We all make mistakes. We all make mistakes with money. And when you are looking to improve your financial situation, and looking ahead, there are some mistakes you want to try your best to avoid. When you do make financial planning mistakes, it’s important to fix them as soon as you can.
Here are 5 financial planning mistakes to avoid:
1. Failure to Learn about How Money Works
One of the first things you need to do is learn about how money works. I remember hearing somewhere that knowledge of how money works is one of the most important aspects of financial planning. Someone who know about money can start with $1 and turn it into a fortune. On the other hand, someone without knowledge of money can be given a windfall, and quickly end up back to $0. Before you start planning, take the time to learn about how money works. A little education can go a long way.
2. Unrealistic Goals
It’s easy to base the future on unrealistic goals. Think about what goals are actually possible to meet in the long run. While it’s a nice thought that some investment will provide 10% annualized returns for the next 30 years, that might not be realistic. Take a more realistic approach to your financial planning — considering what is really possible — and your planning will be more successful.
3. Waiting to Get Started
The longer you wait to create a viable financial plan, the less money you will have overall. In the end, if you want to be successful, you need a good financial plan. If you want a successful retirement, with money saved for the kids’ college along the way, you need to start now to make a good plan. And you need to start living according to that plan. Starting just five years earlier can help you a great deal in the long run.
4. Lack of Regular Evaluation
Sometimes, after you make a plan, it is tempting to think that you are done. After all, once you have a plan, and you are following it, everything should be set going forward, right? The reality, though, is that circumstances change, and you might need to tweak your plan a little bit over time. Regularly evaluate your financial plan, and acknowledge how well it is working. If your plan needs a few adjustments, make them. If your goals change, or if the market changes, you might need to make some changes to reflect the new situation.
5. Belief that You Don’t Need Help
In some cases, you probably don’t need help with your financial planning efforts. However, if you are feeling lost with your financial planning, or you aren’t sure where to start, it is a good idea to get some help with your financial planning. Instead of assuming that you can work everything out on your own, consider help from a financial professional. Even if all you do is sit down for a session or two to get ideas and work out a roadmap, a little help can be quite valuable to your financial plan.
What other financial planning mistakes can be easily avoided?
This is not going to go down well with some, but what trips some of us up in financial planning is, I fear, greed!
When you read about a group of people who have been swindled of their savings by a crooked financial ‘planner’ or stock trader, one of the common themes is the unrealistically high rates of return they were promised. Too often, people don’t ask questions in this kind of scenario – they get caught up with the idea of sitting back and letting the riches roll in.
Letting greed cloud your judgement is a recipe for disaster. Be realistic and calm, do your research, ask questions, stay informed, and don’t be afraid to let your ethics inform your investment decisions.
I’m definitely guilty of waiting too long to do things. It takes me a long time to motivate myself to do the paperwork and research needed to start accounts, purchase investments, etc. It’s great once it’s finally done!
Great point, Inspired Shopper! Sometimes we get too caught up in the idea of being rich that we don’t pay attention and take the right action.
And you’re right, CF, that it can be hardest to take that first step.
Great post as usual Miranda. @Inspired Shopper I agree that greed can be an obstacle to successful financial planning. You are totally correct about avoiding advisors who make unrealistic promises of out sized returns. I’m biased but using a competent financial advisor who ideally is fee-only (no product sales) can provide you with a knowledgeable third-party perspective on your situation that can be invaluable.
Being greedy is definitely one on my list. Stay humble and avoid getting overzealous.
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