If you’re here reading this blog the good news is that you care enough about your finances to also educate yourself about how to take care of them. We present interesting, insightful and important information here on our blog on a regular basis and we know a thing or two about financial problems because, frankly, we’ve all made them. Ask any financial guru and, if they’re being honest, they’ll have to admit that they made mistakes too. (Not that where gurus, we’re just humbly making a point.)
That being said we thought we would put together a blog about some of the most common mistakes that people make with their finances. There are a few of them in fact and they include things like not updating wills and beneficiaries, messing around with your 401(k), under-ensuring your life and not planning for emergencies. The way we see it, if you know what they are you’ll be better prepared to deal with them if they arise and make smart financial decisions. Enjoy.
In a recent survey it was found that 86% of respondents said they had created their will (and other estate planning documents) but that they had not updated them at all within the last five year period. The problem with this is that, as we get older, there is a higher chance that something will happen. Accidents and old age take their toll, unfortunately. Knowing this you should make a habit of checking your will and other state paperwork approximately once a year and once every six months if you’re over 70.
Communication with other family members is definitely key as people get older. If your mother or father were to pass away and you don’t know about any insurance that they have, for example, you will not only get the much-needed money to pay for their funerals but also will lose the benefit of the money that they paid into their insurance during their lives, money that more than likely was put aside specifically for you.
In families where there are many siblings and if substantial amount of money or property is involved this becomes even more important. Many families have been torn apart squabbling over money because their father or mother failed to fully outline who would get what.
The next mistake involves time and failure to use it wisely. When you interview successful savers and investors one thing that was the most instrumental in their success 1 thing usually stands out; the need to start saving as early as possible in your adult life. Not enough can be said for compound interest and the idea that you should use your money to make money. This means taking advantage of retirement plans like 401(k)s and Roth IRAs and stuffing as much money as you can into them over your working life as soon as you start working, as well as savings plans, bonds, stocks and so forth.
Along the same lines of this mistake is the opposite, starting with a flourish, putting as much as you could into your retirement account, and then stopping at one point before you retire. In a recent survey by Consumer Reports magazine they found that 6% of the respondents who actually stopped contributing to the retirement plans and that only 29% were taking advantage of the maximum amount that they could contribute every year.
Another common mistake that many people make is under-insuring their home and a life. If you live in the area where there are tornadoes, floods, earthquakes and other natural disasters on a relatively frequent basis difference between having home insurance and having enough home insurance can be financially devastating. Most experts will tell you that you should over insure your home and pay a higher deductible. If disaster were to strike and your house was completely destroyed the extra insurance could literally save your financial life.
The same thing goes for health insurance, especially if you have a wife nor a husband and other dependents. Remember that the cost to raise children is astronomical and also that being able to support your wife and children at the lifestyle that they are accustomed to will take quite a bit of money.
Speaking of disasters, not having an emergency fund is one of them. The fact is, no matter who you are or where you live things can come out of the blue that stress you financially. If your car were to suddenly break down and be nonfunctional or if your wife, whose income you counted on to support the family, lost her job, these financially stressful situations could overwhelm you financially. An emergency fund, an account that you’ve been stuffing money into four just such an occurrence, will always come in handy and ease your financial stress (as well as your mental stress of course).
A person’s income is actually their most important asset and, if an injury or an illness keeps them from working, an emergency fund can keep the family going until the person is able to return to work again. An emergency fund can be as simple as a can that you stuff $5, $10 or $15 a day into (if you can afford it). Experts will tell you that even $20 a week adds up to a good bit of money over time but of course the more that you can put into your emergency fund the bigger the emergency you’ll be able to handle.
We hope you’ve enjoyed Part 1. Many of these mistakes aren’t new and you might’ve heard some of them before but the fact is that all of them can certainly be avoided. If you’re a young adult some of these tips will serve you quite well if you follow them and, if you are older, it’s never too late to start. See you soon with Part 2. Until then, take care.