Team SKM,
Many individuals with steady incomes still struggle to build long-term wealth. Chartered accountants say this usually results from everyday financial habits that appear harmless but compound into significant leakages over time. Here are nine behaviours that commonly undermine financial stability, and practical steps to address them.
1. Combining Insurance and Investment
Traditional policies that promise both protection and return often deliver low value on both fronts. A term insurance plan provides adequate cover at a low cost, while market-linked products or mutual funds offer clearer, long-term growth potential. Keeping the two separates improves both protection and returns.
2. Standing Guarantor on Loans
Agreeing to co-sign a loan exposes an individual to repayment risk and potential credit score damage if the primary borrower defaults. CA firms advise clients to avoid such commitments unless they are fully prepared to take on the liability.
3. Paying Only the Minimum on Credit Cards
Carrying forward balances at high annual interest rates can lead to substantial debt accumulation. Paying credit card dues in full each month protects credit health and prevents avoidable interest expenditure.
4. Investing Without Understanding the Product
Many investors commit money to instruments they do not fully understand, often based on peer influence or online trends. A simple rule applies: if the mechanism of return generation is unclear, the product is unsuitable. Sound investment decisions require clarity of risk, returns and liquidity.
5. Allowing Lifestyle Costs to Rise with Income
Higher income often leads to higher discretionary spending. Without defined saving targets, individuals may see minimal long-term wealth creation despite rising earnings. Budgeting frameworks, such as allocating a fixed proportion of income towards savings, improving financial discipline.
6. Purchasing a New Car Through Long EMIs
A new vehicle depreciates rapidly, while long-term EMIs limit monthly cash flow. CA professionals recommend purchasing a car only when it does not strain other financial commitments.
7. Concentrating All Investments in One Asset Class
Overexposure to a single asset increases risk. A balanced allocation across equity, fixed income, gold and real estate helps smoothen returns and protect capital during market volatility.
8. Taking on High Home Loan EMIs Early in Career
Home loans that consume a significant portion of monthly income reduce liquidity and limit future financial flexibility. A prudent benchmark is to keep housing EMIs below one-third of take-home pay.
9. Using Instant or Short-Term Loans Frequently
Such loans carry steep interest costs and indicate deeper budgeting issues. Instead of relying on short-term credit, individuals should focus on rebuilding savings buffers and streamlining expenses.
Building Better Money Habits
Chartered accountants recommend maintaining an emergency fund of at least six months of expenses, securing adequate term and health insurance, following a defined savings structure, and investing consistently in products aligned with financial goals. These practices strengthen long-term financial resilience regardless of income level.