Experts share Top 5 Pitfalls in Financial Planning

Experts share Top 5 Pitfalls in Financial Planning

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14 Nov 2019
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Financial planning is the process of determining ways to manage your money and the amount you need to earn, invest and spend. By planning your finances, you put your money such that you reach your life goals. What you do now to manage your finances may not be 100% accurate and it may need to be corrected for better results. But a little attention in the beginning to make the right choices can save you from a lot of trouble later.

Financial planning isn’t that complicated as it sounds. However, you may or may not have a complicated plan with all sorts of numbers that chart out your entire financial future, but there are a few key mistakes that you must avoid in your financial life. These small mistakes need to be taken care of and shouldn’t go unnoticed or else the effect might haunt you later.

So, let’s learn about the top 5 pitfalls of financial planning for a stress-free future.

  • No track of unusual expenses

We all have a track on our regular expenses like electricity bills, grocery, monthly internet bill, etc. But irregular expenses like shopping, dine-out at a restaurant are left untraced. This is one major mistake we make, such expenses shouldn’t be avoided when planning your finances. When planning your budget, it’s best to add up these expenses too. This will not only make you plan your finances well but also make sure you are aware of the unnecessary expenses you need to oversee in the future.

  • Improper investment plan

Investments should ideally be well aligned with your financial goal. Setting a financial goal is very important because it gives you a purpose, meaning, and it is a roadmap to accomplish your envisioned goals. A proper investment plan is key to effective financial planning.

It is also important to be careful while investing you need to know all the terms, conditions, benefits of the product that you are buying. Also, before making any substantial decision like buying a new house, switching jobs, or retiring, etc. you should carefully consider all of the financial implications and then plan accordingly. Failing to do so could have a negative effect on your financial health.

  • No idea about how to manage finances

We are so busy with our lives that we do not give much thought to financial planning. Most people truly have no idea about their money related to standing. A large portion of people had either thought little of or overestimated their accounts. While some think they are falling short of money and get stressed over their financial stability, even though they stand at a decent position financially. You need to be aware of where you stand financially this can eventually help you to plan your future finances well.

Even while buying a home loan you require financial planning or it’s just like shooting in the dark. This will result in you feeling overwhelmed with all the expenses that you didn’t take into account, along with home loan EMI payments. Proper financial planning will not only help you manage your expenses better but also help you fulfill your dream of buying a home.

  • Merging investments and term insurances

For an insurance policy, you need to pay premiums. It provides cover to you and your family in your absence. All term insurance policies are one of the investment options. But all investment channels do not provide cover, but you can surely get a return on investment. You can invest to enjoy returns during your lifetime, but to keep your family financially secured you need to get an insurance cover.

However, people tend to mix both investment and term insurances together. Both should be accounted for separately, as the returns and purpose of both are quite different. Investments come with risk, some with more and some with less. Analyzing your financial status is a must before you opt for a risky investment as it is the key to decide whether you can afford to take such a risk or not.

  • Not having a proper plan for retirement

It is very important to have a proper retirement plan so that you can deal with the events after retirement and still manage to maintain a good lifestyle in your retirement years. With the help of proper retirement planning, you can create a financial cushion for the future so that you can live your life after retirement in a stress-free way.

Most people think that our contribution to PF is sufficient for life after retirement. But this is not at all true. Your liabilities may reduce but expenses are somewhat similar as you can’t really cut down on your expenses when you retire. So, it’s best to start planning for retirement and contribute towards it more than PF. You can open PPF accounts that can give you maximum returns or open a PLI account or FD in the post office. One sustainable option is investing in mutual funds for a long period, this can get you good returns throughout your retirement. Read more on personal loan tax benefits with us.

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