Achieving financial wellness is a goal that eludes many, regardless of their income level, profession, or education. While financial success might seem like a distant dream, it often boils down to avoiding a few common pitfalls. In this blog post, we'll explore the key mistakes that can derail your financial stability.
Failure to set definite financial goals
Without knowing exactly what you want and how to get there, the likelyhood of success in minimal. Until, you set a goal and implement a plan to get there it is only a wish or a dream.
Ignoring the time value of money.
Time value of money along with compound interest are your best friends in achieving financial goals. The longer you have money invested the more it’s working for you and the more you gain from it. Even starting with something small will have a significant impact later on.
Failure to recognize the impact of inflation.
Inflation erodes your buying power ignoring it will lead to financial shortfalls. For example, if you purchase something for a dollar today and the inflation rate was 3%, you would need a $1.03. In 10 years, that same item would cost you a $1.34 or to put it a different way, $1 is the same as having 75 cents in 10 years.
Unrealistic expectation.
It is great to have sky-high expectations but they have to be achievable. You have to be able to adapt your goals for your circumstance in order to achieve the sky-high goals you may have to take intermediate steps. You may want to buy a house but your current income situation may only allow you to buy a condo, you don’t forget the goal of buying a house, but you take the intermediate step of buying a condo.
Procrastination
The longer you wait on starting any financial plan or financial goal, the harder it will be to reach and the more of your resources you’ll have to devote to it. When you procrastinate you lose the impact of compound interest and the time value of money.
Lack of clear understanding of tax laws.
Understanding the tax rules can have a beneficial effect on your financial situation in the short and long term. Not understanding the tax laws and how they pertain to you could result in unnecessary taxes paid.
Failure to use professional advisors.
Financial advisors, accountants and lawyers are experts in their area and have access to information the non-financial professional doesn’t. A financial advisor will find a customized solution for an individual to meet their specific goals and objectives.
Failure to diversify.
Diversification is your biggest safe guard against major short term losses. When people put ‘all their eggs in one basket’ it’s possible to make a great deal of money but it’s as likely to lose a lot. With diversification your investments are spread across several categories. This usually leads to less major fluctuations in someone’s portfolio.
Inadequate protection against losses.
Most people when planning for financial stability focus on how to build their net worth. Without adequate protection against unplanned events such as job loss, sickness, disability or even death, someone’s plan could be potentially ruined. Protecting your assets should also include protecting the biggest asset which is yourself and your earning power.
Control of spending habits.
When spending is not controlled to match money coming in debt will keep increasing. When debt increases funds allocated for investments or savings have to be diverted to help pay off the debt. The diversion of funds from savings to paying off debt will obviously delay reaching someone’s ultimate financial goals.
Achieving financial wellness is within reach, but it requires diligence and awareness. By understanding and avoiding these common mistakes, you can set yourself on a path to financial stability and success.
Remember, financial success is a journey that involves continuous learning and adaptation. By being proactive and making informed decisions, you can navigate the complexities of personal finance and work towards achieving your long-term goals.
Our team at ELAN Planning & Wealth Management are here to help all stages of your financial journey!
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