Authored by Palka Chopra
To improve your investment situation the most important thing is to make sure you’re not making common mistakes with cash in hand. There’s nothing wrong with making a mistake, nearly all of us have made mistakes — even when it comes to finances. However, it becomes a problem if you keep making the same mistakes over and over again. One should learn from these mistakes. Therefore, here we talk about the most common mistakes people make with cash in hand, which can be avoided.
Spending more than you earn
The most damaging money mistake people make is spending more than they have. You should either spend less than what you earn or earn a lot more than you spend. You must make sure to not spend whatever you earn. You should always keep some money for emergencies and uncertainties. You’ll never attain financial freedom if you keep on increasing your spending as your earnings go up.
Not thinking about the future
People must realize that savings are a must, as the future is uncertain. More so, this pandemic has taught us about savings again this year. It is recommended to create an emergency fund that will help remove the risks that come along with the future. An emergency fund is absolutely necessary as it is a safety net that will protect you in case of any financial emergencies such as job loss, illness, or injury. Ideally, one should have enough cash in your saving to cover all of your family’s expenses for three to six month. Not all your savings need to go to the emergency fund but yes, some amount definitely needs to be kept aside.
Failing to start the investment journey early
In investing, it is believed, the earlier you start, the better corpus you can build. The problem with the “I’ll get to it later” philosophy is that by the time you are going to do it, you may have missed some financial planning opportunities or made things more difficult for yourself. To reach financial freedom, early investing is one of the most important steps. Putting money into a growth instrument can be one of the prudent ways to make a new income. All it requires is a little research. There are different ways of investing hard-earned money, including Mutual Funds, Stocks, Index Funds, ETFs, Real Estate Investments. If you have no clue about how to invest, you can approach a financial advisor.
Not planning a budget
One of the most common mistakes is not to make a budget. Having a budget is must as it will help you to save money, but the budget you created should be convenient for you. You should make sure that you spend according to your budget. For creating a budget you can follow a 50/30/20 rule that will help you in achieving your goals. This rule states that you must allocate 50% of your earnings for the necessities of your life, such as a child’s education, housing, transportation, health, etc. From the remaining money, you should ideally allocate 30 percent to savings and investments and the rest 20% should be used for luxuries or lifestyle choices.
Don’t let cash in hand go idle
Do not let cash in hand to lie idle in a way that it is not increasing the value. Not only idle cash does not appreciate, but it can also actually lose value, due to inflation. You need to simply channelize this money into avenues that can give good returns, create wealth and help secure your finances. You can use this amount to start a systematic investment (SIP) in mutual funds, opting for liquid funds, or invest in FDs. Some amount of risk is involved in all types of investments, but not investing at all poses a greater risk to capital.
Don’t lend cash in hand out
Many People believe that lending cash in hand out can give them good returns by the amount of interest earned. But it is not a safe option to earn money. As a wise investor, you would never want your hard-earned money to lose rather, you want to see it grow. A good rule is to invest cash that you have, that you won’t need for the next three to five years, depending on your risk tolerance level. Investing feels a lot more rewarding when you have a financial goal at the back of your mind.
Palka Chopra is Senior Vice President at Master Capital Services. Views are personal