Just because the silly season is upon us, doesn’t mean we need to give in and make silly financial mistakes. At TAG, we’ve compiled a list of the most common financial blunders we see, explain how they can hurt your financial future, and some tips on how to avoid them.
1. Following the herd
Following the herd or making snap financial decisions based on emotion is a recipe for disaster.
Last year, we saw panic selling when it became clear COVID-19 was a major global pandemic, and commentators mused about an economic catastrophe and major recession (even a possible economic depression was tossed around by the media). However, markets quickly recovered, and those that sold their investments at the wrong time have missed out on one of the more rapid and significant recoveries from a recession.
Set your own goals and make factual based decisions where possible. Talk to a financial adviser before making big financial decisions – it can save you a lot of pain in the future.
2. Mismanagement of debt (especially credit cards)
Too many people have debts piling up and don’t know exactly what they owe. Understanding your short term and long term debts will give you clarity when prioritising what to re-pay first.
Here are a few of our recent blogs with more information:
While Buy Now Pay Later can be a convenient way of purchasing goods (and paying them off over a number of instalments), beware the temptation to spend what you don’t have (and can’t afford to easily re-pay).
3. Doing nothing
People often spend very little time thinking about their finances. They may think it’s too hard, procrastinate and end up doing nothing.
You don’t need to spend hours on your finances. For most people, just spending the same time as you do to plan a holiday each year would be enough.
Here are a few ways to get started:
- Take small steps. Committing to doing 1 action at a time. For example, this month I’m going to find out how much insurance I have, and adjust it if needed. Then commit to the next.
- Have a process to invest small amounts on a regular basis. This reduces the chances of a poor decision to invest large amounts at the wrong time. Even while markets are high, or low, if you are disciplined and patient you will reap the rewards over time.
You won’t get rich over night but a small commitment to your wealth creation on a regular basis can make a huge difference over time. The earlier you start the better – time is your friend.
4. Superannuation – out of sight, out of mind
It’s surprising how many people don’t know:
- where their super is;
- how much super they have;
- how much they need; or
- how much insurance they are paying for in their super fund.
Just reviewing your super once a year will make a big difference.
5. Overcommitting
A common example of overcommitting is buying an investment property. You might be able to afford the loan repayments to begin with but you need to consider what will happen if interest rates increase, there’s an unexpected job loss, or change to family circumstances. It is usually not possible to sell a property quickly or just sell 10% of the property to free up some cash.
Borrowing to invest can be a good way to increase your wealth over time, but ensure this does not place unnecessary pressure on your family finances or require compromises to your lifestyle. Ensure you have an emergency cash supply by making sure a portion of your investments are liquid. This means it can be sold quickly if the need arises.
Talk to a financial adviser before committing yourself to a long term financial obligation that might cause a future headache.
6. Under Insure
We all insure our cars and our houses. Your greatest asset however is our ability to work and earn an income. A $100,000 salary for a 40 year old is worth $2.5M (excluding inflation and pay rises) by the time they retire.
Don’t leave you or your family financially exposed to your death, illness, or injury. What you’ve work hard to create does not need to unravel if your income stops.
Be appropriately insured!
If you have any questions, please contact us on 03 9886 0800 or via email.
What should you do now?
For most people, getting started is the hardest step. Here are a few actions that you can take today:
Become Money Smart
Build your financial knowledge and join our online community where you will receive TAG updates and invites to our Information Sessions.
Meet with us
If you would like to discuss the future of your business further, contact us to arrange a time.
Wealth Projection Tool
Our most powerful tool for wealth creation. TAG’s Wealth Projection Tool will show you how long your money will last, is easy to understand, provides clarity and helps create targets and goals. Contact us to arrange a time.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2021. Please do not reproduce without the expressed written consent of the author.