5 Common Financial Blind Spots
By: Cameron Diehl, CFP®
Friends – This month I wanted to share some thoughts on what I like to call financial blind spots – areas that many of us overlook and fail to address for one reason or another, often leaving ourselves exposed to additional risks or missing out on valuable opportunities.
Below are five of the most common that I see and some thoughts on each.
- Not paying attention to cash flow – The simplest advice I could give is to spend less than you make and automatically put 15-20% of your income toward financial goals each month. This is overly simplistic, but the number of people who don’t account for the first part is pretty surprising. Knowing how much you have coming in and where it’s going, even at a high level, is essential and almost all other elements of your financial success are dependent on it.
- Not insuring your income – For many of us, our most valuable asset is our future earning potential. For example, a 35-year-old working 30 more years making $100,000 has future earnings worth $3,000,000 – likely their biggest asset by far. Yet it is extremely common to find workers who have not insured this asset in the form of long-term disability insurance. The impact of a lost income on most families would be devastating and the likelihood is much higher than many realize, with the probability of becoming disabled before retirement age sitting around 27% by one estimate, 4x more likely than dying before the same age (Source: Social Security Administration).
- Not planning for taxes – I’ve touched on this many times in previous newsletters, but the real measure of any financial plan is how much you keep at the end, and taxes are one of the biggest drags on this result. Taxes can be very complex, but thoughtful planning and strategies can make a huge difference here, and, in my opinion, are one of the most important things for investors to focus on.
- Not managing catastrophic risks – In addition to disability, which I mentioned above, there are any number of major risks that can completely derail even the best laid plans. Things like a major health crisis, the need for long-term care for you or a family member, an unexpected death or even a market crash as you near a major goal can all have devastating effects in the unfortunate event they come to pass. Fortunately there are tools and strategies available that can help mitigate these effects if properly planned for in advance.
- Thinking they’ll catch up later / procrastinating – People have all kinds of reasons for not tackling their finances – they’re too busy, they plan to make so much money down the road that saving now won’t matter, they don’t have enough money to start or any of a hundred other excuses. To me this is possibly the most dangerous line of thinking because the most precious commodity for any investor is time. Taking advantage of compounding over long periods, even starting with modest steps, is so important and every day someone waits to start is a lost opportunity.
In the end, these issues all highlight the importance of going through a deliberate planning and review process to ensure complete clarity around where you are, where you’re going and what could prevent you from getting there - and the value of having a good source of trusted advice to help you manage it all.
As always, if you would like to discuss anything covered above, please don’t hesitate to call or email me. I’m always happy to help.
Disclosure: Any opinions are those of Cameron Diehl and not necessarily those of Raymond James. Expressions of opinions are as of this date and are subject to change without notice. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
