I know that people who follow my show and blog are typically well-informed and pro-active when it comes to making smart decisions about their money… but that’s not what I want to talk about today.
I want to try a different approach. At the risk of sounding contrarian or stirring up anxiety about some of those things that many folks may not be doing well—things like managing their finances or saving for the future—let’s talk instead about some of the biggest mistakes I’ve seen people make over the course of my long career as a financial planner and advisor.
The Lesson To Be Learned
When it comes to steering your financial future, whether in terms of strategies to manage your money, estate planning, or retirement savings, there are a lot of ways to fall short of your goals. My hope is that we can learn from our mistakes and, less painfully, learn from the mistakes of others and also from the collective wisdom of professionals who study this area and make recommendations based on facts, not rumor or innuendo.
The Worst Financial Planning Mistake Of All
I’d like to start with what might seem like a painfully obvious example, and it’s one of the worst mistakes you can make in financial planning. What is this terrible mistake? It’s not having any plan at all. Some people may avoid creating a plan because they think it’s too complicated or their own situation is too hard to resolve; maybe they don’t understand the true value of planning or they don’t believe it applies to their situation.
My hunch, however, is that most of those without a plan are simply procrastinating. They may think things will work out for themselves or they’re waiting to see what happens –hoping that doing nothing will be a good strategy. Or maybe, just maybe, they’re avoiding sitting down with a pro because they are afraid of what they’ll find. This is not a winning strategy no matter how disappointing the news might be. It’s like avoiding a leak in your house hoping that mold won’t appear. Mold happens, so you better deal with it.
Basic Ideas To Focus On
First, it’s imperative to get clarity on your goals and the timeframes in which you want to accomplish them:
*Do you want to pay off all your debts within 5 years?
*Is purchasing a home a realistic goal in the next year or two?
*How much money will you need if you want to retire in 10 years with the same lifestyle?
I know it’s sometimes hard to get this clarity, but a mental journey into the future can be illuminating and may end up with great rewards.
Another Big Fat Financial Planning Mistake
Not setting up a routine savings practice is another harmful example of avoiding the inevitable. The precise amount of money you set aside and the rate of return you earn in the early years is less important than the actual discipline of saving the money in the first place. You can start modestly and gradually inch up the amount, whatever you need to get create a habit of reserving some cash every single week or month.
Why Is This The Key To Building Financial Security?
It’s the key because having savings in the first place can tap you into the miracle of compound interest, which will only work in your favor if you actually have money saved! Another sub-benefit from starting to save right now is the message it sends to your children. Let’s pass a positive savings trait on to them—starting now—to make their futures more secure.
Plug Into Employer-Sponsored Plans
According to this article in Forbes, a staggering 68% of working-age people (25-64) did not participate in an employer-sponsored plan. If you’re not already plugged into these programs, make an appointment with a supervisor or someone from your HR department to get up to speed on the relevant details. Many employers offer matching funds for these plans, so that’s the kind of deal that you’re not going to get anywhere else. Imagine an investment fund that offers a guaranteed 100% annual interest rate? Sounds impossible, right? Well, that is the equivalent of getting your employer’s match!
Explore Your Social Security Benefits
Another less discussed aspect of planning your financial life takes place in the Social Security arena. Getting information about your benefits is easy, just go to www.ssa.gov because there may be areas of extra funds for you if you’re in a particular situation. Let’s say you’re divorced and you have remarried, depending on how long you were originally married and some other things, you may be able to kick up your benefits modestly. This is a perfect question for a financial planning professional, who should be able to walk you through the maze of legalese involved in taking advantage of this ex-spouse benefit.
Estate Planning Is Not Rocket Science
Most people fear that estate planning is a massively complicated topic and one they’d rather not think about.
While estate planning can involve a complex web of tax rules and regulations, , there are aspects of it that is relatively straightforward. Estate planning is should be handled by an attorney, rather than a financial advisor, but there are some rudimentary things you can take care of yourself or with the help of an advisor that does not require an attorney’s oversight.
It’s not only insurance policies which have designated beneficiaries, so do savings accounts, retirement accounts, and some checking accounts at the bank. If you’ve never named beneficiaries to any of these, do so now. If you have specified beneficiaries in the past, but you’ve experienced a major life change such as marriage, divorce, having children, the death of a spouse or family member, or even have received an unexpected windfall, you should review beneficiary designations on all your accounts and assets.
When To Call In The Attorney
Passing on your assets that go to heirs is a prime reason to seek out an attorney. There are many ways to design a will or other trusts to comply with probate laws in the state in which you reside. For example, an unfortunate scenario that could result is the possibility that your ex-spouse whom you designated as the beneficiary on an account twenty years ago could inherit the entirety of its value, despite the fact that you’ve stipulated in a living will that your whole estate should be bequeathed to your children.
Four Rules To Avoid Financial Mistakes:
- Plan for your future in an organized way
- Save for the future
- Know what you’re entitled to concerning Social Security
- Get your estate affairs in order.
These concepts are just the tip of the iceberg, so hiring an professional in these complicated areas is a very good start.
Disclosure:Opinions expressed are those of the author’s and not necessarily United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.