1. You Spend More Than You Earn
A no brainer, perhaps, but a basic tenet of financial success that people violate millions of times a day: You will never get ahead if you rack up debt to finance your lifestyle. The result will be thousands of dollars lost to paying interest on that debt instead of earning interest on investments. The further you fall behind, the more time and money it costs to catch up.
Be vigilant about “lifestyle creep.” When you get a pay raise or receive a financial windfall, view it as an opportunity to reach your saving and investment goals more quickly—not a chance to splurge on luxuries that divert income from your top priorities. The more cash you can accumulate—whether through spending cuts or increased income—the more you have to invest in funding a sound financial future.
2. You Lack Basic Knowledge of Personal Finance
Wealth is rarely a matter of luck. You have to know how much you earn, how much you spend, and how much you have (assets such as property, bank accounts, investments), and how much you owe (mortgage, car loan, student loan). Once you know where you stand, you can define short- and long-term personal and financial priorities and choose savings and investment vehicles that align with those goals.
There are also tricks to managing your own (human) behavior around setting yourself up for success! One of the most powerful is a financial accountability buddy. You can pledge to help steer each other around the 7 Deadly Threats and stay on track with your financial plan. If you have a partner, team up. Otherwise, choose a like-minded family member or friend—a spendthrift will not be much help, no matter how much you cherish the relationship. And do not leave progress to chance. Formalize when and how you will review your plan.
3. You Wait to Start Saving Until You Pay Off All Debt
When you insist on being debt-free before you save you may:
- Lose out on the practical magic of compound interest over years of saving/investing
- Pass up your company’s match on your 401(k) contributions
- Forgo lucrative investment opportunities
- Risk a sound financial future because you start saving too late
- Miss out on important life goals because you don’t have the funds to finance them
4. You Have Not Evaluated Your Financial or Life Goals.
Take a scattershot approach to finances and continually back burner the big-picture questions, and you may end up short-changing yourself on what matters to you most. Travel is your passion but at the expense of a comfortable retirement? You love fine dining, but is a once-a-week indulgence more important than the down payment on the house of your dreams? The only way to get what you really want is to look at your big picture and put your money where it counts the most.
5. You Lack a Balanced, Diversified Portfolio
Get-rich-quick schemes and hot tips from that friend of a friend might have a small chance of netting you a windfall. The more reliable road to riches? A portfolio with a variety of assets weighted for your personal time horizon and appetite for risk, rebalanced with discipline from time to time based on market shifts and your changing life circumstances.
6. You Are Under or Over Insured
You need enough insurance to guard against circumstances that could ruin you financially—a health crisis, natural disaster, lawsuit, long-term care. On the other hand, there are plenty of salespeople eager to sign you up for policies with overinflated premiums and single-purpose coverage that siphon off money that may serve you better in your own emergency fund (or some other goal!). Evaluate each policy carefully and get bids from multiple agents. Do not forget to make sure that the person giving you advice has your best interest in mind!
7. You Neglect to Build Fun into Your Finances
Yes, it takes sacrifice and discipline to reach your financial goals. But if you view working your plan as nothing but a long slog, it may weaken your resolve to spend and save wisely. Experienced financial advisors know to include fun—and even plan for it—when helping clients with life goals.
If you need some professional input to create a roadmap to financial success, feel free to contact FJY. Our financial planners customize a comprehensive approach that takes into account your individual lifestyle and goals. We keep updated on the latest strategies to benefit your financial well-being.