Becoming wealthy is not just about good investment skills, but also about following healthy money habits. Frivolous spending has the potential to eat up a major chunk of our income and hurt our financial objectives to create wealth. Let us take a look at some frivolous spending and ways to deal with them.
It is always better to plan and allocate money towards expenses in the beginning of the month. If you don’t have a good budget in place, you may end up exhausting all your income on things which are not a necessity. This would also help keeping unnecessary expenses at bay and control your spending.
Defaulting On Credit Card Payments
We all love Credit Card’s ‘Shop Now, Pay Later’ feature. But often we end up swiping it more than what we can pay for later on. This is a bad habit as excessive use and spending beyond your limits is a recipe to get into a debt trap. Using Credit Card is like taking a loan and you should know how to use it judiciously. Another bad habit related to credit card is defaulting on the payments and let the interest rates accumulate. This can adversely affect your Credit Score.
You must always clear the minimum due on the credit card balances if you are struggling to clear the dues, but it is always advisable to clear the full dues.
Besides, if you have accumulated too much debt, it is advisable to go for a zero per cent balance transfer. With this, you can transfer the debt on another card which has zero or low interest rate than the previous card.
Controlling how you use your credit card will go a long way in ensuring healthy financial practices.
While working on financial planning objectives, insurance is mostly ignored. It figures in the list but is not the top priority. It is a bad move to ignore insurance as it empowers you to deal with tough situations. While a Term Insurance protects your family after your demise, a Health Insurance is meant to take care of your medical expenses arising out of sudden illness. To be wealthy, prioritise insurances to mitigate risks while you on walk on wealth creation path.
The right approach is to understand your financial objectives and accordingly pick up investment instruments. You can also seek help of a financial advisor to guide you in this. Do not blindly park your money in attractive or risky investments that promise rich returns. They have the potential to leave you bankrupt. For someone looking to create wealth, Mutual Funds are the best option, while those looking for tax benefits, can go for public provident fund, insurance, tax saving bonds, among others.
Excessive shopping, eating out and frequent partying are a few lifestyle habits that can hurt finances badly if not done in a controlled manner. Allocate a budget for such needs as well so that you do not end up spending beyond your limits.
Healthy financial habits have the potential to make you wealthy in the long run, so ensure that you never deviate from this path.
(The writer is CEO, BankBazaar.com)