Greater and greater numbers of younger people are expressing interest in improving their personal finances. A big part of that is good financial planning, but the road to long-term financial freedom and security is rocky and fraught with pitfalls. There are still so many people making the same kinds of unfortunate mistakes that can set them back on their financial goals for years.
Below are some of those mistakes, and why it’s important you avoid them.
1. Choosing Any Old Financial Advisors
The first mistake people make is putting their financial futures in the hands of sub-par wealth managers and financial advisors. The decisions you make with your money when you’re in your 20s and 30s can impact your life all the way through your 40s and 50s, so choosing a financial planner/advisor is not a decision to ever take lightly. Financial planners should take time to understand your goals and what you really want out of the process.
Many are taken in by fancy offices, nice business cards and an aggressive sales style on the part of their workers. It’s a good business strategy for them, but doesn’t always work out in your favour as a customer. Take time to find advisors who have time and resources to get to know you, and who don’t sell to you too hard. These are people you can work with for the longer term.
2. Starting Too Late
Let’s be clear…it’s never truly too late to start making preparations for retirement and to make your situation better than it would be if you did nothing. Even if you end up with just 5-10 years of time to work on it before you retire, there’s a lot you can achieve. However, the later you start the process, the more difficult and intensive the process has to be to get good results. Furthermore, you may have to undertake more risk if you want big results fast, which is bad for many, so they settle for a low-yielding but low-risk arrangement.
If you start planning for retirement in your 20s, you can invest in many low-cost and low-risk programs that may not yield much in the short term, but in the long term can bring a lot. The earlier you begin, the more time you have to diversify, consolidate and take risks without worrying about how to recover if they go wrong.
3. Forgetting Inflation
Many people plan their financial future based on the value of today’s dollar. Let’s not forget though what a difference a few decades can make. Inflation is a constant force within the financial world and you have to take that into account when planning for retirement. If you’re planning your finances for the next year or two, you don’t need to worry, but when it’s the next 40 years, inflation matters.
4. Not Building An Emergency Fund
Another key error people make is failing to build up an emergency or contingency fund. Setting money aside to use in the event of emergencies such as sudden car mechanic bills, house repairs, damage done to property in bad weather, to name but a few, means you may end up relying on borrowed funds via credit cards to pay for those things. You might think that’s ok, but getting saddled with debts at any point means you’re diverting money away from your retirement plan to pay off interest and monthly payments.
5. Wasting Money On Dead Assets
If you’re serious about building a sustainable financial future, one has to get realistic about spending, and that means making choices. Many people today continue to waste money on liabilities that bring no financial return. For instance, a young graduate who insists on spending more to live in a trendy downtown flat to be nearer to nightlife spots wastes much more on rent than someone who downsizes and moves further away. The savings from such a move can become a down payment on a house!
Minimize Mistakes For Financial Freedom
When it comes to money management, there are many areas where people can make errors. Keep the information above in mind to ensure you minimize money mistakes to become financially free.