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  • James Veal

5 Money Mistakes and How to Avoid Them

Updated: Dec 27, 2020

Have you ever heard someone say that experience is the best teacher? I've heard it many times growing up and believed it. However, I would like to take a slightly different path. Experience isn’t the best teacher. No! Someone else’s experience is.

Learn from other peoples’ mistakes and you can save yourself a lot of grief.

In that spirit, I’d like to review the 5 biggest financial mistakes that I’ve seen people make and offer you ways to avoid them:

1. Living Paycheck to Paycheck

Too many Americans don’t have enough money in savings. According to CareerBuilder, nearly 80% of Americans live paycheck to paycheck to make ends meet. Don't you dare think that this applies only to those who are in low-wage positions. Nearly one in ten workers who earn over $100,000 or more are in the same boat.

As I write this, the world is under a COVID-19 attack and unfortunately the U.S. is in dire states as more than 90,000 citizens tests positive for the coronavirus every day. In the wake of many businesses shutting down, massive company layoffs, children at home digitally-schooled, we are treated to a heavy dose of people running out of money. Unemployment benefits won't last forever and the second stimulus deal isn't in sight to soften some these financial blows. I don't want to imagine what might happen during an extended period of the COVID-19 pandemic.

Unfortunately, this is a lesson we've should of learned a long time ago. Never wait to start socking money away. Pay yourself first by stashing away funds after each pay period. I would recommend at least three to six months of emergency funds. And I’d lean towards six months. A financial house that is in disorder is among the leading causes of stress. This pandemic is an eye-opener as to how important it is to have money saved in case of unexpected storms.

2. You Can’t Start Too Early Saving for Retirement

I run into so many young employees and youngsters that say, “I’m too young to worry about retirement.” They are severely less enthusiastic about it. I get it! There are many other things they are focused on. Only if they knew how important it would had been if they signed up for their company’s 401(k) at the start. The seed would had been planted and possibly hundreds of thousand dollars more built up in their account for their retirement.

I have a friend who is in his late 40s. He can probably retire comfortably by 60. Yet, he regrets waiting until 30 to begin putting money into a retirement account. What if he had started in his early 20s? The same holds true for another colleague who is 52. She’s semi-retired today but wishes she had enrolled in her company plan before she turned 26. For most folks, that would be a minor regret.

We all know the reason why earlier is better-it's the power of compounding. Those deposits made in our 20s will have a lifetime to grow. Don’t waste the chance to increase your savings now. You’ll never get it back.

3. Do You Know Where Your Money Goes?

Without a spending plan that tracks expenditures, you should wonder why there is hardly any money left at the end of the month. Most people prefer it this way because they do not want to see the reality of why and what they spend their money on.

Some people can tell you how much they spend on gasoline every month. But they can’t tell you how much money they saved. That may sound extreme, but that’s just the way it is these days. To fight against that thought process, there are various guidelines you may use when setting up a plan.

Focus on the essentials–rent, mortgage, food, utilities. Leave room for your financial goals–repaying debts, retirement, emergency funds. And have some fun by budgeting for lifestyle choices–recreation, hobbies, vacation, and so forth.

If you are unsure how you might get started, seek a professional advisor who will help you develop a spending plan that will help get your financial house in order.

4. Credit Cards and Personal Debt

Total credit card debt in the U.S. is at its highest point ever, surpassing $1 trillion according to the Federal Reserve. If you add in mortgages, home equity lines of credit, auto loans, student loans and other household debt, that figure spikes up to over $14.3 trillion. I'm not trying to be negative but these are scary numbers. Many people are borrowing money to maintain a certain lifestyle. There are families whose monthly expenses exceeds their income. Can you imagine how quickly that will put families in financial graves that they'll be unable to dig out.

If you feel like you’re buried under a mountain of credit card debt, an auto payment, student loans, and personal debt, you’ll need a plan of attack. Talk with your advisor. It will be the best financial decision you ever made. Just knowing there’s a roadmap to debt-free living will be liberating.

5. Those Luxury Purchases

That new car sure is fast, the ride is exceedingly quiet, and it has all the latest gadgets. But the new car smell will eventually wear off. The payments, however, won’t. When looking for a new television, do you actually need an 85 inch? What does it cost for an extended warranty? Wow, that Rolex watch looks incredible but do you really need it?

If you can answer these questions and the payments comfortably fit into your budget, you’ll sidestep any surprises that could crowd out your 401(k) company contributions, building your emergency funds and financial goals.

Let me emphasize again that it is my job to assist you! If you have any questions or would like to discuss any matters, please feel free to give me a call.

As always, I’m honored and humbled that you have given me the opportunity to serve as your financial advisor.

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