Seven financial mistakes to avoid in the new year

As the new year 2024 is just weeks away, many have started taking up resolutions that can benefit them. Some are opting to be fit and active; others are opting to read or travel more; but one resolution that should be on everyone's list is proper financial planning. A new year is the perfect time for investors to revisit their portfolios and avoid doing things that did not work for them in the previous years.

In this article, we will explore common financial mistakes made by individuals and offer insights on how to avoid them in 2024.

Mistake #1: Neglecting emergency funds

One of the most common financial mistakes is neglecting to build and maintain an emergency fund, which is a cash reserve that is specifically set aside for unplanned expenses or financial emergencies.

Solution: CA Ruchika Bhagat, MD, Neeraj Bhagat & Co. advises investors to prioritise building a robust emergency fund equivalent to at least three to six months' worth of living expenses. This fund acts as a financial safety net during unexpected events, such as medical emergencies or job losses.

Mistake #2: Mismanagement of debt

As per the Clear Tax website, availing debt means one is going to pay back more than the amount they have availed.

Solution: According to Bhagat, focus on responsible borrowing and develop a realistic plan to pay off existing debts. Evaluate your budget and allocate a portion of your income towards debt repayment to avoid interest accrual.

Mistake #3: Lack of financial planning

A significant financial mistake is the absence of a comprehensive financial plan. Many investors in India tend to live without a clear roadmap for their financial future.

Solution: Take the time to set financial goals, both short-term and long-term. Whether it is saving for a home, education, or retirement, having a plan in place helps guide financial decisions and ensures that you are working towards your objectives.

Also, as per Clear Tax, one must review their financial plan at least once a year. This will help in accommodating changes that may help in achieving your goals faster.

Mistake #4: Ignoring diversification

Investing is a crucial aspect of wealth-building, yet many Indians shy away from it due to a lack of knowledge or fear of risks.

Solution: Do not put all your eggs in one basket; explore different options for investment. Investment should be based on setting off risk from high-risk returns with low-risk returns.

Mistake #5: Overlooking insurance coverage

Inadequate insurance coverage is a prevalent financial mistake in India. Whether it is health, life, or property insurance, having sufficient coverage is essential.

Solution: Evaluate your insurance policies regularly to ensure they align with your current needs. Unexpected events such as accidents or illnesses can lead to financial strain, making insurance a critical component of a comprehensive financial plan.

Mistake #6: Failure to budget effectively

Budgeting is often overlooked, leading to impulsive spending and financial instability.

Solution: Experts suggest creating a realistic budget that considers all monthly expenses, savings, and investments. Track spending regularly to identify areas where one can cut back or save more. This disciplined approach to budgeting can help you stay on track towards your financial goals.

Mistake #7: Procrastination in planning retirement

Many individuals delay retirement planning, thinking they have ample time. However, time is a valuable asset when it comes to building a retirement corpus.

Solution: Start investing for retirement early, taking advantage of compounding returns. Consider contributing to retirement accounts such as the Employee Provident Fund (EPF) or the Public Provident Fund (PPF) for long-term financial security.

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