When you are in your 20s or 30s, you are required to plan your finances carefully as at this age as you have time on your side, which enables you to create wealth on a long term basis. Therefore, you should plan your savings and investment wisely to get best results and avoid any mistake that can hamper this process. Take a look at five such mistakes that you as a millennial need to avoid to keep your financial planning on track.
Not Giving Importance To Adequate Coverage
In these uncertain times, it is important to buy adequate coverage through insurances. It protects a family in case of the insured person’s death, or during hospitalisation of a family member. If your family members depend on you, buying a Term Plan is a must to help them meet their regular expenses, loan repayments, child’s education costs, healthcare, and daily requirements. If not, you may be leaving them vulnerable. So, don’t buy insurance just to save taxes, but look at it as an investment. You should also calculate your family and dependent insurance before buying an insurance for yourself.
Defaulting on Loan Repayments
Loan helps to fulfill our desires during shortage of money. But this loan can turn into a burden if the repayments are defaulted. You should remember that repaying a loan is your legal and moral obligation. A good repayment habit boosts your Credit Score, allowing you to take new loans at attractive interest rates. So pay all your debts on time for a healthy financial life.
Not Investing In Right Instruments
Investing in the right instruments would ensure the availability of funds when you need it and would also provide tax benefits. Endowment insurance plans have low returns and lock-ins. Fixed Deposits are liquid, but not tax-efficient. So, look for instruments that provide good return and are tax efficient. Mutual Fund investments are tax-efficient, the returns can be as high as your risk appetite; and you can invest with sums as small as Rs. 500 a month. You can enter and exit mutual funds investment as per your wish. So do not ignore the benefits of such instruments.
Relying On Gold
Gold as an investment option is fraught with risks in terms of purity, market returns, and safe storage so you should limit its quantity in your portfolio. The recent returns of this traditional form of investment has also not been attractive. People still invest in yellow metal despite other smarter alternatives. So buy gold only to wear, but invest in other wise alternatives like gold mutual funds, gold ETFs, and Sovereign Gold Bonds.
Not Buying Health Insurance
When we are young and healthy, essentials like health insurance take a backseat. But this is a wrong attitude as medical emergencies can arrive any time, and we should always be prepared to deal with it. A Health Insurance mitigate financial risks arising due to hospitalistaion and related treatment. So, it is important to buy and maintain health insurance from a young age.
(The writer is CEO, BankBazaar.com)