Five Mistakes That Jeopardize Your Financial Freedom

Many individuals want to be financially free. However, their dream may not materialise if they make any of these five mistakes.

It is not the income that brings financial freedom but it is the balance between income and expenses, which helps you to attain it. Managing money is an art and science. People work hard to fulfil their aspirations but few mistakes may jeopardize all their efforts. Despite of having adequate income people find it difficult saving for their future goals. Anxiety steps in when they face sudden unexpected expense. 

Here are the most common mistakes which become an obstacle in achieving financial freedom. 

1. Poor cash flow management 

Cash flow management refers to managing in and out flow of money. People simply earn and spend without looking into their future financial goals. If you are poor at managing your cash flow then chances are there that your bank balance may become zero much before the end of month. Lack of discipline may lead to over spending. Cash-flow can be managed to the large extent by writing monthly household budget. Once you write your household budget you will be able to identify and control your not-so-important expenses. 

2. Living beyond means 

People tend to live in the present rather than worrying about their future. Although enjoyment is an integral part of life, yet it should not be achieved by jeopardizing our future. We buy things which we may not specifically need. Human beings are susceptible to societal pressure which make them do things which can adversely affect their money management. We seek acceptance from society leading to impulsive purchases which will give you instant gratification but which may be the cause of financial dissatisfaction later on. This behaviour can be controlled by differentiating between needs and wants. Money should be judiciously spent on satisfying wants only after all needs including saving and investing for the future are properly met. 

3. Overburden of EMIs (Equated monthly instalment) 

Loan is a necessary evil. In the current economic conditions, rising of inflation, stagnant income levels, loans have become necessity to meet certain needs. Loans should be taken only to satisfy needs but not wants. Home loan and even vehicle loan to some extent can be deemed as a necessary loan whereas personal loans for utilization of going on vacations should be deemed as unimportant. The interest rate on personal loans is much higher compared to secured loans leading to further strain on cash flow. How much you borrow, it should be determined based on your repaying capacity. EMI should be such that it does not cause unnecessary strain. Use credit card only if you can pay the bill before the due date. Any outstanding on credit card may become a financial burden for you due to high interest rate applicable on it. 

4. No efforts to increase income 

Inflation causes a dent in our cash flow management. Inadequate funds are the major reason for not saving and investing for the future. In the absence of adequate inflow we have to compromise on our savings and investments to take care of our fixed and discretionary expenses. We must think of improving our income if it is not adequate. We must upgrade ourselves to earn more. Upgradation can be in terms of upgradation of job, upgradation of knowledge, exploring new avenues to earn money. The advent of technology has opened new doors of earning income. We can explore new opportunities while still carrying on with our primary job. 

5. Improper asset allocation 

Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment time frame. Financial goals if realistic can be achieved through proper asset allocation. Poor risk tolerance and inadequate knowledge of financial instruments cause improper asset allocation. Overexposure in traditional saving schemes like fixed deposits and small saving schemes limits the scope of wealth creation. Improper asset allocation is the major cause of jeopardizing our financial freedom.

Source - moneycontrol