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5 Financial Mistakes Commonly Made by Many Indians
9-June-2021 |
Financial Planning is an important step towards smart and secure living. Many Indians do not realise the effects of financial mistakes they make until they face an issue. The Covid-19 pandemic left many people stranded with no emotional and financial support. It was only then; the majority of the people understood the significance of financial planning, especially the importance of life insurance plans like term insurance. However, the resolution went beyond control and led to all the sufferings
In this article, we will discuss some of the commonly made financial mistakes that every individual should avoid.
1. Lack of a budget plan
Budgeting is a financial practice that most individuals ignore. Listing the different sources of income and the significant expenses will give you a fair idea of where you stand financially. You have to prioritise the needs, without which survival will be difficult.
Further, you can reserve some money for your wants and allocate another small amount for savings. If there is no budget plan, the expenses might go beyond control. This will lead to a financial crisis in emergencies.
2. Neglecting Life Insurance
The majority of the Indian population have not realised the value of a life insurance term plan. If you are the breadwinner of a family, your survival is crucial for the financial stability of the family. However, you cannot assure your longevity at any given point, especially in the turbulence of post-pandemic times.
Nevertheless, a term plan can protect your family's financial security in your absence. With a term insurance plan, your family will get a sum assured as a death benefit against the monthly premiums paid. When you decide to invest in a term plan early, you benefit from paying lower premiums and getting a high sum assured. At a younger age, there are usually no pre-existing ailments. This will account for a low death risk probability and hence the low premium rate.
With the term insurance premium calculator, you can compare different plans and then choose the best.
Tata AIA life insurance offers a range of term insurance coverages that help you rest assured about your family’s financial security in your absence. Check out affordable term plans by Tata AIA and get extensive life cover What’s more, term plans from Tata AIA also cover COVID-related deaths.
3. Starting to invest late in life
Many of us don't make an effort in investing money. There are financial obligations that come up at different stages in life, for example, children's higher education, marriage etc. The cost of living and expenses keep increasing with the rate of inflation. With adequate savings, the extent of the financial crisis can be sorted. However, we will have no improvement in our standards of living. Investments help you grow money for a better living.
With a Unit Linked Insurance Plan (ULIP), you can allocate a portion of the premium for a life cover and the rest for investments. You can get the flexibility to invest in equity, debt and hybrid funds. Based on the market fluctuations, you can switch between the funds anytime. It will provide insurance and investment benefits. Investing in such an option early in life will help you derive maximum benefits for your long-term financial goals.
If you are a risk-averse investor, you can opt for guaranteed# returns plans that assure fixed returns, along with life cover.
4. Not planning well for the post-retirement finances
The importance of financial planning is sometimes not realised till we reach the retirement phase. People set a standard of living during the employment period. However, they fail to make adequate savings and purchase a life insurance term plan. It affects the lifestyle after a certain stage in retirement.
Managing daily utility expenses and other emergencies will create challenges. In case of your sudden death, the family's financial security is affected. Purchasing term insurance will help you save your family under such conditions. Term insurance for twenty years will generate a sufficient fund for helping the family from the financial crisis.
There are also Guaranteed# Returns Insurance Plans provided by the insurance companies. According to this plan, the premiums paid towards this policy will provide a life cover, and the respective sum assured.
Additionally, a guaranteed# income is also a viable choice. The guaranteed# income can be received as a lump sum amount, a combination of lump sum and guaranteed# annual income or just a regular monthly income throughout life. The life cover provides the basic features along with the riders1. Riders1 for accidental death, terminal and critical illness, total and permanent disability can be availed.
5. Mishandling credit facilities
As most Indians do not have a predefined budget, the expenses are never under control. To satisfy the expenses and carry on with life, people go for getting a credit card. Credit cards are a good resource for financial support when used appropriately.
For example, it can be used for purchasing a big item such as a television and paying for it through the EMI facility. However, we use it as and when time demands and does not pay the bills regularly or adequately. This will add additional interests accumulating over the bills every month, leading to a lot of financial chaos.
Therefore, it will decrease the credibility and affect the credit score. It will further lead to issues while availing of a home loan or any other credit facility from a bank.
Conclusion
The benefits of financial planning are thus understood at different stages in life and when the financial crisis goes beyond control. Having understood the commonly made financial mistakes, it is our responsibility to start having a budget for daily expenses. We have to work on long term financial goals and get insured with term insurance to satisfy the family financial obligations. It is also equally important to plan for a retirement life with adequate funds. When all the income is appropriately utilised, unnecessary expenses and mishandling of credit facilities are avoided, we can have a stable life free of financial chaos. Stay focussed on financial planning and derive the best out of it at different stages in life!
