11 Financial Mistakes You Must Avoid in 2018

The earlier generation was excellent when it came to savings. Their investment decisions were not that commendable, though. They believed in saving in bank accounts, fixed-interest instruments or in gold. They were averse to taking risk. We are a generation of risk takers. But make no mistake, we commit more mistake than our parents. We live in the moment knowing too well that the key to financial security is in planning and proper execution. Every mistake made comes at a price. Financial mistakes come with a bigger price, though. The repercussions of money mistakes are huge. One wrong move can lead to shortfall of money for other necessary things. Sticking to the basics, we have compiled a list of 11 financial mistakes you must avoid in 2018:

1. Not having an emergency fund

Most if us make this mistake. We all talk about saving for the rainy day, but we rarely do. Imagine an emergency and the situation demands to shell out Rs. 50000 – faulty AC, broken car or home repair. It is a big amount for most Indians. When we don’t have this much money, we borrow at a premium. Why don’t we set up a fund to begin with? Start small. Let’s say 1000 rupees a month and invest it in a SIP. This fund would grow over the years and would be helpful in emergency situations. Two suggestions that work best to start an emergency fund:

• Automate deduction from the savings account and keep it small to ensure longevity
• Invest to let the money grow

2. Not investing

As they say in finance – the right time to invest is now! Keeping money in your bank account is one mistake most Indians commit. Don’t merely save. Go to the next step – invest. Never postpone your investments. You can opt for different avenues if the investment option you are eying is not rewarding right now. Property was considered a good investment in the first decade of the century. Now it’s share market. Change the investment avenue but never wait to invest. Discuss with your CA, do online research, follow good blogs to find the best investment option for your financial goals.

3. Not setting up a retirement fund

There is no pension in the private sector. And even the government sector is doing away with it. Expenses never diminish. They rise with inflation. Or one expense takes place of another – children’s education would be substituted with rising medical bills in the old age. It’s prudent to set up a retirement fund the year you start working. It has triple advantage – low premium, tax benefit, and you avail the benefit of compounding. Invest in multiple funds, change them based on performance and start as early as you can.

4. Not utilizing all the perks that come with pay package

In addition to your base salary, HRA, DA, bonus, vehicle allowance etc., there are many indirect benefits that may be included in your pay package. Some indirect benefits include – interest-free loans for a limited time, food coupons, or insurance for the family. Check with your accounts or HR department and read the fine print of company policies in addition to your offer letter. Make the best use of all perks given to you.

5. Oversubscribing to services you don’t use

There are many memberships we take in the heat of the moment and seldom use. I’m guilty of taking library and gym membership which I didn’t use. Also, there are services which become redundant with time. Last night I couldn’t find anything worth watching on Netflix and thought of taking Amazon Prime membership. I realized it later that as these are no-contract services, it is prudent to cancel one before taking another. Why pay for Netflix subscription when I’m looking for a change? There are subscriptions we don’t even use – magazine, clubs, premium membership fees of reading apps. Cancel them if you don’t use. And once a year, sit and compare the price of competitors to switch to cheaper options.

6. Not keeping track of your finances

How can we fix a problem we don’t even know exists? To know where we fumble while managing our finances, we must keep track of our money. And it’s extremely easy to do so these days. The boom in online shopping, plastic money and apps have made it quite easy. Download an app. Add all your bank accounts and credit cards to get a detailed account of your expenditure at the end of the month. Do a thorough analysis to cut-off the unnecessary expenditures.

7. Not using technology to your benefit

In addition to tracking your finances on an app, there are many ways we can use technology to save money. Technology provides cheaper options over the conventional expensive alternatives. Here are a few ways we could benefit from technology:

• Get better discount while shopping on apps than on websites – Use Amazon, Flipkart or Myntra apps
• Use VOIP to make long or international calls – try Skype, WhatsApp or Google Hangouts
• Opt for ebooks or audiobooks over hardcover – Kobo, Kindle and iBooks membership is cheaper
• Use streaming apps than cable  – Netflix, Amazon, and Hulu are good alternatives
• Use discount/coupon apps to get better deals – CouponzGuru, GrabOn or CouponDunia to get discount codes

8. Not staying within your means

Cut your coat according to your cloth – this old saying is still valid. Spending beyond your means is the shortest route to financial mess. We all have different spending habits, which if not kept under control, can lead to financial downfall. Buying more than we can afford, taking luxury products on EMIs, eating out excessively and impulsive shopping are few of the ways we can ruin our financial health. Take control of these bad habits before it’s too late. Don’t splurge if you can’t afford. My friend’s teenage son gave the best advice to stay within means – don’t buy something if you can’t afford to buy 2. If you think you can’t buy 2 shirts from a luxury brand at once, chances are you are going overboard even with one. Buy 1 quantity only if you have money to buy 2. This makes sure you are spending within means.

9. Not understanding the true cost of your purchases

In addition to the retail price, there are many expenses that come with a product. Take an example – when you buy a smartphone, you buy its cover, upgrade your data plan and order other accessories. The cost increases up to 2k in addition to the cost of the smartphone. Now think of a big purchase, like an SUV, in addition to its on-road price, you will pay for its insurance, maintenance, repairs, and upgrades. Everything we buy come with incidental costs, too. Compare these expenses while making a purchase decision. For example, I don’t want to live in an independent bungalow because the maintenance and insurance costs are too high.

10. Not setting a monthly budget

Budget is the foundation of financial security. Not setting a monthly budget makes us aimless. We earn and spend without any sense of direction. A detailed budget can take us a long way. Take note of every expense. Last year I saved more than $1000 by simply deciding to set a limit to the number of times we would dine out. Right after my marriage, I made a shopping budget to make sure we didn’t come back with a shopping bag every time we went to the mall. These conscious budgeting decisions helped us save and invest.

11. Not asking for discounts

There is always a room for negotiations even at fancy upscale stores. Ask for a discount. Ask the salesperson. And in case you are buying a high-value product, talk to the store manager. If they won’t give you something monetary, they can always give store credit which can be used for future purchase. Similarly, negotiate with the local vendors and shopkeepers.

What about you? Are there any financial no-nos in your life? Please share so we can add those to our list.