5 MISTAKES TO AVOID IN FINANCIAL PLANNING.
Wealth Creation, not TAX.
Jointly, not alone,
Keep LONG Term and SHORT Term separate,
Limit on utility payments,
Ontime CREDIT Payments,
Financial planning shouldn’t be as complicated as it sounds. You may or may not have a complicated Excel worksheet on your computer with all sorts of numbers in never-ending rows and columns that chart out your entire financial future, but there are a few key mistakes that you must avoid in your financial life. These are small mistakes, but ignore them at your peril. If they go unnoticed or untreated, the effect will haunt you in a big way later. Here are five mistakes that you can easily avoid.
Every year we plan to save our taxes. Investments made under Section 80C of the Income-tax Act, 1961 allow a tax deduction up to Rs.1.5 lakh. Several instruments are available under this section such as tax-saving mutual funds, Employees’ Provident Fund (EPF), life insurance premium, and five-year fixed deposits. But before you choose the tax-saving product, ask yourself: do I need this product, or am I buying it just to save tax? For instance, you might not need a life insurance policy if you don’t have any dependents. Similarly, just investing once a year mutual fund (MF), that too in a tax-saving scheme, maybe inadequate because that would mean you are keen to just saving taxes, and not really in wealth creation.
2. Jointly, not alone
This is one mistake that most of us commit when we invest in MFs. Make sure you understand the mode of holding whenever you invest. You could either invest in a single name or jointly (i.e., two or three applicants overall). Within joint holding, an MF offers two choices; either ‘joint’ or ‘anyone or survivor’. Under both modes of holding, the money belongs to you, the first investor. Then what difference does it make if you hold your MF units singularly or jointly?
Your financial goals, the reasons for which you need the money, are scattered across your life. You might need the money tomorrow, in a few weeks, months, or a few years. And then some goals are way ahead in the future.
In other words, you have short-term as well as long-term goals. And it’s necessary to plan for both.
Make sure that when you invest in equities—especially if starting afresh—some money is set aside simultaneously in a short-term scheme, preferably through a SIP. You can also use liquid funds to build a contingency corpus.
Avoid using equity funds for premature withdrawals to meet any emergency requirement.
4. Limit on utility payments
These days, many of us opt for a direct debit facility to make our bill payments, such as for mobile phones, landline telephones, internet charges, and others. Instead of submitting cheques or going to the offices of utility providers, we choose the Electronic Clearing Service (ECS) to shift the money out of our bank accounts, every month and automatically, as soon as the utility bill hits the bank account.
Although it’s rare for utility providers to overcharge, we have all heard horror stories of someone getting a much bigger bill than usual.
Someone who is used to getting a telephone bill of Rs.600-1,000 may have got a shock seeing a bill of Rs.10,000. This is unusual but possible.
Unusually high bills may also be because of stolen credit card details. What do you do in such situations? If you think you have been billed wrongly, you will need to complain to your service provider and prove why the usage projected in the bill is not correct.
5. On-time credit payments
Debt per se is not a bad thing but delaying payments can prove to be a heavy mistake, especially on credit cards.
Banks impose a late payment charge, which is usually a fixed fee depending on the slab of outstanding payment that you fall in. Late payment is charged when you don’t pay even the minimum amount due. The killer charge, though, is the finance charge that is paid on revolving credit till the time you pay your dues. Finance charges are usually 3-3.5% per month, which translates to 20-40% per year, depending upon the card-issuing bank.
If you are making a delayed credit card payment in cash to a direct sales agent that the bank, sometimes, sends, make sure you take a receipt and preserve it.
A little time spent in the beginning to make the right choices can save you from a lot of trouble later. It’s just a matter of knowing the right thing to do.