Our knowledge of personal finances and our habits determine our financial wellbeing in the future.
Most of us follow similar behavioural patterns when it comes to taking personal finance decisions.
Procrastination in money matters is one such behavioural aspect. Procrastinating or avoiding important financial decisions range from not maintaining a budget to not saving enough for our long-term future goals. Such delays in money matters can turn out to be costly, especially for middle-income salaried professionals.
Instant or short-term gratification
Another important behavioural aspect of personal finance is the bias towards shot-term gratification. When it comes to choosing between instant gratifications and saving for the future, we prefer the former. This personal finance habit of ours increases our dependency on debt and other forms of credit. Excessive usage of credit cards is a common phenomenon, especially among the younger generation.
Anecdotal evidence is another behavioural aspect of our personal finances. We rely heavily on our friends, family and neighborhood agents for our personal finance decisions. We often overlook the need for professional advice in making prudent financial decisions.
These behavioural biases in personal finance often lead to sub-optimal financial decisions. For example, in retirement planning, if we plan at an early age we can enjoy the freedom of saving lesser amounts later. However, most of us procrastinate and start saving for retirement only in the 40s. As a result, we are forced to save higher amounts at later stage. Another example where we display these behavioural aspects is tax planning.
Most of us postpone our tax saving decisions to the last quarter of the financial year. We follow the advice of our friendly neighborhood agents and end up buying unnecessary insurance products.
Time has come for us to curb our behavioural instincts and address our personal finances objectively in order to ensure long-term financial stability. One sure way to ensure financial success is to get professional help.
ArthaYantra is an integrated online personal finance company.
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