Making mistakes with our money is something we all are wary of. But we can never really be sure of avoiding. Even those of our friends who seem to have been smart in handling their money, sometimes falter at problems that credit and financial planning bring along.
Never was money as simple as saving in a bank account, if you wanted to make the most out of it. Ranging from making investments in real estate, shares and new start ups to managing loans, credit, debt and risk, one needs to balance it all.
Most financial planners would come to common conclusions regarding the financial mistakes that regular people make, normally, and would advise strictly not to fall for them.
Let's talk about a few money mistakes that hover around most of us, some time or the other, in life.
Choosing a college without planning
When your children have to pursue higher education, you wish to give them the best. After all, that decision shapes their future. However, wishing the best for them does not justify financial decisions that are not well thought over.
For example, while listing down the options for graduate school applications, one has to be completely aware of the fee structure and expenses that the degree brings along. Comparing the return on investment to this value assists you to judge whether your money is bringing you the returns that you expected.
A thorough research on the school policy, scholarship and financial aid options are a must. Plunging into an unknown sea of expenses could be very dangerous, especially in case your child is making applications to graduate schools abroad. Living expenses vary from city to city.
Many a times, popular schools are located in metro cities that cost the student a lot in terms of cost of living, in which case, students either turn towards student loans or working part time.
Student loans could also be tricky to understand. That is especially true for graduate schools that assure you of high salaries.
A student, who borrows an amount of Rs 1 lakh and is liable to pay an interest of 6.8 per cent on the principal, could end up paying Rs 1,100 every month for ten years to clear the dues for that loan. So, unless you are aware and ready to take such risks, you must weigh the options carefully.
Borrowing More than Affordable
It’s but natural to give in to aspiration in life. Whether it is going for a swanky car or buying your dream house or anything at all, it requires a great deal of financial planning to turn these dreams into reality.
The truth is that you have to cautiously analyse your sources of income from salary and other means before applying for a loan. If you have not planned and saved for your house or are getting into a deal prematurely, then you tend to take a loan. Currently, home loans are easy to get in India.
The catch is the EMIs that you have to pay for a long duration every month to clear that loan. Now, you have to make sure that even if you need to switch to a lesser paying job or divert a lot of money that you earn to an anticipated cause, like your child's education or family’s health, you need to have some financial backup to pay these EMIs.
Today, a loan on the smallest home item is possible. However, whether or not it makes sense for you to borrow money for such a thing is the question that you need to ask yourself.
The writer is CEO of BankBazaar.com