While personal finance strategies can vary based on individual circumstances, here are some personal finance mistakes you should try to steer clear of in 2024.
Not making a budget: The most common mistake people make is that they don’t closely track their inflows and outflows. Often, this can lead to mismanaged finances. So, establishing a realistic budget that includes all your income, expenses, and savings goals, should be the first key step for your financial plan. You must regularly review and adjust your budget as needed. A good thumb rule is to spend 50% of your income on necessities, 30% on wants and invest 20% of your income.
Overspending: Despite making a budget, it is not uncommon for people to end up spending more than what they can afford. The prevalence of online shopping and easy access to credit has contributed to a culture of overspending and impulse buying. Uncontrolled spending habits can lead to unnecessary debt and put you off track from your financial goals.
In 2024, practice mindful spending. Differentiate between needs and wants. Avoid making impulsive purchases. Before buying something, take time to evaluate its necessity and affordability. Consider implementing a waiting period, such as 24 hours, before making non-essential purchases to avoid impulse buying.
Not planning for rainy day: Aim to have at least 3-6 months’ worth of living expenses saved in an easily accessible account. This fund serves as a financial safety net in case of unexpected expenses or job loss. Emergency fund creation should typically be your first financial goal on starting a career.
Retirement plan: You can have the best-paying job, but whatever be your profession, all of us have to face retirement at some point or the other. So, not planning for retirement can be a big mistake. Start saving for retirement as early as possible. Start a retirement plan by investing in mutual funds or pension plans issued by life insurance companies. Start early to allow the power of compounding to work in your favour. Longer term of investment is more important that investing larger amounts since compounding will work wonders for your portfolio.
High-interest debt: Focus on paying off high-interest debt first. Consider creating a debt repayment plan and avoid accumulating new debt. Avoid credit card debt and do not take loans for purchases you can do without.
Delaying investments: Not investing early or delaying your investments can also be a costly mistake. Disciplined investing is the only way one can beat inflation, which keeps eroding one’s purchasing power on an annual basis. But you must do your homework or take professional advice when starting your investment journey. Learn about different investment options and create a diversified investment portfolio aligned with your financial goals and risk tolerance. In 2024, educate yourself about different investment options and start investing based on your risk tolerance and goals. Consider a diversified portfolio of stocks, bonds, mutual funds, or exchange-traded funds (ETFs). Financial planning should be undertaken at the beginning of your financial journey and reviewed periodically. Avoid transaction-based investments based on friendly neighbourhood advise or social media chatter.
Not taking insurance: Health inflation is at 14% (more than double of retail inflation), which means healthcare-related costs are doubling every five years. Also, we cannot run away from the fact that life is always uncertain. If an income-earning member suddenly passes away, it can suddenly throw the family’s finances in complete disarray. But a good life insurance can come as a source of great relief for the bereaved family. So, regularly review your insurance coverage, including health, life and auto insurance. Make adjustments as needed to ensure that there is adequate protection for you and your family members. For life insurance, yearly renewable term insurance policies are most cost-efficient. Do not overlap your insurance and investment needs. This can be another mistake.
Not seeking professional advice: A personal finance professional that has your best interests in mind will ensure that you don’t end up with wrong products, whether it is do with investments or insurance. Each family is unique and will have different problems that need to be addressed. A professional that can offer you personalized solutions can be critical to keep you on track to achieving your financial goals. Consider consulting a professional in 2024 to review your financial situation, establish goals, and create a comprehensive financial plan. They can help you avoid common mistakes and offer strategies to improve your overall financial well-being. Regularly reassess your financial goals with your adviser and adjust your strategies accordingly.
