Poor financial decisions can significantly impact your quality of life. Planning for your financial future is important, but many people make mistakes during the planning process that prevent them from reaching their financial goals.
Here are three common mistakes made during the financial planning process, and some simple ways that you can avoid them in the future.
1. Waiting to make a financial plan.
While many people associate financial planning with retirement, it's never too early to begin planning for your financial future. Taking the time to meet with a certified financial planner while going through any major life change (college graduation, marriage, career change, etc.) can help ensure that you are prepared to tackle the next phase of your life.
Short-term financial planning can help you begin saving for your children's educations, while long-term planning can help you begin to prepare for retirement. An experienced financial planner will be able to help you create an investment strategy that will maximize profitability, but only if you get started with the planning process as quickly as possible.
2. Contributing too little to retirement accounts.
It may seem like a sacrifice to contribute a portion of your paycheck to your retirement accounts each pay period, but these sacrifices in the short-term can pay off when it's time for you to retire. In order to determine how much you should contribute to your 401k (or other retirement savings account), ask your employer if they match employee contributions.
Many employers will match contributions up to a certain percentage. If your employer offers this benefit, take advantage of it by contributing at least the maximum amount that your employer will match. This helps you double the size of your retirement account while only paying for half out of your own pocket.
3. Borrowing for consumer purchases.
Many of the luxury items that consumers want to have in their homes can be costly. If you want a new television, tablet, or cell phone, you may be tempted to charge these items to a credit card. While credit cards can be a valuable tool in helping you establish a good credit rating, they can quickly block your ability to meet other financial goals if not managed correctly.
Rather than borrowing on a credit card to make consumer purchases, limit your charges to amounts that can be paid in full each month. You may have to save for a few months in order to afford the latest gadgets, but your financial plan for the future will remain uncompromised.
Taking care to avoid some financial planning mistakes like waiting to meet with a professional planner, limiting retirement contributions, and racking up credit card debt will help you more effectively create a successful financial plan in the future.