5 Things to Avoid for a Financial Harmony

Being financially empowered is the sweetest feeling one can have. While we may desire a luxurious life, having it at the expense of poor financial management is not cool! It's still okay to be short on luxuries and raise savings instead of buying expensive stuff with a loan at higher interest rates.

In this blog, we will highlight five things that you need to avoid no matter what.

Compounding Credit Card Dues

Credit cards are great when used brilliantly. However, when used for anything and everything, the chances of credit card dues going higher are maximum. You will likely miss out on paying the total due and be reduced to paying it partially and compounding yourself with debt at an interest rate of 30-40% per annum. Say NO to the compounding credit card debt or else the financial misery may continue to haunt you. Make a quick review of your credit card purchase behaviour and see what you can avoid to cut down your debt periodically.

Taking a Loan to Invest in Stocks

The wealth generation potential is enormous with stocks. Hundreds can convert into thousands, thousands can convert into lakhs and lakhs can convert into crores in no time. The sheer brilliance of the stock market in a nutshell. However, on the flip side, there's always that stock market crash waiting to bite you and your wealth.

Things take a U-turn all of a sudden in stock markets owing to unpleasant political and economic developments, domestically or internationally. That being said, you should still persist with stock investments as they prove fruitful over the long term. However, taking a loan to invest in stocks is not good, and you should discard the idea right away. With a loan, you will already be paying the EMI. In case the stocks fall, and that bearish run continues for a long time, you will not enjoy paying the loan as its purpose stands defeated.

Buying iPhones with a Loan/Credit Card

iPhones are aspirations most of us live with every day. But in the rush of instant gratification, we often resort to loans or credit cards and hamper ourselves financially. It's better to utilise your savings rather than a loan or a credit card to buy iPhones. Both loans and credit cards come with interest for you to pay. And iPhones, regardless of rich features, continue to depreciate, leaving you with not much resale value. The payment you do via a loan or a credit card will most likely be more than the resale value you will get, say after five years of use.

Don't Fall Prey to the Return of Premium Term Insurance Policies

Term insurance policies are an absolute must. The financial protection for your dear ones upon your unfortunate demise is absolutely vital. A term insurance policy offers the same. However, the policy pays only when the policyholder dies during the policy term. There are no survival benefits available under a term insurance plan.

To cover this gap, insurance companies also offer term insurance with a return of premium variant. This policy returns you the premium paid over the policy term should you stay alive till maturity.

You might ponder - Why are we then stopping you from buying such a policy? Well, this policy comes with premiums 3-4 times higher than that of a conventional term insurance plan. Instead, if you invest the excess amount in fixed deposits, mutual funds or stocks, you will build a massive wealth over the long term.

Choosing a Lower Sum Insured on Health Insurance

Health insurance is a must to stay immune from healthcare expenses that are rising at around 10-15% annually. However, the policy must have a sufficient sum insured to withstand healthcare inflation. So, if you meet a health emergency and the treatment cost goes up to INR 5 lakh, but you choose a policy with a sum insured worth INR 75,000 only, your health insurance policy will feel negligible! You will end up applying for a personal loan and paying the EMIs for the same. Don't choose a lower sum insured just because it lowers your premium. Think holistically by opting for a health insurance policy with an adequate sum insured considering today's inflation and the premium that comes within your budget.

Summing Up

The very old saying - Prevention is Better Than Cure - stands relevant financially too. Don't be influenced by others' lifestyles. Keep saving at least 10-15% of your salary and putting it in a fixed deposit, mutual fund or even stocks to grow it further. With this, we at zarooribaathai.in sum up our story.