We just stepped into a new financial year hoping not to repeat mistakes in the previous year. Covering up those mistakes will only give way to making more of them, which is why it is time to realize those mistakes and assess what we must learn from them.
6 mistakes that could ruin your financial journey this year
A man is a slave of his habit but no doubt can master his mistakes, if recognized and corrected in time. Instead of constantly ruing over them, it would be preferable to better those mistakes at the beginning than at the end.
Mistakes can be myriad that must be realized and corrected in time. It does not matter if the mistakes are small and inconspicuous or big enough to be labelled as unwanted blunders. Some pitfalls that you may consider avoiding this year include:
Ignoring health insurance purchase
Many do not realize the importance of buying health insurance unless faced with the sudden need for hospitalization and subsequent medical treatment. This brings forth the need for detailed healthcare planning that includes ensuring adequate and comprehensive health insurance coverage. An effective healthcare plan will do more than just pay off a substantial part of your medical bills; it serves as a buffer against unanticipated events and long-term conditions that could result in unforeseen loss of your earnings.
Prioritizing healthcare plans over other assets help you save money that otherwise would have been spent on the treatment of chronic illnesses, thus, underlining the importance of including insurance while planning your financial goals. When thinking about a healthcare plan, evaluate how much would be possibly needed to seek primary healthcare along with affiliated expenses such as doctor consultations, lab/diagnostics tests, medications, and healthcare items.
Also, do not just buy and forget. Ensure to review your health insurance plan over in every two to three years to check for enough coverage and the need to cover more family members under the plan.
Buying term insurance for tax benefits only
You could not be more wrong if you look at life insurance as a means to save on taxes alone. Ignoring the essence of a life insurance policy that can secure the future of your loved ones can be damaging, especially, when you may have dependents relying on your income for their essential expenses. This year when you factor in your income, assess your responsibilities and plan your investments accordingly, account for the need for insurance too as it can shield your loved ones against the unwarranted effects of sudden and unforeseen events.
Late planning of taxes
How many times have you faced the hurdle of planning your investments to mitigate your tax liability? Many people resort to investing at the last minute by buying tax-saving CDRs, putting some money in their PPF accounts or buying life insurance policies or choosing an equity-linked savings scheme (ELSS) hurriedly to avoid the brunt of paying high taxes. Many people end up paying heavy penalties due to late tax filing.
Also, being aware of your income, earnings from investments, and tax liabilities is a must to ensure timely filing of the same. Apart from keeping correct records of your income and expenses, it is imperative to be aware of the guidelines regarding tax rules.
Also, many people make the mistake of filing their taxes themselves without realizing the heavy penalties they will ignore if they miss out on declaring their income and expenditures accordingly. It is important that you seek professional services to declare your tax liabilities to avoid paying hefty fines imposed by the government.
Ignoring the effect of inflation during retirement planning
Thanks to inflation, money is getting devalued over time. You will need more money to pay for your essential and daily expenses in your post-retirement years than what you spend today. While making retirement plans, you must not ignore the effect of inflation on both your earnings and expenses, thus, underlining the need to invest your money in instruments that earn returns higher than the inflation rate.
You may calculate how much your retirement funds will need to increase over time to keep up with the rising cost of living by taking inflation into consideration.
Not repaying loans and credit card debt on time
First things first. Your credit score may be highly impacted if you do not repay your debt on time. This can be anything including all kinds of loans including home/vehicle loans, personal loans, credit card debt, etc. Many people pay the bare minimum amount to escape being penalized while postponing the entire debt repayment.
The inability to repay your loan will affect your creditworthiness, thus, hinting at the likelihood of your loan applications being rejected in the future. Apart some banks and financial institutions impose a heavy penalty, thus, adding to the burden of your debt.
Not planning an emergency fund
What if you need money suddenly but do not have enough money to do so? What if you come across an unprecedented incident that begets the necessity to have an emergency fund in place? Wouldn’t it be better to harp on adequacy instead of fearing a “What If” situation?
In the event of any unforeseen circumstances, such as the hospitalization of a family member, a job loss, etc., not having an emergency fund could leave you in a precarious financial position. So, make an effort to put aside at least six months to a year’s worth of expenses in a quick-access emergency fund.
You must have an emergency fund as a safety net to ensure emotional wellness apart from financial stability. If you have adequate money saved away in your emergency fund, you can recover fast and navigate difficult financial times with little stress.
Barely a month into this new financial year and most of us are still confused about what to do and what not to do. Start with the tasks that you missed last year and show prowess to work on them this year. Also, correct the follies made last year for a better and more secure today.
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