Some people look for a financial silver bullet and will often take unnecessary risks to achieve their goals whilst others are too conservative and ignore professional growth strategies that over time will substantially increase their wealth. Here are my top ten money philosophies and money mistakes that might be stopping you reaching your financial goals.
1. Not having clear goals
The old cliché rings true; if you don’t know where you’re going how can you possibly know how to get there. Have you and your partner discussed and agreed your medium and long term goals (I like a 7 year goal plan as a long term goal) and written them down so you can track your progress?
2. No defined plan as to how to achieve your goals
This sounds so simple but it’s often the simple things that are easiest to overlook. Having agreed and set your goals, you should meet with a licensed financial planner to develop a strategy that will achieve them.
There’s little point embarking on a random investment plan if in say 7 years it still won’t have achieved your goals. The need to match the strategy to your goals is so important. What the strategy needs to be will be a function on many things such as age, health, income, children, dependent elders and potential inheritances.
3. No proper application of risk vs reward
This will be forefront in your financial advisors mind. If you are nearing retirement generally a more conservative investment plan is appropriate where you don’t have the time to ride out investment peaks and troughs, whereas a younger person can and generally should take a more growth orientated path as they have the time on their side.
4. Spend, spend, spend!
Getting the right balance of spending and living for today or investing for the future is so important. The future comes around far quicker than we think and not allowing for that in our spending habits can cause significant problems down the track. Have a plan to where possible set aside some income for saving and investment.
5. Not having personal budget
This flows from the last point. The best way to track how you’re going and to achieve the right balance of today versus tomorrow is to have a personal budget. Sounds boring but it really is the most effective way of managing your money.
6. Wrong role, wrong line of work = wrong attitude
Are you stuck is a role or even an industry that doesn’t inspire you? Every job has its moments, but you need to have a passion for what you do. If you don’t, inevitably your attitude and passion will not quite be there and you will not advance as quickly as you might otherwise do. All this adds up to reduced financial returns in the long run.
Sometimes you may have to be prepared to go backwards for a time to move forward. Be careful though, industry hopping trying to “find yourself” is not the answer either.
7. Not taking advantage of superannuation
Superannuation remains one of the lowest tax investment vehicles available, and while yes money in super is generally locked away until retirement, that in itself can be a positive forced saving decision. Remember you can (with some exceptions) invest in most of the same things in super as you can in your own name, so it is what you invest in rather than superannuation itself that will drive investment success, but usually at a lower rate of tax.
8. Not pressure testing your plan and updating it
Our lives are constantly changing; our health, relationships, children and employment to name a few. Our goals and associated financial plan should be tested from time to time be sure that it is still relevant and “pressure tested” to see how it will stand up to changes in rates of return on investments.
In any event, any major life change should see you revisit your financial plan.
9. Not protecting what you have or your ability to generate wealth
I have in an earlier article covered off the need to protect the assets that you already own. This can be done by ensuring your assets are owned in the correct structure and also by insurance. It is usually cheaper and easier to protect what you have rather than to build wealth from scratch.
10. Not seeking professional advice
DIY investing and financial goal setting always has the risk of mistakes being made because you’re not fully across the market, the rules and regulations and the taxation consequences of certain investments. It is so important to obtain trusted professional advice.
