13-Jun-2017 written by : FSI-Team
A person is made out of his habits and we all have our own preferences and conducts that impact our lives. Now these habits can affect our lives in a positive or in a negative way. Till the time these habits contribute positively it is fine but if the same have negative influence it is a cause of concern and needs to be changed. Especially when these habits are impacting our financial lives.
Following are a few such habits that can severely impact one's financial life and one would be required to be watchful on these. But before we dwell into the small habits or decisions that can potentially impact our financial lives negatively, let us look at an example.
Amitava has been planning to buy a TV. He has finally saved money for it and was excited to be fulfilling his need. However, on visiting the store, he realizes that he would want to buy the latest series which is more expensive than what he had budged for. He decides to buy it by bridging the gap of funds through swiping his newly acquired credit card. Not only did he buy a more expensive TV, he also purchased a high end music system. After all, he has a decent income and can afford to pay off the credit card balance over next few months. Moreover, the party scheduled over the weekend would leave his friends amazed with the quality of output of the music system.
Many a times, people overspend with the thought of paying off from the income of future. This is the most common erroneous habit that leads people into debt trap. One fails to realize that the future income will also have its own share of expenses on essential and routine items. Moreover, future is always uncertain and it may hold some exigency that can put stress on financials.
Amitava, in above example, got indulged into impulsive buying. Upgrading the gadget that what he could afford or buying another gadget that he did not have funds for is not the right thing to be doing.
One must have a plan, as was the case with Amitava, while going for shopping. The mantra is to have a list of what you need before you step out and then to stick to the list. No planning before going for shopping will only lead one to purchase a lot of articles that he or she may not actually be in need of. There are numerous examples in everyone’s life where a product or service purchased was actually never used.
This is where we Indians can beat all others hands down. To buy something from a social image perspective and or to show off is completely a no no. Any financial advisor would have reprimanded Amitava to be buying an expensive system to impress friends over the weekend party.
Amitava not only purchased a high end TV that he could not afford, but also bought a music system that he was not in need of. Impulse buying most of the times a bad habit that will sooner or later catch up with the earning and lead to the point where the debt spirals beyond one's capacity of earning.
The credit card companies keep luring the card holders with various exciting offers to earn more points or extend variety of discounts on spends. Swiping your credit card to earn those extra points or miles or to avail a discount can be a fatal error. End of the day what one needs to realize is that the purchases still need to be paid for.
Credit cards can be that evil in your life that can eat into your financial planning if not handled properly. Paying minimum amount due every month while will keep you contented of meeting the obligations but the high interest rate, which can be as high as 50% effective rate of interest, will only lead to eating into your money. One must purchase only those amounts on cards that can be repaid in full on due date.
Another common error leads to pushing one into debt is not keeping a track on the payment due dates. One must ensure that all payments are being made in time without any default. Not only will a default in payment lead to accrual of high penal charges and additional interest rate but can also lead to impacting the CIBIL rating.
Now this can be the real game changer. One may think that taking debt is not big deal since it can be repaid later. But taking exposure to debt more than one can repay can lead one into owing amounts to several lenders and being chased by the collection people. This can lead to a situation where one becomes a defaulter and has to look for loans for bad CIBIL score at the time of need.
Including debt into one's financial planning is as important as any other part of it. Not planning or ineffective planning can lead to mounting of debts that one may not have the capacity to repay.