7 Habits to avoid for better financial management
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7 Habits to avoid for better financial management

  • Highlights

  • Effective fund utilization for sound financial management

  • Preventing financial crisis with the right steps

  • Best measures for diversifying investment portfolio

Whether you are self-employed and looking to grow your small business or a salaried professional working towards a goal, sound financial management is the key to your security.

Financial management simply refers to how effectively and efficiently you utilise your funds. Not paying attention or delaying necessary action can lead to a situation where you are strapped for cash. One way to avoid this predicament is to constantly inculcate a proactive approach.

Here are seven habits avoid, for better financial management.

Putting off for tomorrow, what you should do today

We have all been guilty of not attending to tasks right away, but when it comes to financial management, the consequences of such actions are dire.
For example, when you postpone withdrawing surplus cash from avenues that do not yield better returns on investments, you are losing money. Avoid financial procrastination by reminding yourself that time is money.

Additional Read: 5 Best Short-Term Investment Schemes To Make Money

Assuming everything you read or hear about, is the truth

Never assume that the people who deal with your money always have your best interests at heart. In fact, they could just be using you to meet a target, to land a promotion.
Same goes for advertisements that you may see or phone calls you may receive about lucrative schemes that are too good to be true. Train yourself to read the fine print and research the investment market to make decisions based on market realities and forecasts.

Expecting too much, too soon

Rather than gravitating towards instant results, get used to waiting for your investment to mature over a longer period. A fortune is seldom made in a few hours. Realise the wisdom of making long-term investments, which will not let you down, rather than staking most of your savings on a stock tip.

Acting on impulse, instead of discretion

Using discretion in financial matters does not mean that you are afraid to take risks; it only means that you take calculated risks. So, even though losses cannot be eliminated, they can at least be minimized. Making rash investments based on a whim or a friend’s story is most likely a set-up for failure. Rather than letting the lure of making money control you, learn to be in control of your money.

Not keeping track of your investments

Don’t be under the false impression that it is the duty of your financial advisor or the institution where you’ve chosen to park your hard-earned money to inform you about your earnings. Your responsibilities don’t end when you’ve done your financial planning.
Keep track of every deposit you’ve made, the tenor you’ve chosen, and the expected interest. This is true for all the taxes and personal accounts too. Be organized and attentive about maintaining proper records for best results.

Putting all your eggs in one basket

Don’t be under the false impression that it is the duty of your financial advisor or the institution where you’ve chosen to park your hard-earned money to inform you about your earnings. Your responsibilities don’t end when you’ve done your financial planning.
Keep track of every deposit you’ve made, the tenor you’ve chosen, and the expected interest. This is true for all the taxes and personal accounts too. Be organized and attentive about maintaining proper records for best results.

Putting all your eggs in one basket

Just because you are impressed by the returns obtained from one financial instrument, does not mean that you should pool your entire capital or cash in that instrument. Here are some benefits of diversifying your investments: 1) Lower risks of loss 2) Higher returns with long-term investments 3) Better tolerance towards market fluctuations 4) High-growth potential with balanced portfolio You should invest in a variety of financial instruments and spread your risk. Even within the same financial instrument, it is important that you practice asset allocation diligently.

Mutual Funds v/s Fixed Deposit

For instance, if you invest in mutual funds, you should not invest only in those that have a heavy energy sector dependence. Even in fixed deposits you should not invest all your cash in FDs of the same duration.

Additional Read: How To Choose The Best Fd Plan In 2018 - Bajaj Finserv

Hoarding too much cash

Due to fear of taxes or to cater to emergency requirements, you may end up hoarding money in your current account or at home. This hampers your potential to grow your wealth. Keep inflation in mind, which decreases the value of money, and try to invest in options that beat inflation while still promising you liquidity.
A short-term, high-interest FD may be the right vehicle for you in this scenario as it offers safe and fixed returns with a quick premature withdrawal. Think about other such options that can boost your savings rather than simply storing cash.
Knowing how to avert these 7 common practices will help you become a responsible financial manager in no time!

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