“All I had to do was turn in the form to my HR department.”
(Via Forbes.com / Jeff Rose) — It was a simple task but one that was shoved to the side to deal with most important things throw at us.
The form was a 401k enrollment firm and I my client was left wondering what could have been had she enrolled when it first became available to her.
We’ve all faced similar decisions.
Some we get right. Some we are left wondering the possibilities of what could and should have been.
Let’s take a look at some financial decisions that you’d kick yourself for in 10 years. Don’t do them!
1. Starting your budget way too late
I’ll be first to admit that I hate budgeting. Nonetheless, my wife and I both recognize the importance of having a budget.
Most people view budgeting as not being able to spend money on the things that you want to but the reality is sitting down and making out a budget is a freeing exercise. It frees you because you can recognize the areas of your life of where you are wasting money on things that aren’t important to you.
An easy example could be spending money on a cell phone package when you might not need all of the minutes with the data that it provides. Could you put that extra money toward a vacation fund or help pay for your kid’s college education? Using that money for something that is more desirable instead of an expense that you could care less about will put your money to better use.
If you have been putting off beginning to budget, it’s time to start. Forget that you should have started yesterday, start today and discover the amazing benefits of budgeting. Some of those benefits will extend to other areas of your life besides your finances . . . .
For example, you might find that having a budget improves your relationship with your partner. If you’re married, you probably know how difficult money fights can be to overcome. You know what? A budget helps reduce those money fights because you’re making an agreement before you spend the money. No surprises, no fights.
2. Not paying off your credit cards each month
This was something that my father struggled with and I initially struggled with when I was graduating college. I was picking up credit cards left and right and kept telling myself that I could just make a payment later.
Well, for me, later became never and my credit card debt started piling on and suffocating me. I eventually figured it out only after paying hundreds of dollars of unnecessary interest. Unfortunately, a lot of people don’t take the time to figure out how much interest are paying. However, if they found out, they’d probably want to pay off their credit cards pretty quickly.
Make an effort to pay off your credit cards quickly. The beauty of doing this is that it will ensure you keep more money in your wallet instead of giving it over to some large credit card company.
Some people can’t control their credit card spending. If that’s you, it’s best to stay away from credit cards altogether. While you might be missing out on the rewards, you’ll be better off.
3. Blindly buying a financial product without investigating first
It amazes me that with the ability to do a quick search online that many investors are still putting their money into investment products and they don’t understand how they work. I talked to dozens of investors who have invested a large chunk of their life savings into something that they couldn’t explain to a friend or neighbor.
Do your homework, get a second opinion, and make sure that you understand how this investment works. How much is it going to cost you? Are there any surrender charges? These are the types of answers that you need to know.
I know a woman who paid over $3,500 in variable annuity fees and didn’t even know it. Don’t think it can’t happen to you.
If someone is selling you an investment or an insurance product, make sure that you do your homework before you invest your money.
4. Putting your emergency fund on the back burner
The inevitable will happen. And that’s why emergency funds exist. The thing is, everyone has a big financial emergency at some point. That’s why you need to prepare.
It’s a fantastic idea to have many months worth of expenses in your fund. Some people have three months, others have 12. I think you should have eight months, but choose an amount that makes sense for your situation.
For example, if you’re single and have one job, you will probably want more money in your emergency fund. If you’re married and both you and your spouse are employed, you can probably get away with less money in your emergency fund.
There are a number of places to put your emergency fund money. Remember, you should only place your emergency fund money somewhere that you can retrieve it pretty quickly without much risk to your capital.
One such place is an online savings account. There are a number of great online savings accounts that deliver quite a bit more interest than you’d find at a physical bank or credit union. Plus, there are usually no penalties associated with taking money out of a standard online savings account (if there are, look elsewhere).
That’s just one idea of where you can keep your emergency fund money. I recommend that you read The 11 Best Short-Term Investments For Your Money at GoodFinancialCents.com to learn about some more places you can keep your emergency fund money. But don’t just stop there – act on what you learn and get your emergency fund moving in the right direction!
Remember: If you lose track of your emergency fund and unknowingly deplete it, you might find yourself in a world of financial hurt. Make sure to replenish it!
5. Buying a brand new car that you can’t afford
Vehicles are important for many, but remember that they can quickly turn into a discretionary purchase. Don’t buy all the bells and whistles when you can’t afford them.
A car payment will suck the life out of your retirement goals. It might not seem like that in the beginning, but eventually it will sink home.
Listen, I know what it’s like to drive around an old car. I used to have a ’98 Chevy Lumina Sedan that was something a grandmother would drive. Now, I probably could have purchased something fancier or sold the car before I did, but instead, I decided that not having a car payment was awesome. But I certainly didn’t always think that way.
I remember my professor in a finance class pointing out that he would take a bunch of vacations whenever he wanted to because he didn’t have a car payment. And you know what? He was right. That one little point from my finance professor made a difference in my life, and it taught me the value of owning stuff outright. You can learn this lesson too and see tremendous results.
And please, please don’t tell me that you’re thinking about buying a brand new car for your kid in college because they need “reliable transportation.” There are plenty of reliable, used cars available for purchase that are much more affordable than brand new cars.
And you know what the differences are between a car that’s three to five years old and a brand new car? There aren’t many in most cases. So why spend the extra money?
6. Trying to be a DIY investor when you have no clue what you’re doing
Would you attempt an open heart surgery after doing some quick research online and digesting a view YouTube videos? Then why would you consider investing by yourself if you haven’t sought out the help of a professional?
I think the biggest harm in this comes when an older couple is retired and the husband has been mostly in charge of the couple’s investments. All too often, the wife is clueless in what they’re actually invested into and if something unexpectedly happens to the husband, she doesn’t even know where to begin.
Hire a financial advisor who can meet with the both of you. Then, the wife has someone to rely on in case something happens and is super important.
Financial advisors can also save you a bunch of time, money and frustration ensuring you don’t make some bone headed decision with your money. Don’t go without this valuable service.
7. Viewing important insurance polices as being lame
If you passed away right now, how sound financially would your family be? If not, you need life insurance.
And, that’s just one example. There are a number of important insurance policies you shouldn’t delay in putting in place: disability insurance, perhaps long-term care insurance if you’re over 55 years old, and perhaps umbrella insurance.
“I’ll get around to doing it.” Those were the tragic last words of a husband that left behind his wife and two kids.
What he was “getting around to doing” was purchasing a much needed life insurance policy. He actually did get around to doing it, but failed to sign the paperwork and delayed sending in the first premium check. Unfortunately, that meant the policy was not in force.
In any other situation that wouldn’t have been a big deal, but in this case, the husband took his motorcycle out for a weekend spin and was involved in a collision that left his spouse a widow. What could have been a financial relief (a life insurance policy) is now added stress and worry to a grieving widow (the absence of funds when the family needs it most). She also has to deal with the fact that she lost her husband and the father of her two kids.
Don’t ignore important insurance policies that will protect you from financial ruin.
8. Treating your retirement like a distant second cousin
One of the first meetings I had as a financial advisor was when I was meeting with a couple that was almost two and a half times my age. They were hoping to retire soon and they sought me out to be their retirement hope.
When I started poring through their financial documents, I quickly learned that retiring early wasn’t even close to being an option for them. In fact, retiring at all might not be a possibility. They put off saving and planning for retirement way too long.
They had little savings and no pension and the only thing they could really fall back on was Social Security. Note: their savings was roughly about $60,000. Don’t procrastinate any longer. Even if you get started investing only $100 a month, do it.
Saving for retirement is critical. If you’re trusting Social Security to be your sole source of income, think again. You won’t be able to maintain the lifestyle you desire in retirement with Social Security alone. If you would be able to, congratulations, you’re living pretty frugally!
9. Neglecting important money conversations with your spouse
Want to crash and burn financially? Try taking on all of your financial goals without getting on the same page of your spouse.
Marriage means you do life together as one unit. All decisions, especially money decisions, should be discussed and agreed up.
Why not align your financial goals? Talk through your differences, learn to compromise, and get on the same page together. It will be worth it – especially down the road.
10. Being blind to your recurring expenses
Recurring expenses can eat a hole in your wallet. And you know what? Many people don’t even know that’s happening to them.
Take a look at the recurring expenses – large and small – and determine which ones you absolutely need and which ones look more like discretionary splurges. It’s okay to splurge every once in a while, but don’t go overboard.
When you are working on your budget, many of these expenses might come to your mind. Don’t just forget about them – do something about them! If you have a high cable bill, see if you can get a discount. If you have a gym membership that you’re not using, consider exercising at home instead. There are many ways to save money on recurring expenses.
Follow this advice, and you’ll be much less likely to kick yourself in the future. Aim for no regrets!
This thought piece is courtesy of Jeff Rose and Forbes.com / Feb 16, 2016