5 financial mistakes that are making you poor; how to avoid them

It is important to learn financial disciplines to avoid drastic money mistakes. Many people do not even keep track of their spending. They keep swiping their cards now and then and finish all their salary within two weeks. To save up, you must track all your earnings and spending. There are multiple free spending tracker applications available that you can use to keep a tab on earning and spending. It will give you an idea of whether you are overspending or not. If you are then you can adjust your spending habit accordingly.

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Another big mistake we make is to splurge our money first and then invest whatever is left. It should be the other way around. Remember this famous quote by renowned investor Warren Buffet, “Do not save what is left after spending, but spend what is left after saving.”

A simple thumb rule is you should put 60% of your monthly income toward your needs, 30% towards your wants, and 10% towards your savings.

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It is a must to build an emergency corpus from an early age. The future is uncertain but you must stay prepared for it. Unprecedented events like medical emergencies or job loss can throw you off the chart if you don’t have enough savings to go through the rainy days. So it is a must to build an emergency fund.

An emergency fund should ideally cover three to six months’ worth of your basic expenses if you don’t have it already start investing a small amount every month to build a sizeable emergency corpus.

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Don’t borrow if you don’t need it. Remember that when you borrow money, you have to pay it back on time. If you can’t pay off the full credit card bill every month, stop using it. Thanks to the high interest rate on credit cards, you can easily fall into a debt trap if you are not careful. The same rule applies to various buy now pay later applications that we use daily — LazyPay, Simpl or Amazon Pay Later. If you miss a monthly payment, they will levy a high interest rate and a late payment fee. You will end up paying way more money than what you have borrowed or stay in a debt trap that can be exhausting. So avoid debt at any cost.

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Saving money is not enough. Inflation reduces the purchasing power of money over time. Consider this: with inflation hovering around 6% annually, the purchasing power of Rs 1 lakh today will erode to roughly Rs 54,000 in a decade. To ensure your money grows over the period and doesn’t lose its purchasing power, you need to invest your money smartly. Your investment should align with your financial goals. Fixed deposits government bonds or liquid funds can be used to achieve short-term goals.

For long-term goals, you can equity. It is the only asset class that beats inflation over the long term.

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