Financial planning is a long-term process. There are many actions you need to do on the journey. Most of you are not financial experts. Hence you may make some mistakes along the way. However, when it comes to money, the fewer mistakes you make, the better it is for you. You can avoid the mistakes if you know them. Let us look at common mistakes investors make.
Common Financial Planning Mistakes
The most common mistake is not starting with financial planning. Why do most people avoid or postpone it? It is not exciting – there are no short-term rewards. Below are some reasons you give yourself and others for not doing it:
- I have started earning recently. I want to live my life first.
- The plan is ready in my head.
- I don’t have much savings, no point in financial planning.
If your reason is one of the above or something similar, it is not a valid reason. Everyone should start financial planning as soon as one starts earning. The earlier you start, the better it is for you. You will know your financial goals and also get an idea of how much money you need to achieve your financial goals.
Fulfilling all family demands
You earn so you can do what you want – travel, shopping, entertainment, etc. You also feel good when you can fulfill all the financial needs of your family members. However, you need to draw a line between needs and desires.
You should fulfill all the needs of your family and also their desires. Desires are endless, and if you decide to meet every desire, you may not have enough money to invest towards your goals. At Right Horizons, we have seen many people making this mistake. We have helped them prioritize their financial goals and align their savings and expenses accordingly.
Invest without planning
Today, thanks to social media, most people know the importance of investing. So many influencers are talking about investing. A mistake most people make is that they start investing without any plan. You see your friend buying a stock and you invest in it too. A newspaper ad talks about a ULIP plan. You invest in the ULIP plan without figuring out if it is right for you. Does the situation sound familiar? You are not alone in the boat. There are more people like you.
To invest, you must know your needs, risk tolerance, and investment tenure. Based on these, you can decide your asset allocation. In short, you need planning. Every penny you invest should be part of your financial plan. Right Horizons can help you with financial planning – we have been in the business for more than 18 years.
Doing what others are doing
We are social animals, and our natural instinct is to follow the herd. When it comes to finances, we tend to do the same – another common financial mistake. Your friend recently went on a Cruise, and now you want to do the same? He invested in the small-cap funds, and you want to do it. You may be tempted to do everything that people around you are doing. You can avoid it by asking yourself questions like – Do you need what others are buying? Once you start asking yourself questions before making a financial decision, you will automatically save more money. Everyone’s financial situation and needs are different. Hence, you must not imitate someone else’s life. You can be in big financial trouble soon.
Ignoring retirement planning
People who start financial planning tend to overlook retirement goals. They believe it is something that can be done later – they spend or invest money on other financial goals. If you are doing the same, you are on the wrong path. Yes, the goal is far away, but retirement planning is one of the most important financial goals – your retirement will come – it is evitable. Hence, the best thing to do is start investing for your retirement – start NOW. Understand the importance and start investing to enjoy your sunsets years comfortably.
There is a saying – we learn from our mistakes. However, you don’t have to make all the mistakes to learn. You can take help from financial advisors at Right Horizons to reduce your investment risk and maximize your returns. Get in touch with us now.