No one is safe from making financial mistakes. Everyone, yes even financial experts, make them at one point or another. Some mistakes are not so detrimental you can use them as learning experiences. Other mistakes come with consequences that you are better off learning from others rather than experiencing them yourself. Below are some of the common and foolish mistakes people commit when it comes to their finances, which you’d want to keep away from.
Prioritizing old debt first
When you’re making effort to pay debt, it should be a good idea, right? Not all the time apparently. According to experts, if you’re focusing on paying old debt first and disregarding debts you’ve missed a few months back, you may be doing it wrong. Rather than keep up with debts from years ago, it might be best to change your debt payment strategies for several reasons. The most important of which is that your old debt may be old enough that your creditor cannot sue anymore. Paying that old debt at this point will just restart the statute of limitations.
Spending money you don’t have
This has been said over and over again but people keep doing it anyway. If you want financial success, you need to stop spending money you don’t have. To be even more specific, stop buying things you don’t need with money you don’t have. In other words, use your credit card wisely. If you don’t want to join the alarming number of people who drown in credit card debt, you need to be more careful with your spending. Match it with what you can afford and what you value to avoid financial complications.
Poor retirement planning
Most people when planning for retirement use average rates and average life expectancy as bases. The problem with this strategy is the possibility that you might live longer than expected and you might earn less than the average investment rates. In these cases, you are putting your retirement lifestyle at risk. Rather than base your planning on the average investment returns, it’s best to use conservative estimates instead. Also important is to increase your life expectancy accordingly. This way, you’ll have a retirement plan that’s more in tune to the possibilities and your needs.
Not taking risks on investments
People who are risk-averse think that putting their savings and retirement money on a low-risk investment fund like money market is a good idea. They though wrong. By not taking risks and staying too cautiously conservative on your investments especially the long term ones, you are actually taking the biggest risk of all. You are not letting your money grow the way that it can weather inflation over the years. In the end, you’ll end up with returns that are not going to be enough to keep up with your lifestyle.
Putting all your egg in one basket
If you’re thinking of putting all your money in one stock because it’s been giving you good returns, don’t do it. While the likelihood of our single stock going downhill is slim, it’s never wise to put all your egg in one basket. No matter what the naysayers preach, diversification is still best for your investments. As a rule of thumb, you should never invest more than 10 to 15% of your portfolio on just one stock. To know more about diversification, click here.
Focusing too much on investment returns
Never chase investment returns. Most often than not, focusing on just the returns can blind side you leading to foolish financial decisions. Remember that just because one stock did fairly well in the past years doesn’t mean it will continue to do so in the coming years. Keep in mind that stocks and other high interest investments are fickle and volatile. Anything can happen in a blink which is why you need to inject balance when planning your investment strategy.
Selling stocks when the price is low
Stocks offer high interest returns but in exchange you’ll have to deal with the volatile market. That means your portfolio can take a dip down when the market is in a recession. When the value is low, some investors often opt to sell. This is one mistake you don’t want to commit. Just because your portfolio value is low now doesn’t mean it will stay that way in the future. In fact, research has shown that stock investments usually recover if you give it 5 to 7 years after it underwent a downturn.
Withdrawing from your retirement fund early
Another common mistake you don’t want to take part in is cashing out early on your retirement funds. Doing so will only lead to you paying taxes for the early withdrawal and you putting your funds at risks. There’s also the possibility that you might need to pay for a 10% penalty for this financial move. As much as possible, it’s best to steer clear from doing this even if you’re in an emergency. Tapping on your retirement fund should be the last resort which means you need to look elsewhere to meet your current financial needs.