5 Big Financial Planning Mistakes – COST YOU A BUNDLE
Avoiding life’s big financial planning mistakes is not hard if you plan well. Financial planning, however, takes a backseat to day-to-day living for many people and this is where the potential problems creep in. Here is a list of five key planning issues that everyone should address:
1. Not Enough Liquid Savings
Having plenty of money in the bank (even when there is no interest being paid) gives people peace of mind. The peace of mind to take care of minor financial emergencies such as the need to replace a broken down appliance, pay for a vacation or have high deductibles on insurance plans.
2. Low Insurance Deductibles
Insurance is a transfer of risk and should be used to transfer a large, unexpected, unlikely, financial risk in exchange for a smaller premium cost. As I wrote about a few weeks ago, raising my homeowners insurance deductible saved me $345 per year. Having a high deductible ($5,000) health insurance plan probably saves me $8,000 per year.
Are You Missing Out? – 23,000 Reasons I Love My Health Savings Account (HSA)
3. Selling Low & Buying High (HUGE FINANCIAL BLUNDER)
One of my favorite contrarian indicators for the stock market direction is to buy when stock market inflows are low. This means that individual investors, like your neighbor, are scared and pulling are of the stock market at exactly the wrong time. As you can see from the chart below, early in 2003 and late in 2008 were the optimal buying times as more investors were pulling money from their stock mutual funds than buying. More recently, investors have been net sellers since the market bottomed out in 2008 and many missed out on a huge gain in stock prices.
One of the largest flows into equity mutual funds occurred in early 2000 during a market peak, and one of the largest outflows occurred in the third quarter of 2002, coinciding with a market drop.
More recently, investors scaled back equity fund purchases in late 2008 just before the market dipped to another low point in March 2009. The problem with these actions is that investors realize their losses when they sell and miss opportunities for growth when the market rebounds.
What’s the solution? It’s hard not to be emotional when your lifestyle and plans for the future depend on the money you’ve invested. But a long-term investment strategy and a broadly diversified portfolio customized to your individual situation can help you weather market fluctuations and have the confidence to stick to your plan. Might this be a great buying opportunity? Let me know if you want to review your portfolio.
a. Waiting to buy life & long-term health care insurance. Time, age and health work against us as we wait to purchase these coverages.Use Life Insurance for Long Term Care (if needed)
b. Not saving more money automatically. The best way to accumulate wealth is to have money pulled automatically every month from your checking account to fund the accounts that will provide for your future goals. COOL MILLION CALCULATOR
c. Estate Planning – wills, living wills, health care powers. Is your will outdated?
Almost everyone I know tells me they don’t have a credit card problem because they pay off their cards every month. I disagree. Take a close look at the bill and I guarantee there are several items are the bills that are far from “True Need” Items. These extras are being purchased rather than putting that money toward your most important life goals (retirement, college, etc.).
Paying off Your Monthly Credit Card Balance Could be a Sign of Overspending
The exception to this is senior citizens that did not grow up in the credit card era and are generally very thrifty.
I am happy to say that the best benefit of working with a financial professional is that these mistakes are usually minimized or avoided altogether.