Tips to avoid a financial mess

When do we get into a financial mess? What is the key to protect your own financial life?

Before I share the secrets, let’s pay attention to the clues that can help you know whether you are leading towards a financial mess.

• Do you know how much you have and where is it lying?
• Do you always wonder why I do not have anything to save at the end of the month?
• Do you know where and why should I invest?
• Do you ignore/fear /prevent talking about your finances?
• Do you decide your investments on what your friend /neighbor tells you?
• Do you always wonder why I am unable to make my credit card/personal loan payments on time?
• Do you fight when your wife inquires about financial matters?

If the answer to these questions is yes, then you are heading towards a financial mess – partially or fully. Financial mess, in my terms, is messy management, more stress, abrupt financial decision making and finally compromising with your basic financial needs and wants.

One can prevent getting into a financial messy situation by following these simple steps.

1. Proper financial management either by you or your spouse or your advisor. Know your correct cash flow i.e. how do you earn and how do you save? Know your net worth i.e. how much you have? Know your liabilities and payments. Your liabilities and payments should not be more than 25% of your income at any stage. Do this work once a month.

2. Know your short and long term financial goals and write them down. For example, I want to go for higher studies within a year from now and that will cost me Rs 5 lakhs or I want to buy a house in the year 2010 so on and so forth.

3. Talk about your finances. A financial planner at your side will help you get the directions both in terms of setting goals and getting goals.

4. Maintain proper accounts and file returns. This will help you keep yourself updated about your finances. Spending good book keeping is an investment by itself.

5. Never increase debt that can take away peace. In such a situation, emotions take over rationality and you lose the stable state of mind.

6. Never invest into something that you don’t understand about. First spend time to understand where you are investing and then go ahead.

7. Always review your financial matters over a month by yourself and once in a year with your advisor. This will remind you your goals and this would allow making necessary changes in your finances.

One of the key findings of our research on investment return have come out understanding that those who are extremely spontaneous and increasingly extrovert are more likely to go in a mess in terms of their finances.

Maintaining good financial habits goes long way and also passes on the generations to come. The expectation from your financial planner or advisor should not be restricted to selecting products but also for setting goals, building strategies and reviewing your finances.