Financial Planning Advice: 9 Mistakes to Avoid
When seeking financial planning advice, clients often ask what they can do today to avoid financial challenges in the future. They might find themselves with extra income after paying off debt, have a dream to buy a home or need a retirement plan, and they’re not sure where to start. If this sounds like you, keep reading so you can avoid these common financial planning mistakes.
1. Not having a plan.
In order to accomplish anything, you first need to have a plan – after all, it is called financial ‘planning.’ Begin by asking yourself where you want to be financially in five, 10 or 20 years. Do you want to own a home? Do you want to be debt-free? (Yes, it is possible!) When do you want to retire? What kind of lifestyle do you want when you retire? These and many other questions are the start of your financial plan.
2. Assuming the financial professional you select today is yours for life.
One of the biggest pieces of financial planning advice is finding the right person to help you put together your plan. Life changes, and so does your financial plan. If the person you’re working with today isn’t right for you, ask for referrals from trusted friends and family or the local chamber of commerce. Interview several, and select the person that best suits you, your family and your financial goals.
3. Delaying when you start to save.
If I had a dollar for every client that came to me saying they wished they had saved for retirement from the time they graduated college, I could retire! Just $50 a month adds up over the years. If you’re a parent, encourage your children to save and invest early so they don’t have the stress older Americans have when it comes to having enough to buy a home, take a dream vacation or retire.
4. Assuming Social Security is part of your plan.
Our parents may be guaranteed Social Security, but don’t assume the same for yourself or your children. Rather than having to fill a gap in income when you’re getting ready to retire, prepare ahead of time. If Social Security is available, that’s added value to your retirement plan, and if not, you’ve got what you need to live the way you want to live. However, if you are closer to retirement, it is important to get an idea of what your income will be. Try this social security retirement calculator to see if you are saving enough.
5. Forgetting about your ex-spouse’s Social Security benefits.
If you’re close to retirement age and have been divorced, you may be eligible for ex-spouse benefits. Factors such as length of the marriage, the age of your ex-spouse, remarriage and current marriage status impact eligibility. The laws are constantly changing, so check with your trusted financial professional to see if you qualify.
6. Lack of communication.
Whether it means communicating with your spouse, children, financial professional or estate planning attorney, you can’t be the only one who knows your financial and legal information. You might think you’re just being private, but if you’re incapacitated or die, you leave loved ones stressed not knowing your wishes or where to find your estate plan where you’ve expressed your wishes. This often leads to family arguments, and it doesn’t need to be that way. Make sure loved ones know where to find your bank, investment, retirement account, insurance and estate planning documents in the event they need to act on your behalf.
7. Neglecting to update beneficiaries.
A key piece of financial planning advice is to ensure that you review beneficiaries on all bank and investment accounts as well as insurance policies if you’ve experienced a life change such as marriage, divorce or having children. In some states, the person listed as the beneficiary trumps all other documents. That means if you forget to take your ex-spouse off an insurance policy, and you die, the ex-spouse is the beneficiary of the funds, not your new spouse, children, grandchildren or anyone else you might prefer to designate. That could mean there isn’t money for the surviving spouse for expenses such as paying off a car or mortgage.
8. Failing to invest in an employer-sponsored retirement plan.
If your employer is sponsoring a retirement plan, find out if they match your investment. For every dollar you contribute, the company may contribute an amount up to a percentage of your salary, which means you’re making money simply by participating. Make sure you understand the details of saying yes. If you are contributing to an employer-sponsored plan, see how much retirement income to expect from your 401k.
9. Skipping saving while you’re paying off debt.
It’s tempting to put all your extra money toward paying off debt but don’t forget to save while you’re doing it. Establish an emergency fund, and then think about expenses such as car repairs, home repairs, and pet bills. If you don’t have that money put aside, you’re likely to use credit cards to cover those kinds of costs and will never eliminate the cycle of debt. You can begin a plan for your future whether you’re a young couple, ready to retire, or somewhere in between. Avoid these 9 mistakes by finding a trusted advisor to provide financial planning advice that’s right for you.