It is said that "prevention is better than cure". There is a list of five warning signals below. If you fit in any of them, then its time for you to get your act in place and be careful of such things in future as well.
1. You don't have an investment plan
If you don't have an investment plan, then you will surely land yourself in financial trouble. Without a detailed investment plan, your finances are as unambiguous as they can get. People without a sound investment plan fail to foresee the situation in the future when income streams could dry up. Even planning for contingencies is something that never features on the "to do" list of most individuals.
Investment plan is even necessary for those individuals who are financially sound at present. If these people want to maintain a sound lifestyle during their retirement days as well, then the need for a sound investment plan is necessary. Having multiple investment plans for various needs like retirement, buying a house or providing for children's education is a must.
2. Spending in an unrestrained manner
Spending in an unrestrained manner with little regard for your overall finances is something you should never do. This is especially true if your spending comes at the cost of incomes that have been set aside for investing. Monitoring expenses using a tracking tool can offer you an insight into your spending habits and the opportunity to evaluate their necessity.
Never indulge in impulse buys. Similarly, beware of misusing credit cards and their facility or you will land in to a debt trap even before you realize it.
3. Incompetent advisor
You are in trouble if you are dealing with an incompetent advisor. If your investment advisor's role is restricted to simply delivering and picking up application forms, you are dealing with the wrong advisor. In this day and time, quality advice along with prompt service should be the investment advisors foremost offering.
With more investment options routinely being made available to investors, the necessity to study and assess the feasibility of these options has passed onto the advisor.
The advisor should play a proactive role and be in charge of your financial planning process. He is a key link who will help you achieve your financial goals. Ensure that you are dealing with the right investment advisor.
4. Lop sided investments
If your investment portfolio is lop-sided in favour of a single asset class like equity, it could prove to be a demerit to your finances. Asset allocation i.e. holding a portfolio comprising of various assets like equity, debt, gold and property among others in varying proportions is the key to successful financial planning. The investments in various assets should be in line with your risk profile and investment objectives.
A balanced portfolio offers you the benefit of diversification. A downfall in a given asset class can be off-set by the presence of an alternate asset. This is an area where your investment advisor's skill sets and competence will be thoroughly tested.
5. Lack of discipline
If you lack discipline, you will surely land yourself in to financial trouble. Discipline is the cornerstone which will determine whether or not you achieve your financial goals. Discipline is the perseverance to stay on the course with your investment plans. It is vital that you maintain the sanctity of your investment plans and stay invested in line with them at all times. Similarly, not dipping into your savings for any purpose other than the earmarked one is important. Score well on this parameter and you stand more than a fair chance of steering clear of any financial mishap.