“The art is not in making money, but in keeping it.” Jewish proverb.
Successful financial planning doesn’t happen by accident. It’s a process that must be followed carefully. Half the battle is in avoiding the mistakes and pitfalls which trip most people up. In this article, we’ll look at 5 common financial planning mistakes which will impede your progress. Being aware of what they are is crucial to ensure that you save up a sizeable nest egg, and have enough money to last you into your golden years.
1. Not Having a Plan
There’s an old quote, “A goal without a plan is just a wish.” That’s 100% true here. You must create a good plan and follow it if you wish to be financially healthy. Assess your financial health. Look at your debts. Decide how much you want to save, invest, etc. Aim to improve gradually.
Not taking ownership of a debt problem and remedying it swiftly will only cause it to snowball and become more difficult to handle. Too often, people fear looking at their debts. It all just seems too overwhelming. So they mentally shelve it away into the dark recesses of their mind thinking that the problem will go away. Almost always, it NEVER does. In fact, it’ll become even more obvious. The bills will become more frequent. The creditors will start calling you. If you ever thought no one cared about you, you’ll now realize just how many people do when you fail to pay your bills on time. You must address your financial troubles as soon as possible.
3. Lifestyle Creep
‘Lifestyle creep’ is a term used to describe a situation where you start spending more just because you’re earning more. For example, you may have been on a tight budget before when you were earning a salary of $3,000 a month. So you find a new job that pays you $4,500 a month. That’s fantastic. You now have $1,500 extra disposable income. However, instead of paying off your debt and saving more, you decide to sell your old car and buy a newer flashier car. After all, you can afford it now. What happens next is that a sizeable chunk of your extra $1.5k is going towards paying for the new car’s monthly installments. You’re back on a tight budget… because you’ve taken on new commitments. Just because you earn more doesn’t mean that you have to spend more. Like the quote at the top of this article said, what matters is not how much you earn. It’s how much you keep. So, don’t let lifestyle creep throw a spanner in the works and adversely affect your financial planning.
4. Lack of Financial Literacy
One of the biggest problems with the education system is that it doesn’t provide financial education to students. You’re not taught about taxes, credit cards, budgeting, investing, etc. You may even wonder if this is by design so that the masses remain clueless. After all, for the rich to get richer, the poor must stay where they are. So, in order for you to invest wisely and manage your money well, you’ll need to educate yourself on this topic. Most people don’t, but you must because you want to be financially secure and independent. Good financial literacy will help you immensely with your financial planning.
5. Not Building Wealth
Even if you’re a salaried employee, you should constantly be looking for ways to increase your net worth. Start a side business and you may earn even more than your day job. Like a motivational guru, Jim Rohn used to say, “Profits are better than wages.” The fastest way to save more is to earn more. The fastest way to retire comfortably is to earn more. The fastest way to pay off debt is to earn more. Notice the pattern here? You must do whatever you can to earn more. Then you’ll be able to become debt-free, invest well, and retire in comfort. Remember these 5 financial planning mistakes and avoid them. Besides these tips you’ll also want to:
- Avoid impulse purchases
- Avoid taking on too much debt
- Invest wisely
- Have adequate health and home insurance
- Set aside an emergency fund
- Decide on a retirement date
If you can adhere to these pointers, you’ll be well on your way to becoming financially secure. Start planning today.