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The 4 Biggest Financial Mistakes I See Thumbnail

The 4 Biggest Financial Mistakes I See

By Bryan Lee, CFP®, MBA

Financial mistakes come in all shapes and sizes. Some mistakes are easy to recover from and can end up being a good life lesson. Other mistakes can have lifelong impacts and may permanently affect the kind of lifestyle that you’ll be able to afford in retirement. These are the mistakes we want to help you avoid.

Having worked in the financial services industry for nearly three decades, I have truly seen it all when it comes to financial mistakes. Below are the top 4 biggest financial mistakes I see. With the right knowledge and the right financial advisor on your side, you can avoid these mistakes (and many more).

1. Waiting Too Long to Save and Invest

With increasing life expectancies and longer retirements, many Americans are struggling to save and accumulate enough money to provide a comfortable lifestyle throughout their retirement. This is why it’s so important to begin saving and investing at an early age. The earlier you start investing, the longer your investments have to grow. 

Although it’s technically never too late to begin saving and investing, the amount required to save each month to reach your goals increases to accommodate for the lost time. Due to the power of compound interest, investing works best when you have plenty of time to let your money grow (and by plenty of time, we mean decades). Compound interest is exponential, so you only start to see the real impact of compound growth after years of investing.

2. Holding Too Much Cash

Additionally, it’s important to know the distinction between saving and investing. You have to save to invest, but it can be costly to your bottom line if you keep too much cash in a savings account or in your overall portfolio. Not only are you missing out on potentially higher returns of investments, but you’re also losing purchasing power due to inflation. The interest rates offered on savings accounts— even on high-yield savings accounts—historically do not outpace inflation.

With that being said, it’s also important to keep just enough cash in an easily accessible account in case of unforeseen emergencies. Striking this balance can be difficult as you never know when an emergency will occur and you’ll never be able to plan for the exact cost of an emergency. The size of your emergency savings should correspond to your required monthly expenses, your net worth, and the amount of risk you’re comfortable taking given your life circumstances. If you don’t have large or frequent needs for emergency savings, then a portion of that emergency savings could be invested as well (knowing that it only takes a few days to convert ETF or mutual fund investments to cash).

3. Spending Beyond Your Means

Another financial mistake I see too often is when families live unnecessarily beyond their means. Many families carry debt from credit card accounts, home equity loans, or 401(k) loans to finance certain ”wants,” such as those listed below. It’s one thing if spending on these or other items is carefully planned for as part of an overall financial plan (and the expenses align with a family’s goals and values), but if the expenses put the family’s financial well-being in jeopardy, then course corrections may be necessary.

  • A second home (or too-large of a first home)
  • Pricey vehicles
  • Toys like boats and Jet Skis
  • Expensive private education
  • Lavish weddings
  • Luxurious vacations and travel 

We also see families paying full price for day-to-day expenses without exploring generic or bargain brand options. Perhaps even more importantly, we encourage clients to shop for (and negotiate, when possible) the best prices on big-ticket items, such as cars, interest rates on a mortgage loan, and real estate commissions when selling your home. Likewise, different credit cards offer various types of points and travel benefits, which can be used to your advantage, as well as avoiding unnecessary fees such as foreign transaction fees. Failing to “shop around” for the best opportunities could be costing you hundreds or even thousands of dollars.

4. Failing to Work With an Advisor Sooner

Finally, the biggest mistake we see people make—especially people who have a high net worth and a fair amount of complexity in their financial lives—is taking a do-it-yourself approach to personal finances. Even if you enjoy educating yourself about finances and economics, the right financial advisor can often see blind spots you may have missed and can act as an accountability partner to help you keep emotional impulses in check when you experience temptation, or the markets encounter a downturn.

Your financial advisor may be an expert in areas of finance that you are not. You may be great at budgeting and increasing cash flow, but do you know what to do with extra cash when it comes in? You may also know that you need homeowners and auto insurance to protect you from liability, but when your net worth reaches a certain point, you may also need umbrella insurance. Many of our clients came to us paying too much in taxes as well, and we’ve helped them reduce their tax burden through various strategies and techniques. 

A financial advisor can also help you simplify and organize the various components of your financial life to ensure that each decision you make is driving you towards your goals. These components include improving and maintaining your credit score, protecting you and your family with adequate insurance, planning for future expenses and goals, looking over your will and ancillary estate planning documents, developing contingency plans for emergencies, and much more.

It is much easier to make more incremental changes in your 30s and 40s, compared to making much larger changes in your later 50s or early 60s with retirement around the corner. If you take the steps to partner with financial advisors like the team at Strategic Financial Planning, you can help protect yourself from the heartache of accidentally making an irreversible financial mistake. Call (972) 403-1234 or contact us online to set up a complimentary get-acquainted meeting so we can see if we are a good fit!  

About Bryan

Bryan Lee is the founder and President of Strategic Financial Planning, Inc., an independent, fee-only financial advisory firm. With over 27 years of industry experience, Bryan uses a unique client-first financial life planning approach and process to help his clients get the most out of life. Bryan earned his Bachelor of Business Administration in finance and MBA in international finance from the University of North Texas and is a Certified Financial Planner (CFP®) practitioner. Bryan is actively involved in his community and industry and has served on the boards of several associations and charities, including serving as President and Chairman of the Dallas/Fort Worth Chapter of the Financial Planning Association, the National Association of Personal Financial Advisors, the CITY House Board of Directors President and Chairman, Editorial Review Board of the Journal of Financial Planning, Family Services of Plano, as well as a Junior Achievement Volunteer Teacher. Bryan has been featured in local and national magazines, newspapers, and journals, including The Wall Street Journal, Investors Business Daily, CNNfn, USA Today, SmartMoney, Kiplinger’s Personal Finance, Financial Planning Magazine, The Dallas Morning News, Dow Jones Newswires, and has been recognized as a Five Star Wealth Manager and one of Dallas’s Best Financial Planners in D Magazine every year since its inception. To learn more about Bryan, connect with him on LinkedIn.