With inflation continuing to rise, a well-thought-out financial strategy is the defence you need to avoid a financial crisis. It enables you to have a lavish lifestyle while having enough money in your bank account to handle ambiguity. It takes a few months of consistent behaviour to break bad financial habits; it does not happen overnight. There is no better time to stop bad financial habits than right now, especially with the start of New Year.
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Bad Money Habits To Avoid In The New Year
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Your savings rate is very important. Additionally, you must closely monitor your expenditures if you want to do better. Gaining debt is one of the most prevalent negative effects of over spending.
Here are some tips for stopping this bad spending behaviour.
- Make a budget for each month and make an effort to keep to it.
- Only keep a percentage of your money on the card you use to pay your bills each month. For storing liquid emergency funds, you can keep another account open.
- Do not frequently eat at pricey places; instead, cook your meals at home.
- When you are at the malls and shopping centres, resist the impulse to overspend.
- Avoid going out frequently to clubs, parties, and such activities.
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Lack of emergency funds
In difficult circumstances, emergency money are a lifesaver. It functions as a source of spare cash for both anticipated and unforeseen costs. It is advised that you set aside at least twelve times your monthly salary as reserve funds in case of crises.
For instance, managing debt commitments becomes challenging if you have a personal loan and are paying on-time EMI payments, but then a financial crisis hits as a result of a loss of employment. In such circumstances, having an emergency fund can assist you in navigating the situation. Similar to that, this reserve helps when there is medical emergency.
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Penny stock investing
Anyone with an awareness of their finances has an interest in the stock market. Even though it could seem easy, trading in stocks requires a lot of information. You risk losing your hard-earned money if you rely your investment decisions only on returns. Avoiding penny stocks at all costs is the best piece of advice to heed in the New Year.
These are the stocks that huge retail investors frequently use a pump-and-dump method to trade. The stock price rises when large investors buy many shares of any low-value stock at random. When the stock increases by 200–300% in a short amount of time, investors sell their stock, which lowers share prices.
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Omitting health insurance
In the context of inflation, medical insurance is an essential financial instrument. If you haven’t already, buy one for yourself and your loved ones if you haven’t already.
Numerous scenarios are covered by medical insurance. Pre- and post-hospitalization costs, OPD fees, and consultation costs are a few of them. Additionally, you can receive cashless medical care at any hospital that has a relationship with your insurance company.
Under Section 80D, health insurance also offers tax benefits. You may deduct up to Rs. 1,000,000 depending on your age and the age of your parents.
Absence of loan insurance
In India, the idea of loan insurance is still relatively new, but it is one of the best investments you can make. A financial policy called loan insurance might be useful if you have a debt commitment but lose your job, experience business failure, or are hurt in an event that results in incapacity or death.
Regardless of whether you have a personal loan, home loan, or auto loan, loan insurance is essential. Examine the situations that the insurer covers before deciding to get this policy. In the event of an accident, having loan insurance will spare your loved ones the strain of having to pay off your debt.
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Missing out on asset allocation
Carrying a number of credit cards
When used properly, credit cards can be helpful in challenging situations. But things are extremely different in practise. People frequently make lavish purchases using their credit cards for things like dining, travel, and other activities. Result? You get caught in a debt trap as the bills mount up.
Furthermore, your credit score is impacted when credit cards account for more than 30% of the whole sum. Additionally, since your credit card’s interest rate is excessively high, if you don’t keep your credit card usage in check, you’ll end up paying far more than you originally intended to.
Read: How to Get Out of Credit Card Debt- Step by Step Guide
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Not keeping check of your credit report
Your borrowing history is described in detail in the credit report. It contains details on the overall amount of unpaid bills, EMI payment history, instances of default, earlier loan settlements, and much more. You can maintain track of your report to find out what unethical financial practises you are engaging in.
Here are some suggestions you might use in the New Year to strengthen your creditworthiness.
- Automate the repayment of your debts.
- Maintain a balance between unsecured and secured loan products in your debt portfolio.
- Don’t submit numerous loan applications.
- Having no tax planning
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Having no tax planning
The Income Tax Act of 1961 contains numerous measures that permit taxpayers to reduce their tax obligations. This will only be helpful, though, if you are aware of the many parts that offer benefits for exemption or deduction.
For tax planning, it is best to consult a professional accountant. The following sections should be kept in mind if you are filing your own taxes: 80D, 80C, 80TTA, 80E, and 80G. You can reduce your taxes by Rs 150,000 just by using Section 80C.
Lack of evaluation of the debt
Financial organisations offer loans that are useful in a variety of scenarios as well as loans tailored to certain products. To be sure that you can repay the loan without jeopardising your savings and monthly expenses, you must first determine your needs before deciding on any loan product or starting the application process.
You must pay interest on the amount you borrow for each loan product. Additionally, excessive borrowing will make payback difficult. Preventing huge loans until an emergency is a good strategy no matter what. To fund your product purchases, you can choose small-ticket loans with low interest rates and minimal processing fees.
Read: Debt Consolidation: How To Avoid Falling In A Debt Trap?
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In Conclusion
Having sound money management practices can aid in wealth creation. It makes it simple for you to accomplish your financial goals, both short- and long-term. Getting quality health insurance, exercising caution when making investment decisions, keeping tabs on your spending, and only applying for loans for the amount required are the first steps in effective money management. Remember these ten mistakes as you begin the New Year, and make sure you avoid them to achieve financial independence!
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