1. Failure to plan for retirement
Identifying how much money you need to save for retirement is not an easy task. Often individuals are confused about what investments to make and do not take time to set basic retirement saving goals, resulting in an underdeveloped action plan. Working with a financial advisor can help resolve this problem! Financial planning is much more than just numbers and investments. It’s an iterative process that helps you establish a vision, define your goals, chart your progress, and stay on track. No matter what stage you are in life, working with a trusted team can help you make the right choices around every part of your financial life and beyond.
2. Investing in depreciating assets
Borrowing money to purchase assets like cars, boats and RVs is a common trap professionals can slip into. Nearly all vehicles will depreciate as it is used, and if you have a loan, you may ultimately pay more than the vehicle’s cost through interest. Similar to a vehicle, a house can also be a depreciating (or appreciating) asset. Many professionals purchase homes with the intent of ‘flipping,’ renovating, and selling for profit. Although this may seem appealing instead of renting, individuals need to examine tax, maintenance, repair, and various other hidden expenses.
3. Failing to invest
If you do not invest your money in a way that generates a profit, it will lose value due to inflation. Start by contributing a portion of your earnings to your employer’s retirement plan, such as a 401(k) or 403(b), especially if they match your contributions. You can also open an Individual Retirement Account (IRA), a tax-advantaged investment account used for retirement savings. Investing in mutual funds or Exchange Traded Funds (ETF’s) has traditionally yielded higher returns. Here at Strategic Financial Services, we believe that ETFs are a strong investment vehicle as they yield a strong return and provide diversification.
4. Not monitoring your expenses
Although this may sound more like a reprimand than advice, it is an important part of managing your personal finances. As you advance within your career and your earnings increase, it is important to have a strong understanding of your spending. While you can use a portion of these new earnings to change your lifestyle, you should also concentrate on paying off student loans, saving for a down payment, and investing in retirement accounts. Make sure you pay off consumer debt first, such as credit cards with high-interest rates.
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