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Money management skill is more significant than earning money. The size of your pay cheque is inconsequential if you cannot manage your expenses. You will not be able to create generational wealth by mismanaging your funds and working without a budget.
The first step to rectifying your mistakes is to identify the wrongs. Savings insurance, investment account and ULIP schemes are a great way to save and invest at the same time. Similarly, here are five signs that will help you understand whether you are mismanaging your money or not.
- Not having a proper and detailed budget
Having no budget for your regular and essential expenses is a tell-tale sign of money mismanagement. It is because a budget allows you to track and predict the amount you will need over the next few weeks. The forecast of a well-planned budget allows you to invest or save the remainder of the money from your paycheck. The most common reason for financial stress is the lack of budgeting. You should know that budgeting is one of the most useful money management skills that you can acquire.
Now, budgeting does not mean waking up every day and wildly guessing your expenditures for the day. You will have to set aside a day and thoroughly plan the expenses, along with setting aside some money for an emergency fund. If you have a spouse, then discuss with them and consider their inputs as well. After a budget is formed, you will have to follow it to avoid any financial mishaps religiously.
- Not investing your hard-earned money for the future well-being
Not investing in the financial instrument is another symptom of bad management of money. Investing in equities, debt funds, or a savings plan in India also helps us to beat inflation.
Increasing the earnings by the earlier mentioned percentage might not be possible for all in their regular jobs. Hence, they should let their savings plans and investment account do the heavy lifting for them. You can directly invest in equities or debt funds through a demat account. Another risk-free way to earn a good return is by investing in a good savings plan in India.
- Trusting unverified schemes.
When we say that you need to start investing, it means investing in RBI and other government-approved schemes. If you start investing in questionable investment schemes, you are sure to lose a lot of money. Investing means slow and steady investing and allowing the money to compound over several years. If you get to hear about an investment scheme that is too good to be true, then usually they aren’t. Hence, you should always read the fine print and analyse the financials of the scheme.
Therefore, it is advisable that you only invest your money in safe avenues. These safe avenues can be mutual funds, savings insurance, ULIP schemes with debt-heavy investments, Equity Linked Savings Scheme (ELSS), Provident Funds and so on.
- Resorting to unplanned extravagant spending
Most people exponentially increase their lifestyle spending as their salaries increase. The increased spending forces them to continue working their jobs to maintain their new lifestyle. This phenomenon is known as the ‘golden handcuffs’ phenomenon. Therefore, if you want to retire early by creating a retirement corpus, you will have to start living below your means.
Now, you must be wondering about how to manage money after getting a salary hike. The answer is fairly simple - continue with your current lifestyle while investing the excess amount in safe avenues such as savings insurance of your choice.
- Careless utilisation of personal loans
“Do not use tomorrow’s earnings to pay for yesterday’s expenses”.
Taking a loan is okay as long as you have a solid plan to repay the loan. However, that does not mean that you will start taking loans to pay for your luxurious lifestyle. It is a slippery slope, and you will fall into crushing debts faster than you can think. Therefore, loans should be avoided if you do not have a solid repayment plan in place. Not paying back your loans can have serious legal repercussions.
Avoiding debts is one of the most common money management tips that you will receive. Try to pay for things out of your pocket and include the payments in your budget. The frugal spending attitude will be beneficial to you in the long run. You should focus more on savings rather than spending.
- You need to start tracking your spending. It will immensely help you with creating a budget.
- You will need to keep a flexible budget that will accommodate all the essential changes and emergency expenditures.
- For more lavish spending, you should start saving and not rely on personal loans.
- You should learn and obtain knowledge about investment strategies before you begin your investing journey.
- If you already have a loan, you will have to make sure that you are not missing your repayment dates.
Other money management tips
Here are a few money management tips to get you started on the right path
Role of Life Insurance in Savings, Investment and Money Management
Life insurance is a crucial aspect of personal finance and money management. While many people view life insurance primarily as a means of providing financial protection for loved ones in the event of their death, it also has important savings, investment and money management benefits. Given below is the role of life insurance in these areas and how it can help individuals and families meet their financial goals.
Savings: Many life insurance policies, such as whole life insurance, offer the option to accumulate cash value over time. This cash value can be used as a source of savings that can be borrowed against or used to pay premiums. With some policies, the cash value grows tax*-deferred, meaning that the policyholder does not have to pay taxes on the growth until they withdraw it. This can help the policyholder build up a substantial nest egg that they can use for a variety of purposes, such as funding a child's education or paying for retirement.
Investment: In addition to its savings component, life insurance can also serve as an investment vehicle. Policies with cash value can be invested in a variety of options, such as stocks, bonds, and mutual funds. Some insurance companies even offer professionally managed investment portfolios. This can help the policyholder diversify their investment portfolio and potentially achieve enhanced returns.
Money Management: Life insurance can help individuals and families manage their finances in a number of ways. For example, it can provide a source of funds that can be used to pay for final expenses, such as funeral costs, without having to dip into savings. It can also help to ensure that loved ones are not left with financial burden if the policyholder were to pass away. This can help ensure that their dependents are able to maintain their standard of living and achieve their financial goals.
Life insurance can be a versatile and important tool for personal finance and money management. By offering savings, investment and financial protection benefits, life insurance can help individuals and families achieve their financial goals and provide peace of mind. It is important to carefully consider one's financial needs, goals and dependents when choosing a life insurance policy.
Tata AIA Savings plan
The plan offers flexibility in choosing add-on riders#. You can also convert the regular income to regular income with critical illness benefits. The policy also guarantees1 the return of premium3 after the expiry date.
Conclusion
If you can identify any of the above signs in your lifestyle, you should immediately start rectifying the mistakes and developing a saving habit. If you are having trouble while trying to get your budget right, you can take the help of any financial advisor.
L&C/Advt/2023/Feb/0354
