Frankly speaking personal financial planning is not everyone’s cup of tea. Even the experts sometimes, make typical mistakes. As hazardous as these mistakes are, they are unavoidable. Anyone who start financial planning is tend to face common financial problems during planning. This common financial mistakes can be avoided when talking step towards it with proper knowledge. It’s always better to start slow but systematically because fixing financial mistakes will take long time and you may lose your money as well. Let’s look at some of the worst financial mistakes you can make and ways to avoid it.
Top 10 Worst Financial Mistakes to Avoid:
There are some of the common errors in financial planning which can turn into worst financial mistakes you can make. Here we will list out the biggest financial mistakes and steps to avoid those money mistakes.
1. Not taking a financial snapshot:
If you’re unaware of your financial status, you might as well be perplexed in pre defining your goals and achieving them. A financial snapshot is a clear picture of what your financial position is and how much you wish to improve it in the future. Often people ignore the assessment of their previous tax returns and assets as a result they are uncertain of how to plan their finances.
2. Not having well-defined goals:
Goals are the path decider for you. One of the biggest financial mistakes you can make if you don’t have goals and objectives, on what base will you plan your finances? People make a common mistake of taking these goals pretty causally and end up with insufficient fund. Also they don’t have it in written which makes it hard to remember and even harder to rectify them with change in time.
3. Not considering risks:
Being optimally bias and continually ignoring risk factors is not brave. As a matter of fact this attitude can affect your investment by depleting it to almost zero.
These Risks Include –
- Inflation risk.
- Interest rate risk.
- Market risk.
- Economic risk.
- Specific risk.
An investor or a financial plan is always subjected risk; this doesn’t make the plan incompetent. The fluctuations in market have the ability to alter the results of your investment or say amount of returns. This is one of the most common financial mistakes to avoid in your 20s which people tend to do.
4. Not understanding the value of time:
People are very keen to boost up their financial status in no time, they choose to ignore the reality and end up getting conned by frauds. If you follow the stock tips blindly, chances are you’ll end up empty pocket. Undermining the value of time is one of the biggest financial mistakes people commit. They don’t invest in long term assets which is again, unwise.
5. Not protecting your assets:
Risk management is a term associated with protection of your assets. If you are convinced that your present assets are enough to sustain your retirement, wait until you witness rise in price of commodity or fluctuations in market hit you. It’s always advisable to have some growth in your assets and investments considering the pace of economic change.
6. Not making or keeping a budget:
Capitalize on the miracle of systematically saving money and the effect of compound interest. Budget is often undermined by people; they are of the thought that, they are capable enough to manage their finances without making an actual budget. Well, it might be true, but the odds are you’re either under utilizing or over utilizing your capital and income. Keeping a budget works an expenditure checker. It will help you track your monetary outflow and how you can save maximum of your income without hindering your basic requirements.
7. Not considering the effects of fees/taxes:
Often people are so excited that they deliberately ignore the cost of investment fee, commission, initial funding and other utility costs. Some investment might charge you annually or might ask for advance money before your investment. Another critical aspect to consider before investing is the affect of taxes on your total return. If you exclude the taxes and plan your future events based on the wrong calculations, needless to say you’ll end up unhappy. So always take utility fee and all the taxes under a serious consideration before investing or planning your finances.
8. Not learning from your and others financial mistakes:
There is nothing wrong in making mistakes until you make it again and again. When you see your parents, friends or any other person making a wrong decision, you should learn from them and make the arrangements so that you don’t end up in the similar position. Each day brings new opportunities and information regarding the survival of the Social Security system. There’s no second thought about inflation. It will have an enormous affect on the comfort of your retirement. It is no longer safe to assume that your expenses like medical costs will get cheaper. These costs have risen consistently; inflation will continue to diminish your purchasing power if you don’t plan to optimize your income and savings beforehand.
9. Not remembering that it takes work:
Financial planning is not merely giving your money at 10 per cent interest rate and getting back high returns. It amounts for hard work and patience. The level of precision and knowledge involved in this field is very demanding. Often amateurs are of the view that they will be easily making money hand over fist. This is not true. You are supposed be disciplined and tactful and ready to do a lot of hard work. This is one of the worst financial mistakes you can make and can also lose your capital investment as well.
10. Not making your own financial decisions:
The advice of financial planner is important without any doubt but at the same time, you’re required to make your decisions based on what is best for you. If you don’t feel comfortable investing in a product, you don’t have to. But normally this is not the case, often misinformation and circumstantial pressure manipulate people to take decisions they regret later on. And you then to feel that you have no control over with your money. Always remember you’ve the power and authority to take control over your life. Pause for a moment. Visualize your thoughts. And do exactly the same thing that suits your interest. Of course you can use assistance of financial planners, but remember the final call will be yours. This is one the biggest and worst financial mistakes young adults can make.
- Tutorial Course - Financial Planning Basics For Beginners -
» e-Learning Chapter 1: What is Financial Planning with Examples
» e-Learning Chapter 2: Different Types of Financial Planning Models and Strategies
» e-Learning Chapter 3: Importance of Financial Planning
» e-Learning Chapter 4: Personal Financial Planning Process
» e-Learning Chapter 5: Benefits of Financial Planning
» e-Learning Chapter 6: Financial Planning Process with Examples
» e-Learning Chapter 7: Objectives of Financial Planning
» e-Learning Chapter 8: Limitations of Financial Planning
» e-Learning Chapter 9: Financial Planning and Control
» e-Learning Chapter 10: Financial Planning and Analysis
» e-Learning Chapter 11: Determine Financial Goals – Assessment, Budgeting and Goal Setting
» e-Learning Chapter 12: What is Optimism Bias – Definition, Effects on Financial Decisions
» e-Learning Chapter 13: What is Personal Financial Planning? Definition, Examples and Template
» e-Learning Chapter 14: What is Business Financial Planning? Definition, Examples and Process
» e-Learning Chapter 15: What is Financial Planner? Definition, Scope and How to Become a Financial Planner
» e-Learning Chapter 16: Your Rights and Responsibilities as a Financial Planning Client
» e-Learning Chapter 17: Strategic Planning and Execution of Financial Plan
» e-Learning Chapter 18: Financial Backup Plan or Emergency Financial Assistance
» Currently Reading: Top 10 Worst Financial Mistakes to Avoid or Common Errors in Financial Planning
» e-Learning Chapter 20: Financial Planning Quiz - Basics of Financial Planning Question and Answers