They Don’t Have Clearly Defined Financial Goals
Financial goals are the starting point for every action you take make with your money.
In other words, when you set financial goals, you are guiding your future financial decisions.
They give you a financial direction, and a sense of purpose. Additionally, without them, your financial life will lack accountability.
Save
For example, if you decide you want to save Rupees 10.000 this year, you have to measure every spending decision you make between now and then against the following question: will this help or hinder my efforts to save Rs. 10,000?
Honestly, a simple question like that can be the difference between impulse spending and frugal living.
In fact, I would go as far to say that little questions like that can be the difference between being broke or wealthy.
Tips for Setting Financial Goals
If you don’t want to be broke, the very first thing you should do is set financial goals. I recommend setting at least two achievement goals and two habit goals.
Achievement goals are goals that have an end point. In personal finance, they are almost always tied to a specific rupee amount.
Whether you want to save Rs10,000, pay off all your debt, or save for a down payment on a house, these goals have a finish line; a moment when you actually achieve your goal.
Habit goals, on the other hand, do not have a finish line. They are ongoing, so the goal is consistency.
A good example of a habit goal would be to invest 15% of your income every time you get paid.
Now, I will admit that habit goals are a little less exciting than achievement goals, which makes them harder to maintain. So, I recommend you pair them with an achievement goal.
If you set an achievement goal to invest Rs. 5,500 this year, you could pair it with a habit goal like, invest at least 20% of my income in retirement whenever I get paid. The habit goal is ongoing, but it will supplement your achievement goal.
Good Example of financial achievement goals:
Save enough to pay cash for your car
Get out of credit card debt
Pay off towards your house
Save enough money for a vacation in 6 months
Disclaimer: The information on this POST is not intended or implied to be a substitute for professional advice. The opinions expressed within this article are the personal opinions of the author. All content, including text, graphics, images and information, contained on or available through this article is for general information purposes / educational purposes only, and to ensure discussion or debate.
Thank you ….Good Examples of financial habit goals:
Save 10% of my income
Invest at least 10% of your income (not including retirement) whenever you get paid
Read at least one book on personal finance every quarter
Log my expenses into my spending tracker every night
Have a weekly financial meeting with my spouse
Don’t Have a Budget
One of the main reasons most people are broke, is because they don’t live on a budget. And without a budget, how are you supposed to know when you are getting off track in your finances?
Budgeting allows you to plan, track and analyze your spending habits. It is your well-paved path to your financial goals.
Track your Spending
Part of the reason most people are broke is that they don’t track their spending. But that defeats the entire purpose of a budget. If you don’t track your spending it’s easy for money to slip through your fingers.
Then, before you know it, you’re broke and don’t even know why.
Do you want to add a word or two?….
I like to think of tracking your spending like parenting. Little kids have a tendency to wander off, so what do you do as a parent?
Well, the same goes for your money. If you don’t pay close attention to your spending habits, money has a way of wandering off. Whether it’s at the grocery store, retail stores, or restaurants, you need to keep track of your spending.
Too Many Payments
The more complexity you add to your finances, the harder personal finance becomes.
If you’ll indulge me for a second, I’d like you to imagine a world with no credit cards, or access to borrowing money.
Everybody would have to pay cash for everything they wanted to buy.
Can you imagine how simple that would make your finances?
The more loans and credit cards you introduce to your finances, the more complicated everything gets. Before you know it, you’re spending money on six different credit cards with different balances.
Your Comments….
Then, in order to pay all of those things, you have to log into separate accounts. And since each account carries a different interest rate, and posts transactions at different intervals, it’s incredibly difficult to know exactly how much money you have, and how much money you owe.
It’s a very messy way to run your, and it often leads to terrible spending habits and financial mistakes.
Meanwhile, if you only use a debit card to make purchases, you can log into one account and know exactly how much money you have. This makes tracking your spending significantly easier, and budgeting as a whole, a more enjoyable process.
Don’t Carry Credit Card Debt
I don’t think it’s any secret that credit card debt is bad news. Not only does it add complexity to your spending habits, but it comes with the added gut punch of high interest rates.
In fact, the interest rates are so high, that unless you make a concerted effort to pay them off, you could remain in credit card debt forever.
Credit card debt is the worst enemy of financial success, and it’s one of the main reasons so many people are broke.
Don’t Borrow Money to Purchase Depreciating Asset
In addition to credit card debt, most people are broke because they borrow money to make large purchases they can’t afford.
Additionally, most loans are used to purchase depreciating assets like: cars, , and pretty much anything else with a motor.
I’m not a financial genius, but I think the key to wealth is to do things that cause your money to grow; not pay somebody extra for something that loses its value.
Don’t Base your Financial Decisions On Cash Flow
One of the most common financial mistakes you can make is to base whether or not you can afford something on how much the monthly payment will be.
For instance, if you want to purchase a new car, “I can afford the monthly payment, therefore, I can afford it.” Meanwhile, a wealthy mindset would be, “I can’t afford this car, because I can’t pay for it outright.”
If you base your purchases on the cost of the monthly payments (whether there’s interest or not), it’s easy to end up broke.
Why?
Because eventually, you will max out your income with monthly payments, and the worst part is, you will be locked into those payments for months; or years.
Basing your purchases on cash flow and monthly payments is like slowly sentencing yourself to financial prison.
Prepare For Emergencies
Now, I don’t know about you, but that sounds like a major problem. Especially because Rs.50, 000 medical clinic, emergency isn’t something I would consider to be uncommon.
In fact, I would consider that a pretty small emergency. Just go to the emergency room once, and you’ll know what I’m talking about.
If you don’t prepare for financial emergencies, you are setting yourself up for financial disaster.
And medical emergencies, while prevalent, aren’t the only risk.
What if your creaks down?
What if you lose your job?
The worst part is, the less prepared you are, the more emergencies you will run into.
Don’t believe me?
Ok, consider this scenario.
There are 2 people. The first person has Rs, 5000 in savings, while the second person has Rs 50, 000 sitting in an emergency fund. Now, imagine both of them accidentally break their phones — which they need for work– and are forced to buy new ones.
I’m willing to bet the first person would call that an emergency.
Meanwhile, for the second person, it was a minor inconvenience.
If you liked this post from DAYAL why not share it?