If you’re not making any financial mistakes, you’re in the minority. The vast majority of people are making some form of error with their money, which will ultimately cause them hardship.
The issue is that many of us don’t see these mistakes as problems. We believe we’re doing the right thing until someone points out to us that we’re not.
That’s where this post can help. We explore some of the financial mistakes you should never make so you can avoid them in the future and protect your wealth.
Here’s everything you need to know:
Comparing Yourself To Others
Comparing yourself to others is a big financial mistake that many people make. They believe they need to have the same things as the individuals in their social circle or wider group of acquaintances to feel acceptable.
But, of course, trying to keep up with other people’s lifestyles is challenging. If you’re not earning enough money, it can put you under financial stress and you can wind up going into debt.
The trick is to focus on your financial goals and priorities. If you follow the right path and invest money wisely, you’ll eventually be able to enjoy the same lifestyles as you see in others (and probably more).
Neglecting Your Financial Goals
Many people also make the mistake of neglecting their financial goals. Instead of actively focusing on them and working towards them, they allow them to slip, preferring instead to concentrate on their comfort and quality of life in the present. Many people drift aimlessly for years and wake up sometime in late middle age in a panic that they didn’t do more.
The trick here is to set specific, achievable financial goals. These help you stay on track and prevent you from getting knocked off course by life’s events. Sometimes, you’ll have expensive years, like when you move house. But by and large, you should be looking to put away a consistent sum of tax-free savings every year to protect your long-term outlook.
Failing To Engage In Estate Planning
Failing to engage in estate planning is another common mistake people make. Not having a trust or a will in place can create issues when it comes to determining who should have power of attorney, and which beneficiaries should receive what following incapacity or death.
It’s best to get these issues sorted out now instead of waiting until a future date when disaster strikes. Ensure you have a clear will written up by a competent, professional lawyer who can champion your interests when you are gone, leaving no room for confusion or error.
Failing To Plan For Large Expenses
You can also find yourself in financial trouble if you fail to plan for large expenses. Going on vacation on a whim can set you back financially and leave you out of pocket long-term if you fail to get the planning right.
Naturally, life does require you to make large financial outlays sometimes. Buying a home or a car is expensive but often necessary. However, you’ll want to approach these purchases with caution. Consider more than the upfront cost and consider how it will affect your cash flow. If the cost is too high, you might not have enough cash left over at the end of the month to support your lifestyle.
Borrowing From Retirement Accounts
Borrowing from retirement accounts is another big mistake, but many people do it when they find themselves spending more than planned. These accounts should remain untouched until you come to retire, after which you should manage your use of the money in them carefully. But life often gets in the way, and you wind up dipping into them.
The problem with this approach is that it can massively reduce the amount of money you have available at retirement while exposing you to high tax bills. It can also make it nearly impossible to recover your original capital. Once it’s gone, it’s gone.
Relying On Social Security
And if you think that social security is going to save you, then think again. Most economists now believe that government checks won’t provide enough income for a comfortable retirement for most people, primarily because the liabilities are so large and almost impossible to finance. Even if the authorities print money to pay pensioners, that will simply put up the price of goods, leaving you worse off overall.
Because of this, it’s always a good policy to have a second pension or savings account that you contribute to regularly. Having this additional savings pot makes it easier to build a sufficiently large pension to maintain your quality of life when you eventually stop working.
Failing To Diversify Your Investments
Failing to diversify your investments is also a big mistake many people make. Individuals often sell themselves on the idea that they should purchase just one or two stocks or commodities, believing they will go up the most. However, it is almost impossible to choose a winner, which is why so many individuals wind up losing money.
The only way to prevent substantial losses is to diversify your portfolio across asset classes and regions. You want as many uncorrelated assets as possible to maximize your expected returns while reducing volatility.
Failing To Read The Terms And Conditions On Your Life Insurance Policy
Failing to read the terms and conditions of your life insurance policy is another potential landmine that could harm your family’s financial future. Many insurers include clauses that disqualify your beneficiaries from receiving payouts if you die from participating in extreme sports, for instance. Therefore, always consider these terms carefully. Read through them and then make a mental note of the actions you need to take to ensure you remain within the policy’s terms.
Co-Signing A Loan
Finally, many people get into financial trouble when they co-sign a loan with someone who won’t or can’t pay it back. If they fail to make repayments, you’re on the hook for the full amount. Don’t co-sign with anyone unless you are willing to take on the risk.