By Richard W. Stout III
Have you ever made a large purchase that you instantly regretted? Most people have, yet we continue to make this mistake over and over again. Financial mistakes can prevent you from reaching your goals or doing what you love. They can postpone dreams such as owning your own home or reaching your desired retirement date. Or they can cost you money you can’t afford to lose. The worst part is, you may not even realize when you’re making one!
Financial mistakes come in all shapes and sizes, and they don’t just happen during accidental spending sprees. To avoid them, you have to know what they look like. With 25 years of experience in the finance industry, I want to share with you the 5 most common financial mistakes I see people make.
1. Neglecting Employer-Sponsored Retirement Plans
Employer-sponsored retirement plans offer excellent benefits that you can’t afford not to take advantage of. Experts recommend that you save 15% of your pre-tax income to go toward retirement. But for those just starting out, saving 15% can be a tough goal when paying off debts like student and vehicle loans. Capitalizing on your employer-sponsored retirement plan can ensure you don’t leave money on the table.
A good middle ground is to save at least the maximum that your employer match-contributes. For example, if your employer will match up to 6% of your pre-tax income, you should plan to contribute at least 6% toward your retirement account each pay period. This means that, with your employer’s contribution, you’re actually saving 12% of your pre-tax income for retirement. You’re already close to that 15% goal!
2. Not Keeping a Monthly Budget
Many people also make a big financial mistake by not keeping a monthly budget. A monthly budget reveals poor spending habits, tracks your progress toward savings goals, and gives you more control over what you spend your money on. Many people are afraid of budgeting, worrying that it will require them to make unpleasant sacrifices.
But budgeting isn’t about sacrificing at all. Budgeting clarifies where your dollars are actually going. This clarity gives you the freedom to choose where you want your money to go, rather than wondering at the end of the month what happened to your whole paycheck. Keeping a budget allows you to spend money on extras such as dining out or playing golf without wondering if you can afford it. You get to do the things you love, guilt-free!
3. Trying to “Beat” the Market
Each year billions of dollars are wasted trying to “beat” the market despite the empirical evidence that very few investors, yes-including “professionals”, have demonstrated the ability to consistently achieve better returns than broad, un-managed indexes. Quite often, attempting to achieve higher returns results in taking greater risk, greater trading costs and sub-par results. Broadly diversified indexes not only typically offer extremely low costs and diversification, but they are inherently tax efficient.
Investors have historically been much better served by focusing attention, time and energy on things they can manage, such as how much risk to take in the first place, rebalancing periodically, having realistic growth rate assumptions, and deriving their investment strategy as part of their financial planning process.
4. Fearing Market Corrections
It’s important to take a holistic, historical approach when investing in the stock market. Markets always experience periods of correction, and we don’t believe this is a reason to sell your investments when the markets are low. Panicking during a market downturn can lead to significant losses, so it’s better to ride out market corrections, as they are guaranteed to occur. Market corrections are followed by market recoveries.
5. Underestimating the Cost of Owning Real Estate
Finally, I see people purchasing real estate without knowing the true costs. Real estate owners should be prepared to pay for more than the home or property itself. Owning real estate comes with additional costs such as property taxes, insurance premiums, and interest rates. Real estate owners should also plan to replace worn-out appliances or roofing and, in the case of rental properties, to deal with renter destruction or vacancy periods. Depending on the locations of the property, these costs can be quite high and can easily overstretch an eager real estate owner’s initial budget.
We Can Help You Avoid These Mistakes and More
At Benchmark Wealth Management, LLC, we help you avoid these common mistakes and plan your financial future with intentionality. Your financial well-being makes up the core of our values, and we want to help set you up for success. Schedule a meeting with us today by calling 860.434.6890 or emailing me at richard.stout@bwmllc.net.
About Rick
Richard W. Stout III is managing director of Benchmark Wealth Management, LLC, with 25 years of experience in the financial industry. He specializes in financial planning and asset management for individuals, families, and institutions seeking to build and monitor durable and sustainable plans for their financial futures. Rick is a Certified Financial Planner™ professional and holds the Accredited Investment Fiduciary (AIF®) designation. He has earned a Master of Science degree in Personal Financial Planning from the College for Financial Planning and holds the Master Planner Advanced StudiesSM (MPAS®). He obtained his MBA from Rensselaer Polytechnic Institute and his BA in Economics and Anthropology from the University of Connecticut. He also completed the Accredited Wealth Management Advisor (AWM®) program through the Estate and Wealth Strategies Institute at Michigan State University. He has extensive background experience in lending, credit review and analysis, and real estate and partnership management. Learn more about Rick by connecting with him on LinkedIn.
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