to start by asking them to identify a good product. For instance, a life insurance needs to be purchased. Start the exercise by asking them to identify a good product for the requirement while in tandem we do our homework (of identifying a good product). Making them part of any such forums/groups such as we find on Quora (Spaces) it would keep us abreast with the latest updates in the industry. 

3) Not having a credit card

Yes! You read that right! While many advise to avoid having a credit card, I would on the contrary advise anyone having a financial discipline to have a credit card. Just think about it! Who would give us free money for a period for 40-50 days and reward us for using the card? Credit cards come with host of benefits given the competition in the banking industry. While it is true that they carry very high interest rate charges ranging from 30-40% p.a. for default of payment or for the amount over & above the minimum credit amount paid, it is very much advisable for those who maintain very good financial discipline. Make sure not to transact the card(s) beyond acceptable limit so it stays within the range you would be able to pay off the card bills in time. 

Instead of making payments by cash make them by credit card - your rent or monthly grocery purchases, shopping, dining and make the payment at the end of the month by cash. These days they are accepted at most of the retail outlets for transactions as less as Rs.100.

Make sure to use a credit card that does not stipulate any minimum monthly/yearly expenditure - this will avoid any pressure to make unnecessary spends and also does not carry any annual/hidden charges. 

I'll cover credit cards in another article....in detail!

4) Income (I) - Expenditure (E) = Savings (S)

Since childhood, we had always learnt this 'I - E = S'.  

A wiser decision would be Income (I) - Savings (S) = Expenditure (E).

The idea behind I - S = E is that, we set aside a predetermined sum every month as savings after considering a fair estimate of the expenditure. This would avoid any unwanted expenditure. Watch the miracle of your savings after few months of the application of this formula!

Do you feel you are committing any of these mistakes and require course correction? I would strongly advise you to act upon it immediately.      

Please share any financial learning I may have missed in my above article in the comments section. Will be glad to know your thoughts.