Your future financial situation will be a direct outcome of the financial decisions you take today. A poor financial decision or mistake has every chance of severely impacting your future. Here are the some of the common financial mistakes that you should ensure not to make in 2018 or thereafter:
Not fetching your credit report regularly: Most consumers do not realise the importance of checking their credit score at periodic intervals. Your credit report can contain wrong information due to the clerical errors made by your lender or by the bureau or due to fraudulent credit applications or accounts in your name. Such misinformation can reduce your credit score and thereby, your future loan eligibility. Monitoring your credit report at periodic intervals is the only way to detect such errors. Monitoring your credit score would also help you to build it over time through responsible credit behavior.
Waiting for the ‘right’ time to invest: Early earners or those with lower savings rate tend to delay their investments till they receive higher paycheck or accumulate a sizeable corpus in their bank account. However, postponing investments can lead to significant opportunity cost due to the power of compounding. With compounding, even the returns earned from your investments start generating returns, which eventually leads to a larger corpus. So, come next year, begin investing right from the onset and stay disciplined.
Maxing your credit card: Higher utilisation of credit card limit is detrimental to one’s finances as it would reduce the credit score and hence the future loan eligibility. As lenders consider credit limit utilisation ratio of over 30–40% as a sign of credit hungriness, credit bureaus too reduce credit score on breaching this level. Thus, always aim at containing your credit card spends within 30% of your credit limit. If you are frequently breaching this limit, request your existing card issuer to increase your credit limit or apply for an additional credit card.
Using NAV to select funds: Many mutual fund investors equate the concept of NAV with that of share prices. As a result, they end-up investing in New Fund Offers (NFOs) or funds with lower NAVs by wrongly considering them as cheaper. However, a fund’s NAV is just the per unit value of the net assets held by it. Its NAV can be high or low due to the fund’s age, its past performance and the type of asset allocation followed by it. Instead of using a fund’s NAV as a selection parameter, compare the funds’ past performance with its benchmark indices and peer funds along with its future prospects to beat them.
Buying mutual funds to earn dividend: Many investment advisors recommend their clients to invest in a mutual fund that has just declared a dividend. They present it as some sort of a windfall to be exploited. However, that dividend would be paid out of your own pocket as the fund’s NAV would be reduced by the dividend amount as soon as it is paid out. Therefore, investing in a mutual fund to just earn the dividend is a futile exercise.
To contact the author of this story: moneycontrol