Everyone makes mistakes, all of the time. It’s how we learn. One of the goals of this column in the Chesapeake Current is to help you understand what goes into a financial plan so that you can minimize your mistakes. You will make some. But let’s go over ten common errors people make when engaged in financial planning:
- Investing Before You’re Ready
Many people commit this error. Uncle Donald has made money by investing so I will too—I’ll just put money into the same investment. While this may work for Uncle Donald’s goals, how does it fit into yours? The planning process begins with organizing what you have, looking at who you are and figuring out what you want—you need to participate. Randomly purchasing investments because others have done so.
- Putting All Your Eggs In One Basket
Don’t do it! Diversify, diversify, diversify.
- Buying the “Hot Stock”
Investing should not be speculation or gambling. You can never win if you try to time the market. A stock that is “hot” today can crash tomorrow and there are very few opportunities to buy into companies like Microsoft at the beginning. If you get one of those opportunities, go for it. But, don’t expect you will. Instead, figure out a long-term plan of action and follow it—your results will be better and you will have peace of mind.
- Not Having a Will or Planning For Taxes
Your mother or father’s adage that nothing is certain except death and taxes is true. You will die; so get a will or a living trust; you will pay taxes; so plan for that too. Take your tax planning into account along with your financial planning.
- Trading In Your Investment Account
Trading costs money. If you are investing for the long term, you shouldn’t be trading in your investment account—pick the investments you are comfortable with and stick with them.
- Picking the Wrong Advisor
Why is it that we are educated about driving and must take courses before we are allowed to take a driving test, but have no required education before we pick an investment advisor? Your brother-in-law may be a nice fellow, but do you really want him to manage your money for you? This is one area that can hurt you and deserves attention from you before you trust your life savings to anyone else. Do some homework, and then select a trusted advisor.
- Not Taking Advantage of Your Employer-Sponsored 401-K
When you contribute to the employer’s 401(k), you are using pre-tax dollars so you’re already making investments and saving money—if the employer matches your contribution, you’re getting free money. Don’t leave that on the table. Take advantage of every opportunity
- Getting Intimidated
Intimidation is an all too common tactic of the unscrupulous If you don’t understand an Investment, don’t buy it. DO NOT get intimidated by anyone into buying something you do not understand. Be skeptical, ask questions and don’t commit until you have studied. Never, ever send money or give your credit card information to someone for any investment without studying the investment first. Brokers are required by law to know their customer. You should know your broker and all of your financial professionals.
- Putting It off
Act now and get control of your financial life. It is never too late or too early to start a financial plan. The important thing is to start. Yes, it means getting organized and doing a bit of studying, but the advantages will far outweigh the effort. Don’t wait. .
- Quitting or Obsessing
Never give up or walk away from your financial plan. So what if your investments are not doing well in a particular quarter or year? You may need to tinker with them, to be sure, but don’t abandon your plan or your goals. In the same vein, don’t let your plan control you. Don’t obsess about your investments. Be patient with yourself and your investments. By making planning a part of your life, you will become more secure and confident about your future. But your plan is not all there is to you. Life cannot be planned. Don’t allow your financial plan to become your life.
About the Author: Lyn Striegel is an attorney in private practice in Chesapeake Beach and Annapolis. Lyn has over thirty years experience in the fields of estate and financial planning and is the author of “Live Secure: Estate and Financial Planning for Women and the Men Who Love Them (2011 ed.).” Nothing in this article constitutes specific legal or financial advice and readers are advised to consult their own counsel.