If you ask most certified financial planners you’ll find that one of the things they’re constantly warning their clients against is making bad money choices based on “popular financial advice”, which is often wrong. Today’s blog is basically to help you, our dear readers, avoid “financial suicide” by avoiding tips that “sound good” but are in reality the wrong financial choice, and the strategies below should help to do just that. Enjoy.
Buying a very big house. It was less than 10 years ago that real estate agents were pushing their clients to buy houses much bigger than they actually needed and, consequently, couldn’t afford. The fact is, you need to look at exactly what your income is and base your house buying purchase on that, because if times get tough and you need to cut back, having a huge mortgage hanging over your head certainly won’t help your situation. Buying a very big house means very big energy bills to keep it cool in summer and hot in winter. It also means very big maintenance costs and, in many states, very high taxes. Better to buy a house that’s adequate and bank all that extra money that you’re saving every month as well as have relaxing weekends where you don’t have to slave away keeping up on your home’s maintenance chores.
Putting all of your extra money into retirement funds. While this sounds like an excellent idea fact is that if you have all of your money tied up in your 401(k), your IRA or other retirement programs and suddenly an emergency strikes, you’re going to lose a lot of money in fees if you touch that money early. While saving for retirement is definitely vital, it is also extremely important to have enough money on hand so that if something unexpected happens, you don’t have to plunge deep into your retirement funds to sort it out.
Investing solely in stocks. Many financial advisors have a bit of a one track mind when it comes to stocks in that they believe that they are the end-all and be-all to investing. As far as investment strategies go, stock investing should generally be part of a larger financial strategy than the entire strategy. Better to invest in a number of different opportunities and spread your risk around.
Ignoring perpetual income streams. This isn’t exactly advice that people are hearing but instead something that many people are doing. In order to truly survive well during retirement you need to have as many perpetual income streams coming in as possible and many people don’t realize that they can easily set these up based on their expertise, skills or financial abilities. For example, a medical doctor would definitely want to consider purchasing a medical building that, even long after he’s retired, is still generating rent. In the business world, perpetual income streams are the “holy grail” and what everyone is looking for because these are income streams that will continue to pay them even without their input.
Focusing too much on small changes. The average consumer who is trying to get control of their finances will usually start tracking all of their expenses, from monthly bills down to how much they spend on coffee every week. In most cases however these numbers are totally meaningless and what should be focused on are the expenses that can’t be changed so quickly. Large debt payments and mortgages fall into this category. If you can earn enough so that you cover the big expenses easily then you should consider yourself financially secure, relatively speaking, even if you might be paying a little bit too much for that Starbucks coffee.
Those are 5 mistakes that many people make and, if you can avoid them, you’ll save money and stress. If you have any questions about finances, retirement accounts or just want to leave a comment telling us how much you appreciate all of this great information, let us know and we’ll get back to you ASAP.