Tuesday 19 February 2008

11 things NOT to do with your money

Smart investing is the key to financial happiness. It helps you multiply your money. And it certainly is not as difficult as you think.

If you think you need extra money to start saving, you are wrong! Saving is not about saving extra money. It is about planning your expenses in a manner that lets you save enough money, no matter what you earn, for a safe future.

But handling money is not very easy. So here are 11 tips on what you must not do with your hard earned money.

1. Don't go on depositing your salary in your savings account

Do you rush to the ATM and withdraw money regularly? Well, you cannot afford to be careless about withdrawals. While a savings bank account helps you meet your regular needs, it is important not to deposit all your earnings in the savings account.

While you must keep a portion of the salary in the savings account, make sure you allocate enough money for regular expenses, as well as additional expenses, that you may need to meet unexpectedly.

Excess money in savings account will always also tempt you to spend more money than you should ideally spend.

2. Don't manage money without a good plan

A golden rule in investing is to have a good financial plan. Do not invest money only on the basis of what your friends or relatives say. You must identify your priorities and set realistic goals.

Calculate your monthly expenses and see how much you can save every month. Make a list of things you can and cannot avoid. Learn to strictly stick to you plans.

3. Don't invest all your money in the same plan

No matter which investment plan you choose, you must not invest all your money in just one plan or in one bank. You must allocate your resources across various schemes, be it mutual funds, fixed deposits, stocks or small saving schemes.

It is very important to diversify your investment. Remember, interest rates and services charges vary from one bank to the other. Before you invest money in any scheme, call up banks, financial service companies and make sure you get the best deal.

4. Don't set high savings targets

You must not go overboard on savings. You are the best judge of how much you can save and how much you can spend every month. There is no point in saving all your money and being sad about not having enough for your needs.

If you have a family, you must take care of their needs as well before you start investing. Set a target accordingly. But you should allocate a fixed amount every month. The more you can save, the better.

5. Don't lose your focus on savings

You may have invested your money across various investment options. Don't think that your job is over. In fact, you must keep a watch on interest rate changes and market fluctuations.

If it is stocks you have invested in, check out how the companies are performing, read up, be alert. You have to be proactive to the changes and be actively involved to make your money grow.

6. Don't splurge more just because you got a hike

Most people have a habit of spending more and changing their lifestyle when they get a good hike or bonus. There is no harm in enjoying and have a good time. However, if you would like to save money, you must invest the additional amount to add to your savings.

You must always think about the long-term benefits.

7. Don't shop for unnecessary items

You must learn not to give in to temptations while on a shopping trip. It is important to make a list of things you would need for the month and stick to the list. While it is good to indulge yourself once in a while, you must always be careful about spending money on impulsive buying.

Many items may look attractive but soon you may end up not using it, thus wasting your money.

8. Don't go for too many loans at the same time

It is very easy to get a loan nowadays. Loans are available just by sending an SMS. But beware of easy loans! Your may want to own a car, a home or some other luxury, but ideally you must not go for too many loans at the same time.

Buy things one at a time so that you have enough money for yourself and to save and you are not too indebted.

9. Don't join any scheme without verifying the credentials

There have been several cases of fraud, where innocent investors have been cheated by crooks posing as smart investors or advisors. They may lure you with all kinds of schemes of getting higher returns at the shortest possible time. Always cross-check facts and figures and their credentials before you invest in any plan.

You must also be aware of the fine print. Ask for all the details even it is time consuming. At the end of the day, you must be thoroughly convinced that you have made the right choice.

10. Don't invest your money in risky plans

While it is important not to keep stacking your money in a savings account, it is not important not to indulge in risky investment plans. You must start saving with smaller amounts and try to save more as you go along.

To start with, you must seek the advice of a good financial planner or choose low-risk plans. Remember, slow and steady wins the race!

11. Don't forget the dates, plans

Most people are very bad at remembering dates of maturity of their fixed deposits, or savings schemes or dates of paying premium. Make sure you keep a diary of all the saving plans, their maturity dates and remember to either reinvest the money or go ahead with any plan that you have in mind when the plan matures.

All the papers must be safely kept in either a bank locker or any safe place. You must also keep a photocopy of all the important papers incase you lose the original will be useful