Month: July 2023

Money serves as the main medium of exchange, letting individuals purchase goods and services to meet their requirements. For a better future, you need to ensure you have enough savings to tackle any kind of financial emergency and, thereby enjoy a quality life. 

This is why you should stay cautious and avoid common mistakes with money. Nevertheless, you first need to be aware of the mistakes to avoid those in the future. 

Mistakes with Money

Check out the most common mistakes that can cause financial stress in the future:

• Saving Inadequately

Many people just spend their monthly income without thinking about the future.  They do not save money for their unplanned expenses. 

The rule of thumb is that you develop a contingency or emergency fund by keeping aside a certain portion of your monthly income. It will help you stay prepared for unexpected but necessary expenses like medical treatment. You can even sustain your life and livelihood in case of your monthly income becomes lower.

• Not Planning a Budget

One of the major mistakes with money is spending without any budget. A budget lets you spend your money in a disciplined manner. It is a practice of organising all the potential expenses in a month so that you have better control over your monthly income and save a fixed amount.

• Staying Drowned in Debt

You can find people who have the habit of taking loans to make their big-ticket purchases and end up engaging in multiple loans and credit card bills. Such habits can lead you to a debt trap, making it very difficult to get out of the burden of a loan.

You should borrow judiciously and only when it is important. Further, if you already have a loan, you should ensure your debt-to-income ratio does not go beyond 35%.

• Investing in Instinct

If you do not know how the stock market works and when the prices of shares grow, it is better if you do not invest. It would be a mistake with money if you invest based on your speculations, not after a proper analysis. You may lose your hard-earned money if the stock you invest in does not perform as per your speculations. If you are a novice in the stock market, it is better if you take the advice of experts regarding investment or keep your money in mutual funds. 

• Not Developing Financial Goals

You also give time to think about big-ticket but necessary expenses lying ahead in both the near and distant future. You may have to buy or build your own house or pay the tuition charges of your child. If you identify them, you can develop a plan to save your money accordingly and bear those expenses without facing much hardship.

• Spending on Luxurious Items

Building expensive hobbies and spending on luxury items are also some major mistakes with money that you need to avoid immediately. There are people who spend large amounts of their income to spend on luxury items like iPhones. They upgrade the smartphone whenever a new model launches, even if they have to purchase it on finance. If you build such a habit, it will be way difficult to save money for the future. 

• Having no Insurance Coverage

You should never see the premium of your life and health insurance policies as a burden and barrier to your goal of saving money. If you do not yet have the coverage of these policies, it is time for you to take them. A health insurance policy will help you save a lot by covering your hospitalisation and other medical bills. By purchasing a life insurance policy, you can ensure the financial interest of your family is protected in case of your premature demise. Your family will get a lump sum as a death benefit. 

Having a sufficient amount of savings for the future is necessary to ensure a financially secure future. It helps you achieve your financial goals and enables you to access the conveniences. You can get proper healthcare, buy necessary things and maintain leisure activities only if you have enough money at your disposal. Without rectifying mistakes with money, one can neither save enough nor spend a quality life. 

FAQs on Mistakes with Money

1. What does the 50-30-20 rule of money tell?

You can follow the 50-30-20 rule of budgeting. This rule suggests that you should ideally allocate 50% or half of your income to make the necessary expenses, such as purchasing food items, paying rent, etc. 30% of your total monthly income should go towards your ‘wants’ or to fulfil your dream expenses. You should keep aside the rest 20% of your income for saving money.

2. What are the major financial risks that one should be aware of?

Issues with income, expenditure, investment, and repayment risks are 4 major financial risks. Income Risk: Occurs due to issues like disability and death. Expenditure Risk: Spending in a month can become more than income due to unexpected crises. Investment Risk: Returns on investment may not be as per your expectation. Repayment Risk: Difficulties in repaying your loan in the future.

3. Where can I keep my money to secure a return more than the rate of inflation?

To ensure your money grows higher than the rate of inflation, you can invest in bonds, securities, mutual funds, gold, and stocks.

Year-end is a good time to review your investments and financial goals. This allows you to adjust the monetary plans i.e., the spending and savings for the remaining months of the year. Moreover, it lets one determine whether or not to continue the same plan over the next year.

Financial planning will allow you to review your short and long-term monetary goals. You will also be able to assess your current financial situation through a checklist. So, if you are making financial plans for the year, there are certain factors that you need to consider.  

5 Things to Consider While Financial Planning

Although there are a lot of factors that you can consider while making a yearly financial plan depending on your priorities, here are a few that you should consider adding to your checklist.

1. Create a Budget for Personal Expenses

If you want to create an effective financial strategy then the first step is to assess your existing financial condition. This will let you responsibly manage your income and expenditure. You can start by making a list of your miscellaneous expenses like fees, annual subscriptions, etc., which usually go unnoticed but can amount to a significant sum.

In addition to this, you can also chalk out the amount that you spend on your daily necessities and eliminate a few spendings that are dispensable. You can put the extra savings from these cost-cuttings towards productive things like investment plans, retirement funds, etc. 

2. Manage Your Existing Debts and Loans

Make a note of all your ongoing debt obligations if you have any. Then consider clearing your short-term loans, which have a higher rate of interest. This will help reduce your debt burden over the year. Moreover, it will increase your credit score and in turn, boost your creditworthiness. 

If you have outstanding credit card dues, car loans, etc., plan to clear them off and then move to home loans, personal loans etc. Reducing debts will enhance your financial health and automatically put you in a position to save more.

3. Plan Your Taxes

Managing taxes should be a part of your yearly financial planning. As a result, delaying tax planning till the last moment might cause you to end up paying higher tax liabilities. The lack of time will also result in a lot of inconvenience. 

If you plan your taxes ahead of time you can consult a tax professional and also get to know about any benefits for which you might be eligible. Additionally, you will get time to arrange your tax-related documents to avoid hassle in the future.

4. Review Your Insurance Coverage

Making plans for emergencies should always be a part of your family’s financial planning. Especially if your family depends on your income for their monthly expenses then you should include life and health insurance in your financial plan. If you own a two or four-wheeler, then you should also consider getting vehicle insurance. 

However, make sure to read the terms and policies carefully before purchasing such insurance. Even if you have existing insurance policies, you can re-evaluate them to ensure they cover all your needs.

5. Create a Fund for Emergencies

A financial emergency can strike at any time. This is why it is a wise decision to figure out a way to deal with them well ahead of time. Try to create an emergency fund which can ideally cover at least 12-24 months of your expenses, including your debts and EMI payments.

People might find it difficult to put aside this specific sum from their monthly income. This is where budgeting comes into play. With a proper budget plan, saving up for an emergency fund is an easily achievable goal. 

However, if you are still in serious need of funds during an emergency, you can opt for short and long-term loans from Credmudra. This platform evaluates your details and displays the best possible match for a lender from whom you have the highest chance of credit approval.

Financial planning is crucial in achieving your monetary goals and also keeping track of your progress. Doing it earlier rather than later will let you make modifications to your spending and saving habits without any hassle. What you include in your financial plan is dependent on your priorities as well. Thus, apart from the points mentioned above, you can also incorporate other goals that you wish to address.   

FAQs About Things to Consider While Financial Planning 

1. Should I hire a professional financial planner to help with my financial planning?

If your finances are simple, you will most likely be able to do it yourself. However, if you are facing a complex financial situation, then hiring a professional financial planner to help you out will be a good idea.

2. How to make sure I achieve the goals specified in my financial plans?

Being vague or indecisive about your financial goals will make it hard for you to follow them over time. This will delay your overall progress. Thus, set clear achievable objectives and review your plans regularly to keep an eye on your financial growth. This will help you to easily reach your set goals.

3. What are the mistakes to avoid during financial planning for the year?

Putting off a financial plan, improper budgeting, not accounting for emergencies, not reviewing the plan periodically, etc., are some of the common mistakes people usually make. Not communicating the plans to the concerned people like spouses, children or immediate family members is another grave error you should avoid.

In today’s fast-paced world, saving money has become more important than ever. Whether you’re aiming to build an emergency fund, achieve financial goals, or simply have extra cash for the things you love, learning effective ways to save money is essential. 

So, let’s dive right in and unlock the secrets to saving money while securing your financial future!

6 Effective Strategies to Save Money

1. Cook More at Home

One of the most effective and rewarding methods to save money is by preparing meals at home. Eating out or ordering delivery can be expensive, costing you 2 to 20 times more than a home-cooked meal. This means spending Rs 6,000 to 60,000 per month compared to just Rs 3,000-4,000. Not only does cooking at home allow you to have complete control over your ingredients, but it also enables you to reduce your expenses on dining out. 

Moreover, cooking can be an enjoyable and therapeutic activity that unleashes your inner chef. So, grab your apron, turn up the music, and embark on a culinary adventure that will nourish both your savings and your soul!

2. Opt for Free or Low-Cost Exercise

Who says staying fit has to drain your wallet? 

Say goodbye to costly gym memberships and embrace free or low-cost alternatives like running or cycling. By choosing activities that require minimal investment, you can save money on membership fees while enjoying the great outdoors and breathing in the refreshing air. 

Lace-up your sneakers or hop on your cycle, and let your savings and endorphins soar together!

3. Bulk Buying or Not

Bulk purchasing can have both positive and negative financial effects. While it may be alluring to take advantage of “buy one, get one free” offers, it’s important to take your needs into account.  Sometimes, purchasing in bulk can lead to wastage and ultimately cost you more in the long run. 

Instead, focus on buying essential items in bulk, such as non-perishable goods or household necessities. By doing so, you’ll witness your savings grow steadily without unnecessary expenses.

4. Harness the Power of Cashbacks

Cashbacks are the unsung heroes of frugality! Make the most of cashback offers available through various apps and websites. From groceries to online shopping, cashback can reward you with a percentage of your spending, which accumulates over time. Keep an eye out for cashback opportunities and relish the satisfaction of being paid while you shop!

5. Smart Credit Card Usage and Reward Points

Credit cards can be a secret weapon for saving money if used wisely. Opt for credit cards that offer reward points and cashback on your purchases. 

While credit card rewards offer enticing benefits, paying interest on your balance can greatly decrease the value of these rewards.

To avoid paying interest, you must pay off your credit card debt in full each month. By doing so, you can take full advantage of the rewards program without having to pay additional fees in the form of interest. 

By accumulating reward points, you can redeem them for discounts, freebies, or even cash back. 

Transform your spending habits into a pathway to savings!

6. Grow Your Money and Discover Financial Solutions

Saving money isn’t just about cutting expenses; it’s also about making your money work for you. 

Set short-term goals (emergency fund, vacation, car down payment) and long-term goals (home down payment, education, retirement) to determine your saving priorities. Allocate your savings accordingly, ensuring that both immediate and long-term needs are considered. Prioritising your goals will guide you in maximising the potential of your savings. 

During unforeseen circumstances, it’s not uncommon for individuals to encounter situations where they require immediate access to funds. 

In such times of urgency, opting for a Personal Loan through Credmudra can prove to be immensely helpful. You can obtain swift cash and enjoy the flexibility of repaying the borrowed amount over an extended period in manageable instalments. 

Start your journey towards financial stability today by implementing these effective strategies to boost your savings and secure your future.

Frequently Asked Questions On Saving Money

1. How much money should I save per year?

Depending on your age, you should save a certain amount of money each year.  It is generally recommended to save between 10% and 40% of your annual income.

2. How do cashbacks work?

Cashbacks are rewards where you get a portion of your spending back in the form of cash. They are provided by merchants or credit card providers as a perk to boost expenditure.

3. How can I save money quickly?

To save money quickly, consider the following options:

• Cut back on eating out.
• Use cashback or rewards credit cards.
• Cancel unnecessary subscriptions.

People who prefer skipping lessons that teach how to level up wealth-creation strategies are unarguably dim-witted. If you have started earning already, most probably you will agree with this statement. 

Many still wonder why there is a lack of awareness when it comes to managing personal finance. Well, there are not one or two but many reasons that have caused the common folks to stay ignorant on how to achieve financial freedom. 

Here, you will know about the 6 most common financial myths and learn some helpful tips to level up your investment game. 

Busting 6 Financial Myths 

In this section, you will read about 10 common financial myths that consistently remain unaddressed. So, here are they:

1. Cost-Cutting is the only way to Increase Savings 

You may save significantly each month by giving up luxuries like dining out expenses. But undoubtedly there are many other ways too to increase your savings. Take on a side hustle or part-time work if you have free time in your schedule.

2. Savings Must be Done in a Savings Account

Currently, the interest rates are as low as 3.5% – 4%. Thus, it is foolish to retain a sizable amount in savings accounts, as one is receiving negative returns considering inflation. Because of this, experts suggest consumers maintain a minimal amount of money in savings accounts and invest the larger portion in better options.

3. Retirement Planning Before 40s is Unnecessary

Disciplined investments when started off early can have a big influence on your savings by the time you have accomplished each of your financial objectives. 

For example, the same person needs to invest Rs.10,000 per month instead of Rs.5,000 if he wishes to accumulate close to Rs.6 Crores by the time he retires. Additionally, his goal will only be accomplished if the interest rate remains over 6% consistently throughout the tenure. 

4. Investments are Risky

As the several ways of achieving financial freedom are still unknown to many, these rumours keep on spreading. People tend to exaggerate negative stories of their peers who previously lost fortunes mainly due to uninformed decision-making. 

To become monetarily successful you need to spend time understanding the various risk management strategies. This will finally help you prepare a portfolio that will work for you passively and slowly eradicate your financial obligations. 

5. Life Insurance Policies are Optional

Investment-cum-insurance packages do not directly help you reach your financial objectives. But these schemes are crucial to get enough term life coverage. Activating a well-planned policy will fulfil your family’s financial needs in the event of your untimely death, complimenting your other investments.

6. Moving to a Rented Apartment is a Waste of Money

Owning a home has been seen as one of life’s greatest accomplishments. However, the majority of properties provide below-average returns over the long term when compared to fixed-income instruments like fixed deposits. 

Additionally, investing in real estate brings many liquidity difficulties. So, before choosing a home loan, you must reconsider your income potential, avenues of repaying and possibilities for future relocation. If you need help in getting affirmation against any of these queries, it is better to rent accommodation that goes with your lifestyle.  

It is advised to seek expert assistance if you lack confidence in taking your first steps towards attaining financial freedom. You have the option of receiving financial plans from Credmudra for several objectives. Additionally, you can benefit from our highly affordable short-term personal loans that can instantly get rid of your current problems.

FAQs on Financial Myths 

Does depending on credit card facilities help boost CIBIL score?

No, it is a myth. The best you can do to maintain a healthy credit report is to pay off the EMIs regularly and refrain from taking bad debts. Bad debts basically provide the beneficiaries with money which they do not utilise for realising any long-term goals. These debts simply add to their financial burdens.     

Is it possible to build a sufficient retirement corpus with small monthly contributions?

Regular contributions to a combination of equity and debt instruments are considered ideal for anyone looking to save for retirement. 

As a general rule, you should aim to keep aside 10-15% of your monthly income to fulfil your retirement needs. This will help you contribute 6 -11 times your salary which will make a substantial amount after considering the accrued interests. 

Is it advised to hire financial planners?

Financial mentors are professionals who have years of practical expertise and knowledge of using various tools to manage wealth. You may hire them at affordable rates to generate personalised plans on how to make the most out of markets.

Should we talk about money problems with others?

Talking about money has to be normalised to maintain stable mental health. Reportedly many couples split up just because of financial struggle which if you come to think about is a normal phase of everyone’s life. Thus, to attain freedom financially, you must consider discussing pressing issues with people in your close group.  

The capacity to have a financial safety net that allows people to follow their dreams is known as financial freedom. Its definition varies from person to person and might include things like complete control over one’s time without having to trade it for money, the chance to pursue new interests, or the ability to quit a job and continue to make passive income. 

A person who has gained financial independence may manage their money well and lead a self-determined life. They have the flexibility to choose, a feeling of security, comfort, and plenty of time to engage in things they enjoy thanks to it. As a result, it is essential to make plans and aim for this state early in life.

What are the Benefits of Becoming Financially Independent?

Being financially free comes with many benefits, such as: 

• No stress of medical emergencies 

Financially independent people have the resources to cover medical costs without having to worry about their ability to do so. This can aid in lowering stress and anxiety levels and assisting people in receiving the care they require when they require it.

People might take a few steps to obtain financial freedom and lessen their anxiety related to medical problems. Getting health insurance is one. In order to avoid having to pay for medical costs out of pocket, health insurance can help to cover their cost. People can also put money aside for future medical costs. This can assist in building a financial safety net that can be utilised to cover unexpected medical costs. 

• No stress of regular expenses 

Financial freedom is a state of being that allows individuals to experience a life free from stress and worry of regular expenses. When one obtains financial freedom, they are no longer burdened by everyday financial obligations or concerned about how they will pay their bills.

Imagine leading a life where meeting expenses, controlling debt, and providing for necessities are simple. Individuals who enjoy financial freedom can cover their monthly bills without experiencing stress or distress. Because of the comfort and peace of mind that comes from knowing that one has a sound financial foundation, one may enjoy their newly found independence.

• Easy to maintain a likeable lifestyle

Gaining financial independence gives you the power to customise your life to fit your preferences and ideals, which can lead to a more appealing living. You can follow your passions and interests without being constrained by money when you are financially free. You can commit funds to pursuits that make you happy and fulfilled, whether they involve travelling, starting a business, engaging in hobbies, or contributing to important causes. 

• A step towards a secured future 

People who succeed financially can lay a solid foundation that protects them against unforeseen circumstances or calamities. In order to increase their wealth, they can prudently invest, save for retirement, and establish an emergency fund. They can maintain their preferred quality of living and feel at ease knowing they have the wherewithal to overcome difficulties, thanks to their sense of financial stability. People who have a bright future can pursue their objectives with assurance, knowing they will have the resources necessary to maintain themselves and their loved ones in the long run.

• Establish a solid retirement plan 

Financially independent people can actively plan for retirement and make prudent financial choices. Financially stable people can improve their retirement savings by maxing out their retirement accounts, using tax-advantaged savings options, and making sensible investment decisions. They can improve profits, reduce risks, and diversify their holdings. This enables people to build up a sizable retirement fund that ensures a comfortable lifestyle and fulfils their retirement goals. People who have achieved financial freedom can retire with assurance since they know they have a reliable plan in place to take care of their needs in the future.

• No financial liabilities that are difficult to cater to

Being financially independent enables people to deal with unforeseen financial obligations with ease, whether they involve unanticipated medical costs, home repairs, or other costs. They can meet these responsibilities without turning to high-interest loans or credit card debt because they have the means and flexibility to do so. Financially independent people can keep an emergency fund on hand to pay for unforeseen costs and have the resources to go through trying times without jeopardising their overall financial stability. They feel secure and at ease knowing they can manage any unforeseen financial demands that may emerge because they are prepared to address financial liabilities.

It takes careful financial planning, diligent saving, and prudent money management to achieve financial freedom. It’s crucial to establish specific objectives, make a budget, pay off debt, make good investments, and keep learning about personal finance. You can build a likeable lifestyle that fits your objectives and provides you long-term joy and happiness by taking deliberate efforts towards financial freedom.

FAQs on Financial Freedom

What are the advantages of financial independence?

The ability to pursue passions and interests, flexibility in career choices, improved work-life balance, the chance to support loved ones and charitable causes, increased peace of mind regarding retirement planning, and the capacity to manage unforeseen financial challenges with ease are just a few of the many advantages that come with financial freedom. 

How can I become financially independent?

Achieving financial freedom takes thorough preparation, consistent saving, and prudent money management. Making a budget, paying down debt, saving more money, making good investments, and diversifying your sources of income are some essential actions. 

How much time does it take to become financially independent?

Each person’s timeline for achieving financial freedom is unique and is influenced by things like income, expenses, debt payments, and investment returns. It is a path that calls for perseverance and self-control.