5 daily habits hindering your financial growth and piling up debt

In India, where good financial management is highly valued, still currently we have limited reach of financial literacy in the country. Investors lack basic understanding of asset classes and investment tools. Due to this it is often seen that: individuals enter unsustainable debt obligations. That is why it is important to be alert about these everyday traps if one wants a stable financial future.

Over-dependence on credit cards

Credit cards are easy to use, but excessive dependence on them can soon become debt. Swiping for everyday transactions without a strategy and proper plan of repayment tends to result in accumulating high-interest debt. It is hence very important for credit card users to be careful.

You need to clearly understand that the high-interest debt of a credit card gets piled on to the users on a compounded interest basis. It damages your credit score. That is why as the prominent quote by Albert Einstein explains: “Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t, pays it.”

Lack of budgeting and financial tracking

Being careless of income and expenses is a guaranteed way of losing control over money and making your financial future tough. Without a budget and proper planning, overspending and running up debt is easy, whereas getting away from this debt is tough. That is why in technical terms always try to keep your credit utilisation ratio to as low as possible.

Budgeting is not about deprivation, but about prioritisation. That is why you should always purchase things that are important to you according to your needs, not according to your emotions. This simple concept has been repeated several times by leading investors such as: Warren Buffett, Charlie Munger, Jeremy Grantham among others.

Being forgetful of the small expenses

Life now-a-days is busy, that is why it’s simple to overlook small, regular spending, like morning coffees or impulse purchases, as insignificant. But these little costs can add up fast and jeopardise your finances. These little, harmless looking expenses can drain your money over time.

That is why to manage such expenses you can consider maintaining a daily diary. Writing things down a piece of paper and doing the same consistently can bring much needed discipline in your personal finance management. It will also prevent you from falling into the burden of debt.

Overlooking financial literacy

“Knowledge is the key to all the doors to wealth,” Benjamin Franklin once stated. A person hence must know the basics of personal finance, i.e., budgeting, saving, investing, and managing debt. A lack of knowledge in these functions can lead to poor financial decisions and debt problems in the long run.

Some good books on finance such as: The Intelligent Investor by Benjamin Graham, The Psychology of Money by Morgan Housel, Think and Grow Rich by Napoleon Hill are some books that are institutions in themselves. They can make a huge difference in the level of financial literacy and help individuals in understanding different asset classes properly.

Absence of emergency fund

Life is not predictable, and sudden expenses such as: health, insurance, rent, business etc can occur anytime. In the absence of an emergency fund, you will be left with no option but to use credit cards or loans to meet such expenses, hence incurring debt. Ideally, an emergency fund should be sufficient to meet six months of expenses, as Reserve Bank of India guidelines recommend.

Hence, these are some basic yet simple ideas you need to understand and inculcate them in your daily routines. They can help you immensely in effectively managing your finances, and prevent you from falling under the burden of debt due to lack of knowledge or forced circumstances.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers are encouraged to conduct their own research and consult a qualified financial professional before making any financial decisions.