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.

occasion for the same. These are spur of the moment decisions that we treat as a one-time expense but which occur frequently or in such large amount that they end up denting one’s bank balance.

Lack of diversity in portfolio

Diversity in investment portfolio is the main mantra of success and the biggest buffer against a downward trend of any single investment. It is important to diversify one’s investment portfolio to earn the best returns from the various investment avenues. All investments are subject to market risks as well as different maturity periods.

No emergency funds

As a rule of thumb, the emergency fund must be six months’ salary; so that even in case of emergencies, there is a fallback option to maintain one’s standard of living. Emergencies can also be change of job or city which involves large expense, and also include medical expenses which have to be incurred till the insurance claim amount arrives.

Renting an accommodation and not buying one

It is not surprising how many people prefer renting accommodation over buying one for various reasons. The most common excuse given is that they are not yet ready to bear the responsibility of investing in a property or to commit to a long-term loan plan. They do not realise that the amount they are paying for rent and deposit, if channelised towards paying EMIs would turn into an investment and offer security in the future.

Children unaware about basic money concepts

A mistake indulgent parents make is not educating their children about basic money concepts. Children learn how to manage money from their parents by observing their expenditure patterns. It is important to inculcate the value of savings and thrift in children from a very young age. Every demand from their end can be treated as a prize which they can win by performing a task so that they understand the value of earning.

Sound financial planning is the key to a happy life mainly because financial stability gives us the confidence to undertake any new venture and to meet our personal goals. Money management must be a habit, not an inconsistent effort.

* The writer is CEO

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