It is often said that hobbies define an individual's personality. Similarly, the personal finance habits of an individual define his financial wellbeing. The most common personal finance habits we have developed over the years are:
- Instant gratification: We find spending more appealing than saving. And while focusing on satisfaction, we often ignore the negative effects that arise due to such decisions. We often buy goods which are not essential just because they are being offered on a deal too good to miss. The money we save on buying it gives us more satisfaction than the money we could have saved without buying it. Cutting down expenses in the name of savings is often considered nothing less than a sacrifice. We ignore the good things that can arise from cutting down an expense and saving the same amount.
- Cushion of loans and debts: Our instant gratification nature is supported by a range of loans and debt options that are easily available now. We rely on loans ranging from personal loans to home loans to meet our purchases. We often fail to assess the impact of such financial decisions on our personal and financial wellbeing. The interest rate payments we make on these loan instruments negatively affect our savings rate.
- Postponing savings: Health and wealth remain the most ignored aspects of our life. We make plans to go to the gym, follow a diet regime and maintain a good shape every new year. But we hardly follow these plans. We follow the same routine when it comes to our personal finances as well. We make plans every month to cut down cost and increase savings. But every month ends up as a zero-sum game. Postponing savings will eventually push the dates when you want to realize your dreams.
- Reliable advice: Individuals are forced to make more financial decisions than ever before. With a wide variety of products available in the market, choosing the right product always remains a challenge. We rely on our family, neighbors and colleagues for our financial advice. We ignore the fact that every individual's financial situation is unique and the financial plan they have to follow is also unique. The current product-centric nature also played its part in us relying on our close sources rather than a financial planner for financial advice.
Nitin Vyakaranam is the founder and chief executive officer, ArthaYantra, an integrated online personal finance company.
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