1. Lack of organization
If you don’t measure something, you can never improve it. That’s why everyone should have a general idea of their personal balance sheet—that is, a list of everything you own and everything you owe at this very moment. A monthly budget is also a great idea. One quick and easy way to get and keep an ongoing, at-a-glance view of your financial situation is with a financial aggregator tool or personal finance app. Here’s a quick look at a few of the best, but no matter which one you choose, the idea is to see everything in one spot.
A budget often carries a negative connotation because being “on a budget” is considered to mean you’re not at a high enough earning level. The fact is, even the wealthiest among us are best served by having a budget to understand where their money is going on a monthly and yearly basis so they can make better overall decisions. It’s also a great way to see whether you have old or unnecessary accounts that are not working in continuity toward your goals. Lack of organization often makes people reactive instead of proactive. Refinancing your home, paying down debt, or making other important decisions can be done correctly and at the right time with a little organization.
2. Lack of goals
A plan without a goal is a road without a destination. Savings, investments, balance sheets, budgets, cash flow—none of it means anything if you don’t know exactly what you’re working toward. It’s important to set long- and short-term goals, communicate them to your family and financial advisors, and have consistent meetings to understand and update your progress. People without clear financial goals can often take on “bad debt” vs. “good debt,” or fall behind while they’re trying to “keep up with the Joneses.” Just because your neighbor or friend has more layered risk in their portfolio does not mean it’s right for your personal plan. Without clear goals, you’re more likely to take actions or follow advice that may not be appropriate for you.
3. Investment not aligned with goals
Without taking care of the first two money missteps, it is difficult to put together a successful investment strategy and portfolio. So, once you’ve established life goals and financial goals that are right for you, the next step is to create and implement a strategy that fits. You can learn more in this article about the basics of Goals Based Investing, but the essence is to truly understand where your money is invested and why so that as your needs, wants, and investment options evolve, you can be confident you’re making intelligent choices. People are inherently emotional, which can negatively impact investing, but the truth is, sound and disciplined investing is not very sexy or exciting. It’s easy to get sucked into the “if you owned 1,000 shares of Apple at the beginning” tales. Those stories are the outliers, and you shouldn’t work toward your goals based on outliers. Trying to time markets and reacting to volatility can permanently impair capital.
Avoiding the most common money missteps through budgeting, goal setting, and strategy creation doesn’t happen all at once. It takes time, effort, and discipline. Just know you never have to go at it alone. We’re always here to help you find the right solutions to simplify your financial path.
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