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10 Preventable Missteps that can Wreck Financial Security

| April 26, 2017
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Every adult has made a fiscal blunder or two at some point in their lives. Overspending, not budgeting, carrying too much debt and ignorance about credit cards are big ones for sure. But when it comes to long term effects, financial experts suggest that tax and investments are the most puzzling and missteps in these areas can have the greatest impact on retirement. In the long run however, routine financial management strategies, such as spending habits that create debt and decrease savings, also have a way of influencing how much you are able to save, insurance coverage, and other important financial decisions that can affect long term security. 

Recognition of the contributing factors that sabotage fiscal health is important. In fact, it is often the first step in minimizing financial risk in retirement when most people are least able to absorb them.  Every step taken to correct or prevent financial missteps sooner than later will influence investments that shore up our financial future. Avoiding some or all of the following financial errors can build greater financial security and protect you from an economic retirement storm.  

  1. Spending More Than You Earn. This is the cornerstone of personal wealth regardless of your income or net worth.  It could also make the greatest impact on investment ability. Excessive spending can occur on a large or small scale that derails financial security.  This mistake is even more crippling for people with a limited or single source income stream. Overtime, frivolous expenditures that occur on a routine basis will eventually reduce the amount of money that can be channeled into investments. 
  2. Failing to Plan. One of the primary reasons people engage in reckless spending is because they do not have a financial plan or operate on a budget. A benefit of having a budget is that it provides specific guidelines that can significantly curtail excessive spending. Budgets are typically calculated based on income, fixed routine expenses, debts and saving goals. Not having a budget or a financial plan usually results in living beyond your means, not saving for financial setbacks such as losing a job or experiencing a drastic reduction in earning.
  3. Not Having an Emergency Fund. This is a common reason people end up dipping into their savings. Studies show few people actually have the recommended six months reserved, and many have no emergency cash on hand at all. Any emergency life event such as home and car repairs or a loss of income due to an unexpected illness can eat up savings and take a toll on people’s ability to save or invest for the future. In fact, failure to plan for a rainy day is recognized as a major issue by psychologists who specialize in treating people with financial dysfunctions. Those with a financial cushion to cover random emergencies say it gives them peace of mind that allows for greater exploration into building a stronger financial foundation. 

4. Falling into Credit Card Traps: Use of credit cards without having sufficient knowledge about proper credit card usage, credit card scores, reward offerings and credit card debt repayment can seriously impact savings, spending and investment abilities. Keeping track of your credit score can give you a better understanding of how you are handling this important aspect of your finances. This is information that may also help to prevent making additional financial mistakes. Financial planners suggest that many monetary problems can be traced back to the use of high-interest credit cards and purchase accelerations that often cause people to fall into financial bondage.

5. Having Too Much Debt. Not all debt is bad, but having too much debt can seriously reduce cash flow as well as limit the amount you are able to regularly sock away for retirement.  Being debt conscious is important to borrowing sensibly and within your means for big items such as a car or a home.  If you have an inordinate amount of consumer debt, making a budget as well as meeting with a financial planner to create an effective debt repayment strategy may not only help you to reduce your debt faster but still enable you to invest for retirement. 

  1. Not Saving for Retirement. One of the worst-case scenarios for anyone in retirement is running out of money. The idea that retirement is a long way off is a common reason many young people delay putting money away early or at all for retirement. Some say, not saving for retirement is a young adult mindset that in too many cases, is never revised. It also represents a gross miscalculation of the true cost of retirement. The reality is, even if you started saving just a small amount each month with retirement in mind, compound interest can grow overtime that could provide you with a comfortable nest egg in the future. 
  2. Skimping on Career Investment. Next to not saving for retirement, stingy investment in initial and ongoing career development is a big mistake that can seriously undermine earning ability and financial security. Investing in ongoing education or a career coach can expand or enhance marketable skills that could help you to get a promotion or make a job shift that may improve your financial status.   
  3. Not having Enough or the Right Insurance Coverage. Insufficient insurance coverage is at the heart of many financial catastrophes. Although insurance is a tricky game that needs careful consideration, it is also important to have adequate protection. Most devastating life events are attached to major financial consequences.  
  4. Not Investing or Engaging in Risky Investments. No matter what your income or present financial status, investing is an important preparatory step for the future that requires appropriate knowledge and understanding. Unfortunately, many people make the mistake of not investing or trying to go it alone. Many financial horror stories have resulted from trying to time the market, investing heavily into a single stock, choosing the wrong mutual fund, not taking inflation into account, or emotional buying and selling that may be media driven. These missteps usually stem from overconfidence in one’s financial abilities or a misunderstanding of the risk factors that are inherent in the investment process.

  1. Not Seeking or Accepting Professional Financial Advice. Seeking help from an experienced and qualified financial planner can help you to understand and handle fiscal matters based on your current financial status and stage of life. A prudent investment strategist will help you to appropriate funds between stocks, bonds and other investments such as money market funds. Working with a competent financial planner will also help to guide you through murky financial issues such as wealth diversification, investing in a tax-efficient portfolio and balancing financial portfolios to mitigate risks.

Matt Logan is a representative with Matt Logan Inc., and Summit Brokerage. He may be reached at [email protected], 336-540-9700 or www.mattloganinc.com.

 

Sources:

  1. http://www.bankrate.com/finance/consumer-index/many-americans-emergency-fund.aspx
  2. The Ultimate List of Painful Financial Mistakes - Investopedia https://apple.news/AxZkNsXmGN32n6Y0VvpTBJw

Matt Logan is a Representative with Matt Logan Inc., and Summit Brokerage and may be reached at www.mattloganinc.com, 336-540-9700 or [email protected].   

Matt Logan Inc is an independent firm with Securities offered through Summit Brokerage Services, Inc., Member FINRASIPC. Advisory services offered through Summit Financial Group Inc., a Registered Investment Advisor. Summit Brokerage Services, Inc., its affiliates and Matt Logan Inc. do not give tax or legal advice. You should consult an experienced professional regarding the tax consequences of a specific transaction. These are the views of Matt Logan Inc, and not necessarily those of Summit Brokerage Services, Inc. and any of its affiliates and should not be construed as investment advice.

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