Money management: 8 traps one must avoid

Jan 14 2014, 13:43 IST
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A few basic rules you would do well to follow while making your investment decisions A few basic rules you would do well to follow while making your investment decisions
SummaryMoney management is tough. Here are a few rules you must follow.

Many people restrict their personal financial planning to saving, purchasing insurance and investing safe bank deposits or other such schemes. While this is recommended as the basic measure for managing personal finances, doing it without foresight and planning will limit the results and you may end up not achieving the same level of financial independence that you were seeking. There are a few common personal finance blunders that many commit at the onset of their financial planning phase which can be avoided by making a few basic principles that govern our income and expenses.

No fixed budget plan

If someone who has never held an account of their personal expenses were to write down all their expenses for the month, they would be in for some shock at the number facing them. The shock would not be a result of how much money they have spent but of how many unnecessary expenses they have incurred and how many places they could cut expenses in. The famous investor Warren Buffet says that our income must be deducted into amount for savings, amount for investing and finally amount for spending. Create a monthly budget plan and try adhering to it till it becomes a practice.

Investing to make quick money

Investment is not gambling and must not be treated as such. If you have made quick money from your investments, do not expect it to be the rule. Often, these quick return schemes turn out to be duds and many a big investor has lost his fortune in their chase of these quick-rich schemes. Investments must be planned as per the personal and financial goals of an individual and the amount of risk they are capable of bearing.

Balancing liquidity, investment

Though investments are essential for financial growth, there is a limit to how much a person can invest. Investment must always come after savings because no matter how secure an investment is, there is an element of risk involved and returns cannot always be guaranteed. Liquidity is essential to act as a buffer against investment risks as well as unforeseen calamities such as loss of job, accident or death, etc.

Impulse shopping

Not just women, but men are also victims of impulse shopping. Clothes, shoes and bags are women’s vice, while men lose control over collectibles, gadgets and sporting articles. Impulse shopping also includes the number of times we eat or drink out when there is no

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