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Common mistakes - Money management

The most successful people manage their finances, while always keeping in mind the following common pitfalls and mistakes.
 

Not having a plan

Not having any goals for your future

Failing to use the magic of time for your benefit

Failing to realize that time can also be an enemy

Believing investing is like a race

Thinking "I can do it all by myself"

Being inflexible - locking-in
 
 


#1
Not having a plan

When taking a trip, how many people do you suspect jump into their car, knowing the trip will take many years, without making any preparations or planning, or without at least taking a map? Not many. Your financial plan should be no different than the trip. If people have no real plan in place or a clear understanding of what they wish to achieve, nor any idea of the outcome or route they are going to take, then it is no surprise that they would get lost or misdirected along the way.
To be successful at managing your finances, you need to develop a plan that looks at both your short and long term needs and obligations, remembering that planning doesn't have to be overly complicated. A simple set of objectives is a great place to start.


#2
Not having any goals for their future

One of the major reasons people don't plan in the first place is that they are unsure of, or haven't determined what their goals and objectives are for the future. There are the obvious goals that we set throughout life, such as saving for a car, a house or paying for your child's education, up to your own retirement date or that of your spouse. Many people recognize them, but without articulating their objectives and subsequently developing a plan to achieve them, they fall short of reaching their dreams of financial security.


#3
Failing to use the magic of time for their benefit

Time is probably your best friend when it comes to financial planning. The Rule of 72 is a commonplace calculation that is useful for future financial planning as it can help to determine the number of doubling periods that you have left in your working life. By taking the interest rate of your investments into account, the rule of 72 can calculate how many years it will take for your money to double. Simply put, take 72 and divide it by an interest rate factor, for example with a 10% interest rate your money will double in 7.2 years. Keep in mind that the earlier you start saving, the more doubling periods you will have.


#4
Failing to realize that time can also be an enemy

Just as the time factor can be beneficial in financial planning, it can also become an enemy for some. Procrastination is the biggest thief of time. Using the Rule of 72 formula, take a moment and think about how much a dollar saved today will be worth in 30 years by considering the number of doubling periods it has. If procrastination steals 10 years, your doubling time will be greatly affected and you will have given up a considerable amount of money that could be collecting interest. In terms of choosing investments, procrastinating can result in you choosing higher risk investments since the amount of time that you have allowed for consistent long term growth has been reduced. We have only so many hours to earn a living in a life time and the closer you get to retirement, the more decisions you have to make on how you are going to fund it. Always keep in mind that regret is a poor man's second prize.


#5
Believing investing is like a race

As an investment philosophy, chasing the "hottest" or the "latest" investment and always trying to be in front may not be your best option. The key is to determine if an investment is appropriate for your portfolio and whether or not it contributes towards your goals and financial plan. This may mean that you need a plan to even know if you are.


#6
Thinking "I can do it all by myself"

It is not misleading to think that you can do everything by yourself, but if you are not doing it all day, every day, year in and year out like a professional does, then how well are you going to manage? Here are some things to consider: Would you do the "closing deal" on a house without a lawyer? How about a spending a couple of years at school learning how to fix your own teeth? Too many people try to do everything by themselves because they think they should be able to, or they don't want to pay the fees that professionals may charge. Financial planning is no different so don't be foolish. Know your limitations and get help when you need it.


#7
Being inflexible - locking-in

In the realm of financial planning, the ability to remain flexible is very important. Too many people have made decisions that they cannot get out of, or if they can it is still very expensive to do so if they change their minds. Remembering the importance of flexibility when drawing up a financial plan, your goal and objectives will change over time. Regardless of the investment you choose, give yourself the option to change your mind on some things.

Notice:- Fiscal Agents Financial Services Group are not engaged in rendering tax, accounting or legal professional services or advice. The comments in this Executive Notes are not intended, nor should they be relied upon, to replace specific professional advice. Before acting on material contained herein, readers should seek advice that is appropriate to their personal circumstances from a professional advisor.






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