How to Avoid Common Pitfalls in Financial Planning
Regardless of your age or current financial situation, a well-prepared financial plan can help you achieve your life goals and pave the way to financial independence.
Financial planning is a process and it might be difficult to know where to start. We’ve outlined some of the most common mistakes that people make in financial planning:
Failing to set specific goals
Establish specific goals for what you want to accomplish as well as a timeline based on your needs. For instance, rather than simply saying that you want to be “comfortable” when you retire or that you want your children to attend “good” schools, quantify what you mean when you use terms like “comfortable” and “good” so that you’ll know when you’ve achieved your goals. Taking this into account will help you decide whether or not any adjustments need to be made to your plan.
Failing to set up an emergency fund
Get in the habit of putting money away in case you end up needing it for anything unforeseen. It is a good rule of thumb to have enough money saved up to cover three to six months’ worth of expenses in case of an emergency.
It might mount up to an overwhelming sum for some people, which could deter even those with the best of intentions to save money. Instead of starting with a big savings goal, it’s better to set several smaller goals to get started. Consider setting aside 10% of the money that is left over after taxes and other deductions each month. You may also set up an automatic savings plan, that way the money that is saved is ‘out of sight, out of mind’ and does not have to be touched unless it is really necessary.
Failing to re-evaluate your financial plan periodically
Financial planning is a dynamic process. Your lifestyle or circumstances may change over the years, which may cause your financial goals to shift as a result. These shifts may include inheritance, marriage, the birth of a child, the purchase of a home, or a change in career status. To make sure you keep making progress toward your long-term goals, you should look at your financial plan regularly and make any changes that are needed.
Waiting too long or waiting for a financial disaster to begin planning for one’s financial future are both poor financial decisions. Do not make the mistake of thinking that financial planning is only for people who are older or who are wealthy.
There is no “right time” to start financial planning, but people who start early and save or invest even modestly typically fare better financially than those who put off financial planning until later in life. In a similar way, if you start young to develop good financial habits like saving money, sticking to a budget, investing money, and understanding your finances, you will be better prepared to deal with unexpected events and changes in the future.
Failing to understand the difference between financial planning and investing
Too many people work with incompetent “financial advisors” that are nothing more than glorified salespeople with a nice suit and a fancy business card. Achieving success in one’s financial plan has a lot more to do with proper asset allocation rather than picking the next “hot” stock. At Markowski Investments, we have an in-depth understanding of market psychology and have the experience to recognize market patterns allowing us to create your plan for long-term growth and success.
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