6 Money Mi$take$ to Avoid
The path to financial stability is a tricky one. Here are six of the most common financial mistakes and why you should avoid them.
- Not having and emergency fund
Ideally, an emergency fund should cover three to six month of living expenses so you have a cushion for any unexpected / unforeseen events such as medical issue or a loss of income.
It’s wise to have your emergency fund in a savings account, not an investment account, so it can be easily accessed and you don’t have to worry losing purchasing power in the event of a market downturn.
- Being underinsured
Many people overlook insurance because they think they will never use it. However, the consequences of being underinsured are significant. One accident or medical emergency can send your finances into a tailspin.
Some of types of insurance that could be considered are:
- Term life insurance – replaces your income for a spouse or children in case of death.
- Health insurance – helps to cover any major medical bills that could wreak havoc on your finances.
- Disability insurance – helps you maintain a standard of living should you be injured or unable to work.
- Renters or homeowners insurance – so you can replace your belongings in case of theft or damage from catastrophes.
- Minimum Payments on high-interest debt
If you have any high-interest debt, you should always make it a priority to pay them down as quickly as possible. It may make sense to make lower payments on lower-interest debt until you get rid of high-interest debt. The faster you can pay those off the faster you can put that money towards other financial goals.
- Buying too much house
Buying a house is both exciting and nerve racking! The temptation to stretch your budget and take on a larger mortgage is high. You need to make sure that your overall housing budget includes room for unexpected repairs, maintenance, and potential changes to your future income.
Wealth creation through homeownership is not guaranteed. What is guaranteed is that you will spend more on your house than just your mortgage.
- Not saving for retirement
For many, retirement seems far away. But every dollar you save now you will give time to possibly accumulate compound interest.
If you work for an employer with a retirement plan that includes a matching contribution, save at least enough to receive the employers match. If your job doesn’t offer a retirement plan with a matching contribution, consider setting up an IRA that you can make automatic contributions to from your checking account every pay period.
If you aren’t maxing out the contributions you can make, slowly increase what you save with every raise you receive.
- Saving for your children before yourself
Every parent puts their children’s needs before their own. However, saving for your children’s college education before you save for retirement is a grave mistake.
There are many options to pay for college, scholarships, grants, a less expensive school, you name it. But, there is no way to pay for retirement other than saving for it yourself.
The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Frank Calderone and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Insurance policies have exclusions and/or limitations. The cost and availability can depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of insurance. Guarantees are based on the claims paying ability of the insurance company. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision.