6 Money Management Habits That Do More Harm Than Good


Money Management is not a complicated exercise, nor does it require you to have extensive knowledge about the financial world. A lot of what you need to do borders around the discipline that one needs follow, and basically is all about common sense and diligence. Whilst there are many things to add to your ‘To do’ list, equally important is to make sure you also have a ‘Not to do’ list to avoid the five habits discussed here, as they do more harm than good.

When you are young and kick-starting your professional career, it is common to make ill-informed choices in matters related to your finances. The problem is that this may only get worse with time since many of these choices often turn into habits which one could carry throughout a lifetime. A lot of times, people are not even aware of the bad habits that they have cultivated through the wrong choices they make and which are difficult to let go.

Take a look at these common mistakes and ensure that you are not making them.

  1. Not creating a budget

One of the most common mistakes is not having a budget because youngsters often think budgets are to be made when you are running a household. But a budget is about the discipline of income & expense management, regardless of the circumstances. Without a budget in place for spends and expenses, it is impossible to have a grip on your finances and take corrective measures if situations arise. Even if you are earning well, spending more than is required can easily set you on the path to a financial mess.

Take some time out and create a budget. This will ensure that you track your expenses every month. Like it is said about other habits, it is always better to embrace good financial habits from when you are young, because they then stay with you for life.

  1. Not having clear financial goals

Your plan to save wouldn’t really be as effective as you want it to be unless you are saving with a purpose in mind. Be it buying a car, a house, retirement planning, or child’s education, it is very important to have clear short-term and long-term financial goals to make sure that you have a clear, disciplined road to get to them.

Set reasonable financial goals and review them every year to ensure you are on-path to achieving them successfully.

  1. Taking a loan when you don’t really need one

The most important decision wrt a loan is not which is the best one to take, but whether it is necessary to take one. Owing to the easy availability of loans like personal loans, a lot of people end up taking loans even when they do not really need one viz. going for an international vacation, buying a luxury bike etc. Loans have a part to play in your life – to help you leverage your finances well, and sometimes, even help you in financial distress. However, unless absolutely necessary, loans should be avoided as much as possible.

If you do need some short-term financial help, it is better to reach out to your relatives or friends rather than taking a high-interest loan.

  1. Hasty investment decisions

There are several investment options around us – from fixed deposits to mutual funds to shares to real estate etc. Couple that with a lot of ‘experts’ who pretend to be masters at offering advice (since they made a lot of money!), and what you get to see is lot of people investing their money without really understanding where they are investing or considering their financial goals and risk appetite. Different investment products work differently and carry different degrees of risk.

Ensure that you first understand how the product works and then see whether it is in line with your goal and risk appetite, before making a decision.

  1. Putting all eggs in a single basket

Saving and investing is very important for a secure financial future. But a lot of times people overexpose themselves to a particular investment instrument (viz. real estate or equity markets) just because it promises the best returns. If for some reason the value of your investment in real estate starts falling or the equity markets start crashing, things may get very challenging when you actually need the money.

Make sure that you take a diversified approach towards investment to avoid such situations.

  1. Not having an emergency fund

An emergency fund is a must-have if you want to be prepared for unexpected occurences like illness which could leave you with a fat hospital bill. Such events may be very difficult to manage out of your monthly budget, and can leave you in dire straits.

Even if you don’t believe that you have enough money to start an emergency fund now, start with whatever you have and then you can to add more to this fund, as you go along.

Make sure that you have a clear “Not to do” list when it comes to your finances, and you’ll be significantly closer to the financial freedom that you’ve always imagined for yourself.