5 Mistakes That Can Torpedo Your Finances
The investment world comes with such a maze of options and pitfalls that it’s little wonder people routinely become entangled in monumental and costly mistakes. Tax implications lurk behind nearly every move. Investment risks vary from negligible to moderate to great.
And it’s not just a matter of making the right financial decisions. It’s making them at the right time, says Stephen F. Lovell, a financial professional and president of Lovell Wealth Legacy (www.lovellwealthlegacy.com).
“Doing the right thing at the wrong time makes it the wrong thing to do,” Lovell says.
April is National Financial Literacy Month, a good time to take stock of where you are money wise and explore how you can improve.
Lovell says that by asking the right questions or taking the right precautions, you can sidestep these common financial mistakes:
• Becoming infatuated with the latest hot investment. It’s easy to be seduced by whatever is creating the greatest buzz. After all, you don’t want to miss out while everyone else is reaping rewards. Resist the temptation, Lovell says. Momentary sizzle doesn’t guarantee long-term success. “Hot investments are like ice cubes,” he says. “They’re solid when you get them, but they soon liquefy and when you liquidate, your gains trickle away.”
• Neglecting to consider all the options. Savvy investors use different kinds of investments to satisfy different financial needs, Lovell says. Don’t neglect the full array of available investments. “Relying only on stocks, bonds and cash puts you at a disadvantage,” he says.
• Failing to account for investment costs and tax ramifications. Investing isn’t free. Usually, there is some sort of fee attached and those fees can gnaw away at your returns. Taxes can, too. Before long, what looked to be a nice return can devolve into a minimal, break-even or losing proposition. “Don’t diminish the importance of investment costs, because they diminish your wealth,” Lovell says. “You need to take time to learn about the costs that are applied to each type of investment.”
• Spending all that comes in. Too many people let their income level set the ceiling on how much they spend each month, Lovell says. Such spendthrift habits leave people living paycheck to paycheck and when the inevitable emergency arises – a car repair, a medical bill – the bank account is short and they need to take on debt just to survive until the next payday.
Your budget, not your income, should dictate spending limits, Lovell says. If you don’t have a monthly budget – and many people don’t – now is a good time to create one, he says. Just make sure the amount you budget to spend is less than your net income, and then stick to your budget. Otherwise, you’ll soon creep into the realm of deficit spending, a place best avoided.