Sometimes, personal finance is made out to be a complex thing, but it is not. To begin with, it is important to avoid some key mistakes that we tend to make, and then things fall into place.
We look at five personal finance mistakes you need to avoid in 2025.
Not Having A Budget: Irrespective of what you earn, not having a budget is a big mistake. Having a budget gives you an idea of how you are spending your hard-earned money. So make a list of all your expenses and then if required tweak those expenses to stay within limits. Discretionary expenses like eating out expenses can always be cut down. The idea of having a budget is to have a surplus every month after meeting all your expenses. So it is important to know how you are spending each penny. Once you have a budget, you need to stick to it.
Not Having Emergency Funds: A sudden job loss or sudden medical expenses can come as a surprise. So you must have six months’ expenses in an emergency fund. This is money that you would need to access instantly so such money needs to be kept either in a savings account or in liquid funds. We often tend to spend such money to meet extra expenses but this is money which you should use only in the case of an emergency. If you do not have an emergency fund or have an emergency fund that is not enough, you must focus on building an emergency fund.
Not Having Adequate Health Insurance: Medical inflation is higher than normal inflation. Not having adequate health insurance can drain your finances. Having adequate health insurance is thus crucial. If you are living in the metros a family floater policy with a cover of at least Rs 10 lakh is recommended. In case you have inadequate health insurance cover, it is important to increase your health insurance cover with immediate effect. You can buy insurance with co-pays and deductibles to have a lower premium but in that case, you need to pay a certain amount out of your own pocket.
Not Keeping Your Debts Under Control: Ideally, your equated monthly installments (EMIs) should not exceed 40 per cent of your total income. If you have a home loan and a car loan, this leaves you with little leeway to take any other loan. Costly loans like personal loans or credit card debt charge a very high rate of interest and can land you in a debt trap. Nowadays it is easy to get a loan, but before taking any loan it is important to be very sure of your cash flow and your ability to repay the loan. Loans to buy gadgets and to sponsor holidays are best avoided.
Not Having A Decent Equity Exposure: You could be saving your hard-earned money with discipline but having little or less equity exposure, can be a very big mistake. FDs and other debt instruments can give guaranteed returns but they do not beat inflation and over a long period of time, they erode your wealth. When investing in long-term goals like retirement, investing in equity is crucial. For any goal that is 10 or more years away, investing majorly in debt is a mistake.
