Different financial decisions like investments, budgeting, insurance, borrowing a loan for personal or investment purpose etc. are very important during the entire course of our lives. When it comes to making financial decisions, it requires attention, some calculation, tons of patience and loads of commitment. Often, errors are made in financial decision-making due to the paucity of information, complex financial products and hidden charges. While mistakes are inevitable and one should strive to learn from them, it would be even better if one can avoid them. There are small areas where one can focus, in order to avoid bigger financial mistakes.
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Investments
People in India generally take suggestions from family members and friends when they make an investment decision. These suggestions, while mostly well meaning, usually do not germinate from knowledge and expertise. Consequently, such decisions can have a negative impact on your financial plans. However, there are some basic steps, which one can follow in order to avoid these mistakes.
Identify goals and bucket them into various timeframes (short, medium and long).
Educate yourself about the available investment products and understand their efficacy in helping you achieve your goals.
Clarify different investment fees and costs with your adviser or the entity from, which you are supposed to execute your investments because a small percentage variance in fees can have a large impact on your future investment returns.
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Seek advice only from a licensed and trusted expert.
Insurance
The main purpose of insurance is to protect you and your family members in the event of unforeseen exigencies. Certain events can have a huge impact on the financial stability of your family. Insurance is a product that provides a cushion in such circumstances. Insurance products are very simple to understand but usually, insurance agents tend to sell the products which will generate maximum commission for them rather than selling an appropriate product based on customer needs. However, things are now on the mend and it is incumbent upon us, as users, to be aware of the different insurance products and the benefits that they provide.
In India, we don’t follow the process of needs analysis for life insurances and purchase insurance policies based on rough estimates. It is important to conduct a proper needs analysis based on current net worth and future requirements. While signing the final documents for any insurance, please ask the agent to disclose all relevant charges and policy details.
Loans
It is not always possible to fund your current needs with the available cash at hand or savings. Many people take loans in order to bridge a shortfall in funding, especially when it comes to purchasing a new house, a vehicle or funding your child’s education. Additionally, individuals also avail of personal loans to meet their current consumption needs. Before applying for a loan, one must take stock of their current financial situation, make note of ongoing liabilities and assess their ability to services the loan (pay EMIs) during the tenure of the loan. Also, ensure that you have all the loan details ie: the rate of interest and its nature (fixed, floating or hybrid), the repayment structure, any penalties that might be applicable and information pertaining to processing and other fees. Always remember that an informed borrower is a wise borrower.
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Making informed financial decisions is integral to the financial health of an individual and his family. Thus, it is important to make some calculations, glean knowledge about products and take suggestions from experienced people. It is also important to learn from mistakes made in the past. However, it is always advisable to contact an established financial adviser or financial planner to help you chalk out a robust and comfortable financial journey.
