We all know what to do with our money. Whether we do it or is a separate issue. Here, we tell you how to make sure you are not messing up when it comes to financial decisions. Read on to find out what you should not be doing with your money.

Give the government more than necessary

A friend of mine was recently cribbing about how much of tax he pays. When I asked him what he was doing to save on taxes, he said nothing. It was his first job and he was totally unaware of any tax breaks.

When the government gives you a chance to save on taxes, please use it.

Take medical insurance. You get a tax benefit on the premium that you pay.

Look at the investments that fall under Section 80C of the Income Tax Act. If you invest in them, you get a deduction of up to Rs 1,00,000 on your income.

The safe, fixed return instruments that fall under it are Public Provident Fund and National Savings Certificate. Read PPF vs NSC.

If you want to add some zing to your investments, try Equity Linked Saving Schemes. These are diversified equity mutual funds that have a tax benefit under Section 80C. 

Do you have any dependents? Take a life insurance policy. The premium you pay here is eligible for a deduction under Section 80C.

Are you looking at buying a home? You get a tax benefit on the home loan. Read Repaying home loan? Must knows and Paying interest on home loan?

Spend it all

Our financial advisors often get flooded with queries from our young readers trying to manage their debt. Nearly all of them would have incurred the debt because of their lifestyle.

While all of us love to spend, there should be a limit on how much you spend. If you find you are saving nothing, it is worth it taking a good look at where your money is going.

A friend of mine told me that she would drop in at Barista (coffee shop) at least thrice a week and blow up around Rs 75 on each visit. It did not seem a huge amount. But when she added it up, it was Rs 900 a month. When she took into account the fact that she also eats out on weekends, she decided to save by just cutting down her trips to Barista.

Is your weakness hopping into cabs all the time? Or shopping? Or smoking? Or eating out a lot?

If you find yourself revolving on your credit, make an effort to find out where and why you are flashing your card so often and stop using it till you clear your dues.

Leave it all in the bank

A lot of readers write in and tell us they have huge amounts in their savings accounts because they don't know where to invest it.

You need to list down all your investment options.

You have the very safe ones which are backed by the government like RBI bonds (bonds by the Reserve Bank of India), NSC (National Savings Certificate is offered by post offices) and Public Provident Fund (offered by State Bank of India [Get Quote] and other nationalised banks).

You can also consider bank fixed deposits and fixed deposits by other companies.

Read Want a fixed return investment? to understand the various options.

Then, you have diversified equity mutual funds. You can also invest directly invest in shares.

If you will need the money in the short term, you can try short-term bank deposits or even liquid funds. But there is no need to leave huge amounts in your bank account. Read The safest mutual funds to understand liquid funds.

Put it all into one investment

Distribute your money evenly. Let's say you take home Rs 10,000 a month and manage to save just Rs 3,000. That is Rs 36,000 a year. Don't put all this amount in one investment.

Distribute this Rs 3,000 amongst at least two investments. Let's say you pick up a very safe investment like the NSC. This is backed by the Government of India and available at post offices. The rate of interest you will get is 8% per annum and the lock-in is six years.

Maybe you can open a NSC account for Rs 30,000 if you want most of your money safe. The balance Rs 6,000 you can invest in a diversified equity mutual fund or maybe buy some shares.

But don't put all your savings in the NSC or all of it in shares.

List down all the investments and then decide how long you want to block your money and how much of a risk you are willing to take. Then decide where to invest.