Many actions we take in life are detrimental – but we do them anyway, knowingly or unknowingly.
Like binge watching netflix till the wee hours. Like indulging in that lava cake after a buffet lunch. Like chugging pint after pint of Stella Artois long after you’ve had your buzz.
Most of the consequences of these actions can be reversed – by catching up on sleep, by putting in extra hours in the gym, or just by avoiding Clarke Quay altogether.
When it comes to financial planning though, the consequences of mistakes are far more severe and long lasting – so lets take a close look at them.
Before it is too late.
Sin 1: Taking risk before hedging risk
In less cheemology terms, we invest for returns before we insure for losses.
Investing naturally draws more attention because it entertains the notion of beautiful returns that allow us to ride off into the sunset. Whereas insurance is that god-awful party pooper that reminds us that we are oh so vulnerable. Easy to see why one is a lot more popular than the other.
Still, the proper sequence of financial planning should be:
First ensure that you will never become poor, then proceed to chase your riches.
And no one said insurance needs to be costly. Point out who that person is, and we will arrange for a “visit”.
Sin 2: Not having a plan
The most popular (faux) financial plan that people have out there today, consists of 4 magic words:
I wanna be rich.
Sadly, that ain’t a plan.
A proper plan needs effort and (gasp!) planning. A great way to start is by asking where do you want to be, financially, in the next decade or two. Are you going to have your own home? Do you intend to be debt free? Do you want to start a business? By what age do you want to retire?
The more questions you ask, the more it shapes your financial direction- and how much risk you should take.
And since we like to sound more learned than we really are by sprinkling in some quotes, here’s one that makes us sound positively scholarly:
“Make no little plans; they have no magic to stir men’s blood. Make big plans, aim high in hope and work.”– Daniel H. Burnham
Speaking of plans, here is a great tool to help you calculate what your insurance needs are (its free, and FANTASTIC):
Sin 3: Assuming your plan doesn’t change
So you have a plan. Great.
But life is what happens to you while you are busy making other plans. (Pretty sure we came up with that quote first, but it was stolen by John Lennon while we weren’t looking)
Markets may crash. Industries can undergo upheaval. Your spouse could decide to venture into vertical farming – along with his life savings. You might be expecting quintuplets. (One in 800,000 chance, so never say never)
When the basic assumptions of your plan are changed, sometimes drastically, be prepared to change your financial course along with it.
You wouldn’t want to navigate with an outdated map, so don’t rely on an outdated plan to deliver you to financial nirvana.
Sin 4: Procrastinating. Forever.
OK, we get it: It’s nice where you are now. You’ve got years to go. Your career is taking off, and it’s natural to just… wait for a better time.
Nobody but the pesky financial planners really want to think about retirement at all. But when it comes to saving for it, there’s no bigger advantage than starting early.
Saving for the future can seem like a huge chore. “After my bonus.” “When I am promoted to VP.” “Let me pay off my housing loan first.” Does this internal dialogue sound familiar?
Time has a funny way of flying by, and all too soon it is time to think about that R word. That is where the panic sets in.
Rather than Regret (as opposed to Retire), the best realization that you can come to is: Putting away 5% today will be a lot less painful than putting away 50% later.
Sin 5: Not taking ownership of your decisions
After you have a financial planner/consultant helping you to execute your plan, who is really responsible for it?
If you are pointing to the professional, then you are pointing at the wrong person.
Analogy: After a doctor treats you for an illness, you rely on his advice to restore you to the pink of health. But the onus of eating right, sleeping well, and managing stress lies on you, not her.
Regardless of the recommendations made, it is up to you to understand the risks involved, and be clear on the purpose of your investments. Our good friend Warren (Buffett) advises anyone to steer clear of investments that they are unclear of, and we think the world’s most successful value investor probably knows something we don’t.
In brief, take responsibility for your financial future. In working with a financial advisor, it is important that you trust that person. But it is just as important that you verify the information and make sure it fits within your financial objectives.
That concludes our top 5 Financial Planning sins to avoid. Know a few more that we should also mention? Share them with us in the comments section below!
www.ClearlySurely.com aims to eradicate the knowledge gap between consumers and Life Insurance. Our Vision is that one day, every Man, Woman, and Child will be properly insured.