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6 Obstacles to Your Financial Success and How To Overcome Them

Not Having Clear Financial Goals 

Have you ever just driven your car without a specific destination in mind? If you ever do this, more often than not, you will end up driving in circles and end up reaching nowhere. It is the same with investments. If you do not have clearly defined goals such as an investment target or a purpose for investing, you are unlikely to succeed financially.

For example, Raman never had specific savings or investment targets in mind so he never came up with a viable plan. Instead, if Raman had set a specific target like saving Rs. 10,000 every month for the next 12 months, he would have been more likely to come up with a viable plan to make it happen.

This is why you need to figure out specifics like why you are investing or saving, how much are you planning to save, how long are you investing/saving for, etc. before you can come up with a strategy to achieve your financial goal. You should also keep in mind that when assigning yourself financial goals you need to be realistic. If you set yourself impossible goals, you will set yourself up for failure and that is a mistake that is best avoided.

Inability to Control Spending

This is by far the most common hindrance to being financially successful. Spending impulsively is a sure-shot way to wreck any financial plans that you may have in place. If you do not think or plan adequately before you spend, you will always miss your financial goals.

Sadly, no spend tracker App in the world that can actually make you control your urge to spend. So, you have to control yourself. One possible way to control your impulse to spend is to ask yourself to give an honest answer to the question – “Do I really need it?” and act accordingly.

Trying to Chase High Returns

It is human nature to compare our success to that of others and if you find that your returns are lower than that of your friend’s or family member’s, you might end up changing your investments. This attempt to chase high returns, can lead you to make frequent changes to your investments and not give your current investments enough time to grow. This is especially true in the case of Equity Mutual Fund investments that are prone to short-term volatility but have the potential to grow your wealth substantially in the long term.

So instead of trying to chase high returns, you should stay invested in the long term and allow your investments sufficient time to grow. But do keep in mind that you must also make an effort to periodically check the performance of your current investments and make changes only if absolutely necessary.

Borrowing in Excess 

While in some cases, borrowing cannot be avoided, if you are borrowing in order to fund lifestyle expenses, you will fall short of your financial goals. Debt, especially in the form of outstanding credit card balances and personal loans can be very expensive to pay off.

You have to keep in mind that interest rates on credit card balances can be as high as 48% p.a., while personal loan interest rates can be around 24% p.a. As a result, the interest incurred on these debts can be substantial.

For example, if you have an outstanding balance of Rs.50,000 on your credit card, you will have to pay Rs. 24,000 as interest annually. This is a substantial amount of money to pay for just carrying a balance on your card and it will leave you with less money to invest and achieve other financial goals.

Inadequately Planning for Emergencies

Emergencies are a reality of life and inadequately planning for them can prevent you from achieving your financial goals. Two key things you must do to be financially ready for emergencies- get adequate Health Insurance and creating an emergency fund.

If you have sufficient Health Insurance, you will ensure your bank balance doesn’t go zero in case of a medical emergency. Also, you save yourself from the possibility of taking huge debt on your head in order to pay the bills.

While health emergencies can be tackled with insurance, there are other emergencies like job loss that might come. Hence you also need to have an emergency fund. An emergency fund will allow you to sail through tough times without worrying about money. But do remember that you need to have a big enough fund. That’s why it is suggested that you have at least 12 month’s expenses as your emergency fund. To ensure that emergency funds are readily available, consider spreading them evenly across Liquid Funds or Overnight Funds and your bank account.

Inflation: The Invisible Obstacle 

To put it in the simplest terms, inflation is what makes things cost more in the future and causes your savings to lose their value over time. This means that if you want to maintain your current expenses at a later date, you will need to spend more than what you are spending right now. Inflation also impacts your investments over the long term, as the real rate of return for your investment gets reduced due to inflation.

Bottom Line

Nothing worth doing in life comes without its own share of challenges and obstacles. While these obstacles cannot be altogether avoided, you can definitely identify them ahead of time and plan how you can best tackle them to reach your financial goals.

This Content has originally written by ET Money Team and published on October 3, 2022.

No Copyright/IPR breach is intended.

Click Here to read Original.

Photo by Reynaldo

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