Managing your finances responsibly takes a lot of time — and experience. We all make mistakes, but we can learn important lessons from these so that we can try to avoid financial traps in the future.
Money is hard to get and easy to lose. It doesn’t take long for the wealth you’ve accumulated to disappear if you don’t manage your money well or have a plan to protect your assets from sudden calamity. But planning and a dose of common sense can guide you through some of the key financial traps of life.
Snares like the ones mentioned below could easily threaten your financial security. Being organized and planning ahead can protect you and your loved ones from getting caught in common financial traps.
#1: Undisciplined Spending
The more you have, the more you spend — or so the saying goes. But not paying close attention to your cash flow may prevent you from saving enough money for your future. Manage your income by creating a spending plan that includes saving and investing a portion of your pay. Your financial professional can help identify planning strategies that can help maximize your savings and manage you tax consequences.
#2: High Debt
With the easy availability of credit, it isn’t hard to understand how many people rack up high credit card balances and other debt. Short-term debt will become long-term debt if you’re paying only the minimum amount toward your balances. If you can’t pay off your credit card debt all at once, consider transferring the balances to a card with a lower interest rate.
#3: Unprotected Assets
Your life, your property, and your ability to work should all be protected. Life insurance has the potential to provide income for your family if you die. Homeowners and automobile insurance can help protect you if your home or car is damaged or destroyed and provide liability coverage if someone is injured. Disability insurance can protect your income if you’re unable to work.
#4: Unmanaged Inheritance
A financial windfall is great, but it also can be dangerous. Without solid advice on managing and investing the money, you could find that your inheritance is gone in a much shorter time than you would have thought possible. Your financial professional can help you come up with a plan for managing your wealth. Setting aside a portion of the money to spend on a trip or other luxury while investing the rest may be one way to reward yourself and still preserve the bulk of your assets.
#5: Neglected Investments
Reviewing your investments to make sure they’re performing as you expected — and making changes in your portfolio if they’re not — is essential. But it’s also essential to periodically review your investment strategy. You may find that your tolerance for risk has changed over time. You’ll also want to assess the tax implications of any changes you plan to make to help manage their impact.
#6: Retirement Shortfall
If you’re not contributing to your employer’s retirement savings plan, you’re giving up the benefits of pretax contributions and potential tax-deferred growth. Maximizing your plan contributions can start you on your pursuit of a comfortable retirement — hopefully with no traps along the route.
If you would like to discuss this, or any other topic affecting your financial life, then please don’t hesitate to get in touch.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.