Every new financial milestone in life comes up with new responsibilities. A good financial sense is inevitable for handling these new financial responsibilities in life which can turn up into a mess at any point in time. Money mistakes are quite common with people of all ages and the most effective way to avoid such common money mistakes is to know about these mistakes and understand them. Fixing money mistakes can take a considerable amount of time; however, understanding and fixing these common money mistakes will help make much better financial choices in life.
As an employer, you must be coming across many of your employees making such common money mistakes in their lives and getting affected by these mistakes. You can help them in suggesting means for clearing some basic misconceptions associated with finances to avoid making any common financial mistakes.
Let us have a look at the 20 most common money mistakes people make in their financial lives which can be fixed easily.
Mistake #1: Lack of Proper Budgeting
This is a common money mistake made by a large number of people. When your employees do not have a proper budget, they do not have control over their finances. Without a firm grip over the finances, your employees might be earning a good amount but will always be struggling with getting through the finances. With the absence of a proper financial budget, it is quite difficult to accomplish the short term and long term financial goals both. You can suggest your employees set up a proper budget immediately to avoid financial issues in the future.
Remedy: For setting up a proper budget, it is quite necessary to make a comparison of their actual income and expenditure. You can advise your employees to keep aside the money which is necessary to meet the basic requirements such as food, bills, rents, etc. After this, your employees can focus on the retirement plan, savings and contribute towards their retirement funds.
Mistake #2: Penning down Financial Goals
When there are specific financial goals, these goals will pave a way for working towards achieving them. Penning down the same is of utmost importance.
Remedy: You can encourage your employees to have specific financial goals as without these goals they would never be able to control their finances properly. These financial goals can be things related to buying a house, starting up own business, or saving for children’s education, retirement, etc. When these goals are set up properly they will have the motivation towards achieving these goals and would never struggle mentally with matters related to finances.
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Mistake #3: Revolving Credit Card Balance
It is a common practice among many people to use their credit cards to overcome any shortfall of money. By the constant use of credit cards, your employees can accumulate a large amount of credit card debt easily and in a short duration of time. When your employees are using a credit card for making their payments, they will tend to spend more and cannot follow a strict budget.
Moreover, you would also come across many employees who keep on delaying the payment of their credit card debts due to either lack of money or due to some other considerable reasons. This is a huge mistake as it accumulates debts and interest is also levied on the outstanding dues of a credit card.
Remedy: You can suggest your employees to stop making frequent use of credit cards maintain a hard budget and be regular on the debt payments.
Mistake #4: Delaying investments
You can observe that this is a common money mistake committed by your younger employees. At a younger age, investments can be scary or terrifying. Your young employees might not be very sure about the investment, the returns and benefits as well. They might be thinking about it as too early to make investments.
Remedy: You can make your younger employees understand that it is not always necessary to have a huge amount of money or a very highly qualified advisor for making investments. Investments can start at a small amount and institutions like banks, post offices, etc. You can encourage them to start investments from an early age to enjoy greater returns in the future.
Mistake #5: Unbalanced Investment Portfolio
Since many of your employees must be making their investments a young age it is quite obvious that all their money is invested in one single investment product. This can be a risky decision as if the returns may not be always high in one investment product.
Remedy: Diversifying a portfolio increases the probability of obtaining higher returns from the investment. Young employees usually take their investment decisions based on their peers and not based on needs. It is essential to consider their financial condition and the amount which can be invested while making investments.
Mistake #6: Unorganized Way of Saving
There are many cases in which savings are not properly organized and lose their importance in turn. It is quite good to inculcate the habit of savings but it should be in an organized manner.
Remedy: You can make your employees aware of the importance of designating each saving account for a particular cause or category. For example, you can designate one of your saving accounts as an emergency account or as a vacation fund, etc. This will help them in being clear about the purpose of saving and the money saved can be utilized in a planned manner even.
Mistake #7: Lack of long term Financial Planning
Many of your employees might have just made short term financial planning and not thought about the long term financial goals. This can be a common money mistake made by many people. With the rising cost of all basic amenities, it has become inevitable to start planning and saving for future goals.
Remedy: You can make your employees realize the importance of long term financial planning and the need for this planning. Your employees can start the process of saving today for accomplishing their future goals.
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Mistake #8: Overexposure in Real Estate
Buying a house is an accomplishment and an investment as well. It is a matter of happiness to purchase a new house. However, some of your employees might be purchasing a bigger house or number of houses than that is needed. A bigger house will fetch your employees bigger loan amounts which means more debts.
Remedy: You can make your employees understand the importance of buying a house according to their budget and their requirements. Buying a house is a long term accomplishment but it should not be more than your budget which can lead to unwanted debts.
Mistake #9: Being influenced by a big fat Indian Wedding
Many of your employees must be making this common money mistake. A big fat wedding is a current trend and many youngsters get drained off their entire savings due to this trend. It is just a celebration for a day and there are many other essential things in life for which expenses would be incurred.
Remedy: You can make your employees realize that they can have a good wedding but unnecessary expenses for a wedding should be avoided.
Mistake #10: Opt for a proper Student Loan and then not delaying the repayment
Obtaining an education loan is an easy task today. Many of us take an education loan blindly without even thinking about the validity or use of the education loan. The professional course or degree for which loan has been obtained might not be of much use now and hence, the course or degree is wasted. If any of your employees have taken a student loan, then the repayment of the loan should not be delayed.
Remedy: So, if your employees are obtaining any such education loans you can suggest them to have thorough research on the course or degree for which the loan is being taken. You should thus, advise your employees to get rid of the debt associated with student loans as soon as possible. Delay in the repayment of the loan will unnecessarily keep on increasing the interest and would result in a financial loss in the long run.
Mistake #11: Friends and family borrowing
Some of your employees might be facing a financial crisis and in such a scenario it is quite common to get tempted to borrow money from friends, relatives and family members. But, this is not a wise practice as it might put strain and pressure on the relationship with them.
Remedy: Your employees will always be in the guilt of borrowing from them and would take a lot of pressure for returning the borrowed amount. Moreover, their friends and relatives might become judge them based on their spending habits and question their financial decisions.
Mistake #12: Needs V/S Wants
It is necessary to draw a dividing line between wants and needs. There is a huge difference between what is needed and what is wanted.
Remedy: You can make your employees understand the fact that needs are important as they are essential. What they want can be a secondary factor for consideration as this would help in keeping finances under control. Needs should be fulfilled primarily and then wants can be fulfilled depending upon the priority and requirements.
Mistake #13: Absence of adequate Health Insurance Coverage
In today’s world, health insurance is a mandate. With the rapid increase in the number of accidents occurring every day and the widespread lifestyle ailments, a medical emergency can arise at any point in time. The cost of medical facilities is soaring high and a medical emergency can be a financial emergency as well. You can give advice to your employees about the importance of health insurance and the necessity to have health insurance.
Remedy: Without health insurance, the medical expenses would drain all their savings and they would be in a financial crisis. Hence, you should always pursue your employees to have health insurance and avoid getting into a situation of the financial crisis.
Mistake #14: Opting for a Personal Loan for unaccounted needs
Personal loans are a great way to opt for money for sudden expenses provided the same is returned on time. The rate of interest on personal loans is super high and must be avoided at all times.
Remedy: Encourage your employees to save systematically and build a healthy financial portfolio rather than opting for an ad-hoc personal loan. And if they happen to opt for one, repaying the same on time or as early as possible is the most sensible option without any delay whatsoever!
Mistake #15: Ad-hoc and unplanned Financial Decisions
There can be many situations in life in which there is extreme pressure and your employees might take up some financial decisions due to the pressure. There can be scenarios in which your employees will feel the need to act immediately. In such a situation, your employees might not consider all available financial options correctly and end up taking some wrong decisions.
Remedy: You should make your employees understand that their financial decisions must be based on their goals and needs. These decisions should not be taken under any kind of pressure or fear.
Mistake #16: Credit Card Debt Trap
Another common money mistake made by many people is to use up all the available credit. Maxing out a credit card can be very risky in terms of financial health and can affect your employee’s credit score. They can keep their debt usage low and can go-ahead for an increase in the credit limit.
Remedy: You can highlight to your employees the importance of using their credit cards carefully within the maximum limit and avoid the debt trap. Credit Cards are a very effective tool but the same needs to be used responsibly and repaid well on time, else it can prove to be a menace for a lifetime!
Mistake #17: Control your Credit Score or CIBIL Record
Many people do not take their credit score seriously and do not put in efforts to check their credit reports regularly. This is not a good practice and can affect their financial lives. Checking one’s CIBIL score from time to time often helps one to reconcile the financial portfolio without much of a hamper!
Remedy: You must explain about credit score and credit report to your employees. They should make it a habit of regularly checking their credit score and credit report. This will help streamline their finances in the future.
Mistake #18: Lack of Retirement Planning
Retirement seems to be far off, but it is of extreme importance to save up for the same. This is a very common money mistake committed by numerous people. When your employees are engrossed in their today and are not paying any heed towards their tomorrow, it is very much necessary for you to remind them about this.
Retirement is often misinterpreted as Pension, but accumulating a retirement corpus is only a part of a proper retirement plan. Availing proper health insurance coverage which can be renewed lifelong is a great retirement tool as well.
Remedy: Retirement is that phase of life when work might not be much and income too may not be adequate. It is essential to plan and save for retirement from today itself to create a corpus that can be used when there is no continuous flow of income anymore.
Most people do not opt for regular annuity plans and thus creating their own retirement corpus is of extreme importance, especially with the rise in inflation, especially lifestyle and medical inflation which affects the MOST in the retired phase of life!
Mistake #19: Not having a dedicated Emergency Corpus
Each and every financial goal needs to be accounted for separately so that any emergency does not create a dip in any other portfolio. This often happens with the retirement corpus, especially since it seems far away, it is rather neglected. Mental accounting of Financial Goals is of extreme importance.
Thus, even though there may be some of your employees who have taken retirement plans quite seriously and have saved a considerable amount for the postretirement phase. But, in case of any financial emergencies or pressure, they tend to dip into the retirement fund. This practice is not a healthy one and should be avoided.
Remedy: If there are any financial emergencies, your employees can search for some other alternatives to overcome the crisis rather than dipping into the retirement corpus or any other specific financial goals for that matter. There needs to be a proper Emergency Corpus for all unforeseen exigencies that might crop up without proper intimation!
Mistake #20: Sale Shopping
Reckless shopping is quite common with the younger generations today. New gadgets like laptops, smartphones, tablets, etc. are available at considerable prices and are selling like hotcakes amongst the younger generations especially at times of SALE. Your younger employees might not be interested in investment but very much interested in buying these gadgets.
Remedy: You need to explain to your younger employees about the harmful consequences of reckless shopping and suggest to them to be careful while shopping and not get swayed by the discounts but rather buy only what is needed.
Hence, money and investment mistakes are a common problem. Common money mistakes can affect the financial situation in the long run and so it is necessary to avoid these petty common money mistakes. As an employer, you can make your employees aware of the importance of making wise financial decisions and suggest them to avoid these common money mistakes to have good financial health.