If you’re like the majority of people, come the New Year, you feel almost a primal urge to do something about your finances.
It may be something simple like checking to see how your investments performed last year or perhaps something more ambitious like developing a comprehensive financial plan.
What exactly you do is not the point, but definitely do something, anything, just get started. What you’re looking to do is get into the habit, at least once a year, of investing some time in not only how your relationship with money is going individually as well as with your partner, but also in assessing the previous year from a your money and your life holistic perspective. Call it the year in review.
You’ll also want to invest some time in my favorite part of the New Year money ritual which is planning for the year ahead. That means everything from how much you’re planning to spend on travel and entertainment next year to planning for any major purchases.
As you plan not only for 2013 but for the long-term as well, here are five financial planning mistakes you’ll definitely want to avoid.
1) Taking Shortcuts
We humans seem to have an insatiable appetite for taking shortcuts. Taking financial shortcuts is a very tempting option, especially if you’re approaching retirement within ten years and discover you’re far off track from where you need to be financially. Taking shortcuts when we’re talking about your future financial security as well as peace of mind is high risk behavior.
One example of a risky shortcut that I see all too often is someone borrowing as much money as they can either from their credit cards, margin account or home equity loan and putting it all into the stock market in hopes of scoring big. It’s true that by using leverage you could score big, but the flip side is, you could also lose big as well.
I’d ask you to please consider how many times you’ve taken shortcuts in life only to later have them backfire. Do they ever work out? Yes, of course, but we’re not talking about a road trip where you can go back and start over again; we’re talking about your life, your future dreams and desires. Please, think twice before taking a financial shortcut.
2) Believing You Are Not Worthy of Abundance
Everyone has the creative ability to attract abundance into their life. We have a divine capacity to manifest and attract all that we need or desire. What gets in the way of this flow of energy is usually our thoughts and belief systems.
Believing that you are worthy to receive abundance requires believing in your self-worth regardless of your net-worth. It involves detaching your self-worth from your net-worth, It’s going on an internal ‘excavation mission’ to discover what’s causing you to feel unworthy. It means changing your thoughts and belief system, challenging all your old and outdated assumptions, and discovering, maybe for the first time in your adult life, the authentic, powerful you that is worthy of abundance.
3) Putting it all on Red or Black
Probably one of the most common mistakes people make, especially boomers, is concentrating all their investment dollars either into one or two stocks or one or two mutual funds or ETF’s. What usually precedes this maneuver is some form of a reality check or a huge loss in the stock market. Diversification gets thrown out the window, your risk factor goes through the roof. Welcome to the casino of life.
Again, it's very tempting to concentrate on one or two investments instead of applying the golden rule of building a well diversified investment portfolio. Yet never make the mistake of believing this is not high risk behavior. High risk, high reward is true, yet who wants to risk your future on red or black?
4) Flying Blind into Retirement
Too many boomers are flying blind into retirement, so if you are a boomer and you do nothing else next year, promise yourself that at a minimum you’ll hire a fee-only financial planner to provide you an independent and objective assessment of your current financial picture. Learn how on or off-track you are in terms of being able to reach your long-term goals.
From there, once you have the knowledge about your current state of personal finances, you can always decide to move forward with a financial plan or schedule it for a later date. That’s not the important part. What’s mighty important is that you know where you stand currently and the blinders have come off.
5) Not Having a Financial Plan
Yes, of course this is a self-serving point I’m making, but that said, how can you get to where you want to go if you don’t have a comprehensive financial plan that clearly maps out how you’re going to reach your short and long-range goals? Most of us are too busy dealing with the challenges of day-to-day life to think about next month, let alone retirement, but deal with it you must.
Make 2013 the year you decide to make a plan. Just imagine how good that will feel.
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