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Financial Suicide: 10 Fatal Mistakes You Could Be Making Right Now

Alright, let’s talk about something we all love to avoid: money stuff. Yep, I’m talking about those financial responsibilities we tend to shove to the bottom of the to-do list. But here’s the thing: ignoring this stuff isn’t just procrastination; it’s like playing financial roulette with our future. From putting off budgeting to avoiding retirement savings, we’re setting ourselves up for stress and missed opportunities. In this article, we’re diving into ten common money mistakes we’re all guilty of making at some point. But fear not, because along with pointing out these blunders, we’ve got some actionable tips to help you sidestep them and get your financial game on point.

Procrastinating on Financial Responsibilities:

This is one of the most common and most important items on the list. This should not come as a surprise to you. If you do nothing to put yourself in a better financial position, odds are you are missing important opportunities and increasing the level of stress in your life. We all do this at some point in our lives. Delaying any important decisions such as budgeting, creating an emergency fund, saving for retirement, or reviewing your investments can serve as a form of self-sabotage.

Not Having an Emergency Fund

Having an emergency fund is a cornerstone of financial stability, providing a crucial safety net in times of unexpected crises. This alone will take a huge burden of stress off your shoulders. Regardless of career or income level, everyone can benefit from having a financial cushion to cover unforeseen expenses such as medical emergencies, car repairs, or sudden job loss. The size of the ideal emergency fund is typically 3-6 months’ worth of expenses for most people who are marketable when searching for a new job. However, the amount can vary based on factors like income, family size, and job stability.

    For instance, individuals with positions that are commission-based or prone to periodic fluctuations may require a larger emergency fund. Conversely, those in industries with a high level of job security might find a smaller fund sufficient. Regardless of the specifics, having an emergency fund offers a sense of financial freedom and peace of mind. It empowers individuals to navigate unexpected challenges without resorting to high-interest debt, giving them the flexibility to make thoughtful decisions during difficult times rather than being driven solely by financial necessity.

    In essence, an emergency fund serves as a financial parachute, allowing individuals to land safely in the face of life’s uncertainties.

    Living Beyond Means

    People often find themselves living beyond their means due to factors like a lack of budgeting, social pressures, and easy access to credit. By the time they realize how much they are spending, it is too late, and the problem has grown quite large. This typically happens during large purchases, such as a home, vehicle, renovations, wedding, or education costs. To prevent overspending, individuals can take proactive steps. Firstly, creating a budget is crucial, outlining monthly income, necessary expenses, and allocating funds for savings. If you feel you don’t have the time to look at your own budget, the easiest first step is to determine how you’re your essential expenses are each month (housing costs, utilities, childcare, taxes, insurance, etc.) to determine how much you have left over for expenses that are non-essential. This helps in tracking and controlling spending habits.

    Secondly, resisting the urge to succumb to social pressures and societal expectations can be achieved by focusing on your own personal financial goals and values. This will help to identify what you (not your friends or coworkers) would like to spend your money on. While one person may prioritize spending on materialistic things, such as a new car, another may prioritize spending on experiences and entertainment.

    Lastly, practicing delayed gratification and distinguishing between needs and wants aids in curbing impulsive spending. Ask yourself “Do I need this? Or does my buddy Jeff have a new set of golf clubs, and therefore, now I want a new set of golf clubs?”. Of course, you should enjoy your life and spend money on the things that make you happy. But make sure the things you prioritize spending money on are coming from your own heart and not external factors or the expectations of others.

    Neglecting Retirement Savings

    The sooner you start saving for retirement, the better (even if you start small).

    For example, say you invested $50,000 returning 10% annually in your 20’s and didn’t contribute another cent, allowing that investment to grow for 40 years (until you were age 60), you would end up with $2,262,962.

    Compare that to waiting until your 40’s to make the same $50,000 investment, where you only have about 20 working years left, and your savings would only amount to $336,375.

    While I understand that retirement savings are best made periodically over time, and not in a single lump-sum amounts, I used these examples to demonstrate the effects of compounding returns, with the only variable being the time they started investing. Aside from winning the lottery, long-term compounding of returns is the single most powerful tool in building wealth.

    You may be surprised to hear that since Warren Buffet started investing when he was 10 years old, 90-99% of his wealth was made after his 60th birthday due to the power of compounding returns. In other words, while Warren Buffet is a very knowledgeable investor, almost all his wealth is a result of his relentless drive to stay invested through good and bad times; time in the market not timing the market. Warren once said that it’s wise for investors “to be fearful when others a greedy and to be greedy when others are fearful”. In other words, when the market is plummeting, buy. When the market is at all time highs, be more cautious.

    While those numbers can be eye opening, that’s not to say that you should live like a hermit and put all your excess cash into retirement savings. Continue to enjoy life now and find a balance between saving and spending that you’re comfortable with. Gaining clarity on how much you will need at retirement to ensure that you can maintain your standard of living without the risk of running out of money during your lifetime is essential to living a fulfilling life that’s free of financial stress.

    As a rule of thumb, to maintain the same quality of life in retirement as you have while working, set a goal of contributing approximately 12-15% (including any employer contributions) of your income towards retirement savings (contingent on how early you start saving of course).

    Misusing Credit Cards

    Use a credit card as a tool to build credit by paying it off on time each month. Accumulating high-interest credit card debt and only paying the minimum amount can lead to financial stress and can be disastrous for your credit score. A simple rule to follow to ensure this doesn’t happen is to only use credit to purchase things that you could otherwise afford to purchase by other means. If you do land in a mess of credit card debt, prioritize paying off credit cards with the highest interest rates first.

    Ignoring Insurance Needs

    Neglecting to have appropriate insurance coverage, such as health, life, and property insurance, can result in financial devastation in the event of unexpected events. While nobody enjoys paying for insurance they may never use, the devastating effects of being underinsured (or uninsured) after an unforeseeable event can have dire consequences that can impact your finances for the rest of your life.

    Not Investing or Investing Poorly

    Whether it’s keeping your money under the mattress or throwing it at the latest “hot tip” without doing your homework, not investing, or making poor investment choices can seriously stunt your wealth growth. The key here? Education and strategy. Understanding the different investment avenues available and seeking advice from the pros can make all the difference. It’s about science over speculation, focusing on the long game rather than trying to time the market perfectly. Remember, it’s about time in the market, not timing the market. And when the market takes a downturn, as it inevitably does, it’s all about keeping your cool and sticking to your plan, prioritizing discipline over emotion.

    From 1926 through 2021, the S&P 500 experienced 17 bear markets, or a fall of at least 20% from a previous peak. On the other hand, there were 18 bull markets, or gains of at least 20% from a previous low. Bull markets averaged 55 months in length and the growth has ranged from 21% to 936%. Growth is particularly strong immediately following a steep decline and it’s much harder to know when to get back into the market than it is to decide when to get out. And typically, by the time you are comfortable enough to buy back in, you’ve missed out on a large chunk of the recovery.

    For example, after the Covid Pandemic shut down the economy, stocks had gained significantly from their lows.

    Source: Marketwatch

    Asset allocation, the strategic distribution of investments across different asset classes such as stocks, bonds, and cash, plays a pivotal role in determining long-term investment returns. Research consistently shows that asset allocation accounts for the majority of portfolio performance over time, often outweighing the impact of individual security selection or market timing. Additionally, opting for low-cost investments can help maximize your returns in the long run.
    So, when it comes to investing, knowledge truly is power. Start by researching different investment options, such as index funds or diversified ETFs, and consider consulting with a financial advisor to develop a personalized investment strategy tailored to your goals and risk tolerance. Don’t invest so aggressively were there to be a significant drop in the market in a very short period, your emotions would take over causing you to sell out of the market and miss out on the growth that follows. Investing is like a rollercoaster, the only people who get hurt are the ones who fall out.

    Additionally (to echo number 4 on this list), set up automatic contributions to your investment accounts to ensure consistent saving and investing over time, taking advantage of dollar-cost averaging to smooth out market fluctuations. While it can feel like you can’t afford to save, starting slow (even just $50/mo.) can have a huge impact long-term. When it’s automatic, you begin to not even notice, and you’ll adapt your spending without even thinking about it.

    Not Having a Financial Plan

    A well-thought-out plan, including taking the time to envision the life you want to live and setting goals around not only money, but all aspects of your life, can guide decision-making and provide a roadmap for the future. Here is a list of quotes that come to mind:

    “By failing to plan, you are preparing to fail.” – Benjamin Franklin

    “Dreams without goals are just dreams. And ultimately, they fuel disappointment. On the road, to achieving your dreams, you must apply discipline but more importantly, consistency. Because without commitment you’ll never start, but without consistency, you’ll never finish” – Denzel Washington

    “It takes as much energy to wish as it does to plan.” – Eleanor Roosevelt

    Not Negotiating Salary

    Accepting a salary offer without negotiation can impact long-term earnings. It’s important to research market rates and negotiate fair compensation. Additionally, raises are typically determined based on a percentage of your current wage. If your starting wage with a company is lower than your peers with similar roles, qualifications, and responsibilities, your raise will be a smaller dollar amount compared to others who negotiated for a higher starting wage.

    Taking on Too Much Debt

    Accumulating excessive debt, whether through loans or credit cards, can lead to financial instability. One of the biggest blind spots in financial planning is biting off more than you can chew from a monthly expense standpoint. While I encourage my clients to buy the house they’ve always wanted, encourage their children to get a great education, start that business they’ve always dreamed of, and purchase things that make them happy, being cash flow poor due to debt repayments is most commonly seen after major expenses such as housing, starting a business, vehicle purchases, and repayment on student loans (as stated in section 3 of this article). Be mindful that the repayment plan around these options is within your budget and won’t leave you with pennies to do what makes you happy on a daily basis. What’s the use of having a vacation home in Key West if you struggle to afford groceries in your everyday life?

    Well, folks, we’ve covered a lot of ground here, from procrastination pitfalls to the perils of poor investment decisions. But before we wrap up, let’s take a moment to reflect. The reality is, when it comes to money matters, ignorance isn’t bliss—it’s a missed opportunity. By sidestepping these ten common financial traps, you’re not just avoiding stress; you’re paving the way for a brighter financial future. So, where do we go from here? Well, it’s simple—action. And while acting on these items may be simple, it’s not easy.

    Start by tackling one small change at a time, whether it’s setting up that emergency fund, crafting a budget that works for you, or finally getting serious about retirement savings. Remember, it’s the little steps that lead to big wins. And hey, if you stumble along the way, that’s okay—we’re all human. The key is to keep learning, keep growing, and keep striving for financial well-being. So, go ahead, take charge of your financial destiny. Your future self will thank you for it. Cheers to smart choices and a prosperous tomorrow!

    Have questions? Don’t hesitate to reach out to me to get answers.

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