Have you ever heard someone say that experience is the best teacher?
Well, I would like to take a slightly different tack. Experience isn’t the best teacher. Someone else’s experience is. Learn from other peoples’ mistakes and you can save yourself a lot of grief.
In that spirit, I’d like to review the biggest financial mistakes I’ve seen and offer you ways to avoid them.
1. Living paycheck to paycheck
Too many Americans don’t have enough money in savings. According to CareerBuilder, nearly 80% of Americans live paycheck to paycheck to make ends meet. And lest you think this applies only to those who are in low-wage positions, nearly one in ten workers who earn over $100,000 or more are in the same boat. (http://press.careerbuilder.com/2017-08-24-Living-Paycheck-to-Paycheck-is-a-Way-of-Life-for-Majority-of-U-S-Workers-According-to-New-CareerBuilder-Survey)
I’m shining a bright spotlight on this predicament in the wake of the recent government shutdown. During the closure, we were treated to a healthy dose of stories from federal employees who were running out of money after missing one or two paychecks. And these folks were guaranteed back pay and were offered plenty of assistance from banks and credit unions!
I’m not trying to minimize the frustration many of them experienced, but imagine what might happen during an extended period of unemployment AND with no possibility of receiving back pay?
Don’t wait to start socking money away. Pay yourself by stashing away funds after each pay period. I always recommend at least three to six months of emergency funds held in a FDCI insured bank account. And I’d lean towards six months. A financial house that is in disorder is among the leading causes of stress. Savings will mitigate the emotional and mental burden.
2. You can’t start too early saving for retirement
I’ve already broached the subject with my children. So far, they seem willing to listen, which is hopeful. They may be less than enthusiastic and I get that. There are many other things they are focused on today. But when they graduate, the seed will have been planted, and will be mentally ready to sign up for a 401k.
I have a friend who is in his late 40s. He can probably retire comfortably by 60. Yet, he regrets waiting until 30 to begin putting money into a retirement account. What if he had started in his early 20s? The same holds true for another colleague who is 52. He’s semi-retired today but wishes he had enrolled in his company plan before he turned 26. For most folks, that would be a minor regret.
We all know the reason earlier is better–it’s the magic of compounding. Those deposits made in our 20s will have a lifetime to grow. Don’t waste the chance to increase your savings now. You’ll never get it back.
3. Do you know where your money goes?
Without a spending plan that tracks expenditures, you may wonder why there is month at the end of your money, and not money at the end of your month.
Focus on the essentials–rent, mortgage, utilities. Leave room for your financial goals–repaying debts, retirement, emergency funds. And have some fun by budgeting for lifestyle choices–recreation, hobbies, vacation, and so forth.
If you are unsure how you might get started, my team can help you develop a spending plan that will help get your financial house in order.
4. Credit cards and personal debt
Credit cards are a fantastic convenience and most pay some type of reward. But don’t place yourself in bondage to monthly payments. Pay them off monthly or you will suffer from steep interest charges.
If you feel like you’re buried under a mountain of credit card debt, an auto payment, student loans, and personal debt, you’ll need a plan of attack. Let’s talk. It will be the best financial decision you ever made. Just knowing there’s a roadmap to debt-free living will be liberating.
5. Those luxury purchases
That new car sure is fast, the ride is exceedingly quiet, and it has all the latest gadgets. But the new car smell will eventually wear off. The payments, however, won’t. When looking for a new vehicle, what you don’t know can hurt you. What is the gas mileage? Does is require an expensive grade of gasoline? What will it cost to insure? And what will the annual license renewal run?
If you can answer these questions and the payments comfortably fit into your budget, you’ll sidestep any surprises that could crowd out your hobbies and financial goals.
A welcomed January surprise
December was a bad month for stocks. There’s no way to sugarcoat it. Long-term investors recognize the need for disciplined approach, but that doesn’t mean extreme levels of volatility won’t create some degree of concern. I get it.
We touched a bottom on Christmas Eve, and shares extended gains into January. In fact, the Wall Street Journal ran an article stating the S&P 500’s advance last month was the best start to the year since 1987.
Table 1: Key Index Returns
Dow Jones Industrial Average
S&P 500 Index
Russell 2000 Index
MSCI World ex-USA**
MSCI Emerging Markets**
Bloomberg Barclays US
Aggregate Bond TR
Source: Wall Street Journal, MSCI.com, Morningstar
YTD returns: Dec. 31, 2018—Jan. 31, 2019
**in US dollars
As always, I’m honored and humbled that you have given me the opportunity to serve. If you have any concerns or questions, please feel free to reach out to me at firstname.lastname@example.org or call me at 515-457-2930, and we can talk. That’s what I’m here for.
Phil E. Gose
Portions of this article were created with the assistance of Horsesmouth, LLC
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