How to Avoid Common Financial Mistakes we see from Clients
Perfection is not a requirement of financial success. Mistakes happen. The good news is that most of the common mistakes that we see clients make are avoidable. Fixing small habits can make a big difference over time, and having a disciplined plan can keep you on track. In this article, we’ll outline a handful of things that can undermine your otherwise good intentions and even set you back in your planning if you’re not careful. We’ll even point out a few ways to avoid these common, yet costly, financial mistakes.
HighPoint Advisors, LLC helps individuals and families identify and avoid common financial mistakes by developing thoughtful, personalized strategies designed to support long-term financial confidence. Located in East Syracuse, New York and serving clients throughout the Central New York region as well as communities across the country, our firm provides professional guidance across key areas of financial planning. Our advisors work closely with clients to address potential challenges such as poor investment decisions, inadequate retirement preparation, cash flow mismanagement, and missed opportunities for growth. By creating comprehensive financial plans tailored to each client’s goals, we help individuals make informed decisions, avoid costly missteps, and build a stronger foundation for long-term financial stability.
Waiting Too Long to Plan & Save
Let’s start with the easiest one. The earlier you get started, the more time you have for things to work for you. Maybe the most frequent complaint we hear from clients is that they procrastinated and didn’t start early enough. It’s never too early to start planning! The perfect time doesn’t exist and delaying your planning until things calm down is rarely a smart idea. Without a decent roadmap it can be tough to make decisions and track progress.
The later you begin to plan, save, and invest, the less flexibility you’ll have. When it comes to accumulating wealth, time is one of the most valuable assets. If you start saving early – even smaller amounts – the powerful force of compound interest will work to grow your wealth much better than if you start later in life. Too often clients feel like they are playing catch-up because they didn’t start early enough.
There’s no time to start like the present, if you haven’t already.
Failing to Prepare for the Unexpected
You have to assume that some unexpected event or expense will show up without warning along your path. While it’s impossible to predict the unpredictable, it is possible to build in a little cushion to absorb a few unwanted surprises. A few good ideas would be to have an emergency fund, conduct regular reviews of your plan, and also have proper insurance coverages.
An emergency fund is important because it will be the bucket of cash that you can use instead of having to rely on taking on costly debt or withdrawal money from investments at a bad time in the markets. Reviewing your plan – especially with your advisor – will allow you to make adjustments when needed to keep you on track. Insurance exists to transfer certain risks to an insurance company. As an example, disability income insurance can keep income coming into your household if you were sick or hurt and couldn’t work.
Too Much Costly Debt
Debt doesn’t have to be scary, as long as you know how to manage it. Where debt becomes a problem is when you have excessive amounts of high-interest debts. Credit cards and some personal loans can have much higher interest than mortgages or car loans, for example. The cost of higher interest rates can become expensive very quickly, especially if you are only paying the minimum payment.
Prioritize paying down the highest-interest balances as quickly as possible. That means making extra payments and always paying more than the minimum required, when possible. Also, make sure to not add any new debt. If debt reduction is the goal, then adding new debt will defeat the purpose. Removing expensive debt obstacles is a great way to building future wealth.
Letting Emotions Control You
Strong feelings of excitement or worry at times are common features of the investment experience. Emotions like those should not govern your decisions though. Having a well-crafted investment plan as well as a properly diversified portfolio can help prevent you from falling victim to poor decisions at the wrong times.
Mistakes such as selling in a market downturn or chasing a hot theme during a market rally could cost you dearly. To help avoid making emotional decisions with your money, make sure your investment strategy aligns with your risk tolerance, time horizon, and your specific financial goals. Keep your focus on the long-term outcomes you’re working towards, instead of short-term news headlines and market moves. Remember, it’s a marathon, not a sprint.
Ignoring Taxes
It’s easy to become preoccupied with investment returns, but not paying attention to the negative effects of taxes is a big mistake. Taxes can erode wealth in ways that impact you during your saving and investing years as well as in your retirement years. Poor planning can result in missed opportunities along the way and can also create oversized tax liabilities in retirement.
Sometimes advisors will say things like “it’s not what you make, it’s what you keep,” and that refers to minimizing how much of a tax hit you incur as you invest.
To become more tax-efficient you can maximize your contributions to retirement accounts and other tax-advantaged accounts. Making decisions about how to best utilize pre- and post-tax investment accounts can make a big difference over the years.
Hopefully you’ve saved and invested well during your working years, but the tax challenge doesn’t end there. In retirement, creating income is the name of the game. That’s when you’ll need to focus on which accounts to draw from, and in what order. Account withdrawals and other forms of income can all be taxed differently, so pay attention and make adjustments as needed.
Trying to Manage Everything Alone
Professional advice is not necessary for every aspect of planning for everyone. In fact, some clients are more than capable of managing some areas on their own. The mistake is not realizing that you don’t know what you don’t know. An advisor can identify gaps or blind spots that you’re not seeing, which could lead to big savings or pointing out missed opportunities.
Working with an advisor is not about admitting that you can’t do your own planning, but rather it may be about adding some needed structure or accountability to your planning. Maybe the perspective of a qualified advisor could be what helps you avoid potentially expensive behavioral mistakes. Advisors can also provide access to certain types of investments that are not available to the general public.
How to Stay on Track
Financial planning is all about being intentional. If your plan is to just wing it then you should expect to have a few bumps in the road. To have a better chance of avoiding common and costly financial mistakes, you should set goals and make a plan that you review regularly. Emphasize consistency and purpose in your actions. No one is perfect, and circumstances change, so make sure you update your plans accordingly.
Keep in mind that most financial mistakes are fixable, and at HighPoint Advisors, LLC, our advisors have the experience and knowledge to help clients get back on track. Whether it’s teaching how to proactively avoid financial trouble, or recovering from an unfortunate setback, we’re here to help.
Contact Us today to do a check-up of your financial plans.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor’s yield may differ from the advertised yield.
Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.