Are you confident in your ability to make sound financial decisions? According to the 2020 Consumer Financial Literacy Survey, the majority of Americans (57%) are confident in their own personal finance knowledge. (1) Meanwhile, another study found that 54% of Americans are struggling with at least one aspect of their financial lives. (2)
This discrepancy may indicate that our confidence in personal finance decisions is unfounded. So, are you making major financial mistakes without realizing it?
Having been in the financial services industry for more than 3 decades, I’ve unfortunately seen many hardworking people unknowingly make financial mistakes that cause setbacks or even jeopardize their financial futures. Below are the 6 most common mistakes I see—mistakes that are 100% avoidable.
1. Not Seeking Professional Help
One of the biggest mistakes you can make is not seeking professional help. There is so much content out there on how to save, how to invest, and how to allocate your money. But educating yourself can oftentimes lead to mistakes such as concentrated positions, undesired tax consequences, inaccurate beneficiaries, asset titling issues, and anxiety due to the uncontrollable market (just to name a few).
Working with a professional who understands your unique situation can solve this problem. No finance blog or book series can understand your goals, needs, and money mindset. A financial advisor can. A financial advisor can provide customized recommendations to ensure your portfolio is diversified according to your risk tolerance, your tax burden is strategically reduced, and your records are optimally organized.
2. Having Unrealistic Expectations
Wealth accumulation takes time, discipline, and sacrifice. Unfortunately, there is no quick and easy path to increasing your net worth, and many people find it difficult to reconcile their individual spending habits with their goals for the future. This hinders their long-term ability to live a comfortable life.
A financial advisor can help you set realistic expectations, and even hold you accountable to meet those expectations when you’re tempted to veer off the path.
3. Putting Off Savings Plans
Many people do not start saving early enough or with targeted goals and objectives in mind.
Understanding and appreciating the power of compounding can make all the difference.
For example, if you start saving $500 a month for 20 years in a non-interest bearing account, you would have $120,000 at the end of the savings period. If your savings earns monthly compounded interest, at an example rate of 5%, your balance would grow to just over $205,500. However, if you put off saving and only saved for 10 years with a 5% return rate, your balance would only grow to just over $77,600.
That’s a difference of almost $128,000 if you had started saving 10 years earlier. The power of compounding cannot be underestimated, and the earlier you start working toward a financial goal, the easier it is to reach it.
4. Living Beyond Your Means
Today’s generation has grown up using credit cards to cover daily expenses. Instead of paying this debt off each month, they carry a balance and the balance often increases month over month; being in debt becomes “normal,” especially as this is not limited to credit card debt alone.
Living in debt is massively expensive! According to WalletHub credit card debt study, (3) the average household’s credit card balance is $7,938. The average APR on a credit card in 2020 is just under 16%, (4) meaning that an unpaid balance of $7,938 will cost an additional $1,270 per year. It’s much better to live frugally and save for big purchases before putting something on a credit card.
There are several strategies for managing credit card debt. To name a few, make a budget and stick to it, build an emergency fund, and improve your credit.
5. Understanding Retirement Savings
Unfortunately, employment benefits today are not the same as they were 30 years ago. Most defined benefit plans such as pensions are a thing of the past. To make up the difference, people need to set aside at least 10% (or more) of every gross dollar they earn, starting with their first job, to ultimately achieve a comfortable retirement.
As we said above, compounding interest means that time is your biggest asset. And when the burden is on you to save more for retirement, the magic of compounding interest can make all the difference.
6. Setting Static Goals
People often start with a set of financial goals, but as life happens, goals and plans are not adjusted often enough to reflect life changes. Perhaps you have reached the financial goals you set in your early wealth-building stages, but have forgotten to set new goals to work toward in retirement.
Or maybe you experienced an unexpected life event which temporarily made your goals unachievable. Instead of getting discouraged, it’s important to revise your goals as life happens so that you’re always working toward betterment, even if the original goals you set are no longer feasible.
Plus, that’s not to say those goals won’t become feasible again in the future. You’ll thank yourself later if you were still working toward a revised goal in the meantime.
We Can Help You Make Financial Decisions Confidently
At CTA Wealth Advisors, Inc., we will partner with you to help you avoid these 6 common mistakes and more. We offer tailored advice to our clients that is ongoing throughout your lifetime.
We would love to answer your questions and address your concerns about your money, your goals, asset allocation, risk, what the markets are doing, or anything that’s causing you financial worry.
Please feel free to call us anytime at (818) 841-1746 or email firstname.lastname@example.org to schedule a consultation.
Cameron Thornton is founder, president, and CEO at CTA Wealth Advisors, a fee-only Registered Investment Advisory firm in Burbank, California. Cameron has been a financial advisor for 38 years after a career in the United States Navy and as a manager with the Lockheed California Company. Cameron graduated from the University of Southern California with a bachelor’s degree in psychology and earned an MBA from the University of La Verne. He is also a Certified Financial Planner™ (CFP®) practitioner. He wrote the novelWhat Matters with Rod Zeeb as a result of his passion for helping people secure multi-generational wealth and unity for their families. Outside of work, Cam gives of his time, talent, and treasure to Mater Dolorosa Passionist Retreat Center, where he is Chairman of their Development Task Force. Cam and his wife, Jane, are currently parishioners at St. Bede the Venerable Church in La Canada. They have a life-long history of serving in numerous areas of parish ministry since their marriage in 1978. In his free time, Cam enjoys reading, traveling, and improving his golf game with Jane. They live in Glendale, California, and have three adult children, who also reside in Southern California. In 2019, Cam and Jane were blessed to become grandparents when two beautiful grandsons were welcomed into the Thornton family! Learn more about Cameron by connecting with him on LinkedIn.
- A diversified portfolio does not assure a profit or protect against loss in a declining market.
- For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
- All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.