Top 5 Common Financial Mistakes

We all make mistakes. The key is to learn from them without repeating them. Financial mistakes can be particularly costly and have long-term implications. 

5 common mistakes people make:

#1. Not having an appropriate cash reserve. Bank accounts generate small returns and may lose purchasing power due to inflation. Savings accounts, a line of credit and cash balances in investment accounts are part of your cash reserves. A good rule of thumb is to have an emergency fund of about three to six months’ worth of expenses in case of financial struggles due to a job loss or other unforeseen circumstances.

#2. Inadequate insurance coverage. Insurance is a safety net in case of an unfortunate event causing financial problems. Different types of insurance include car, home, umbrella, healthcare, and short-term and long-term disability; the point is, having an insurance strategy is important.

#3. Trying to time the market. Timing the market sounds good in theory but seldom works in practice. Studies have shown that being out of the market for only a handful of the best days can drastically reduce long-term returns. Systematic investing in a diversified portfolio, time in the market and the benefits of compounding are proven strategies that have helped build wealth over time.

#4. Not planning for retirement. It's important to proactively manage debt and contribute to retirement savings as early as possible. It could help combat financial struggles later in life.

#5. Lack of estate planning. Not preparing for the transfer of your assets can lead to potentially significant tax consequences for your heirs and outcomes that are not in keeping with your ultimate wishes. Taking care of your legacy should be an important part of your overall financial strategy.

Of course, this is far from an exhaustive list, and most of these mistakes are avoidable. Please connect with an advisor to help get your finances on the best course to meet your short-and long-term goals.