Financially freedom comes with a price tag. It’s cost? It takes discipline, focus, prudent planning, patience, time, and of course, wise counsel. However, it’s the mistakes people make that often prevent or delay financial freedom.
Mistake #1: Putting off financial planning.
Don’t do this: This may be the biggest mistake of all. Procrastination does not help you save for retirement, and it will not help you reduce your taxes or transfer money to your heirs. Delaying necessary financial planning can be perilous. Some avoid planning out of fear – they simply don’t know where to begin. Don’t let this stop you.
Instead do this: Decide today to do something about your financial future. Seek a qualified financial planner
Mistake #2: Putting all your eggs in one basket.
Don’t do this: Too many people invest everything in just one place.
Instead do this: Try spreading your assets across multiple investments and you’ll help to insulate them against the effects of economic ups and downs.
Mistake #3: Buying more home than you can afford.
Don’t do this: Interest-only loans, option adjustable-rate mortgages (option ARMs) and lease purchases still tantalize couples and families with small nest eggs, modest salaries and credit blemishes into taking on much more liability than they can bear. The result is often foreclosure.
Instead do this: Speak to a professional to make sure the amount of home you purchase makes sense for you.
Mistake # 4: Making impulsive or emotional money decisions.
Don’t do this: A decision that feels good (or exciting) may not be appropriate for you financially. Avoid spur-of-the-moment financial choices, and the influences that may trigger them.
Instead do this: The next time you’re about to make a snap decision, stop and think. Will you lose the opportunity if you take a while to consider your next move? Consider and compare whenever possible.
Mistake #5: Living above your means.
Don’t do this: Be seduced by big-debt, big-ticket luxury items … sometimes all the way into bankruptcy.
Instead do this: Make wise decisions about money, take the time to consider big purchases, and be mindful of what effect they’ll have on finances down the road.
Mistake # 6: Avoiding all risk.
Don’t do this: Caution is good, but being extremely risk-averse (for example, refraining from investment and just putting your money in an FDIC-insured bank account) may cost you in terms of the growth of your retirement savings and assets.
Instead do this: If you’re holding back because you’re unsure, speak with a financial advisor. Chances are you need some growth to reach your goals.
Mistake #7: Too much exposure to your company stock
Don’t do this: In 401ks, many levitate toward the familiar option: company stock. Sometimes the match or incentive stock is paid in company stock. Whatever the reason, the freefall of many technology stocks, as well as the stock of some blue chips, is a painful reminder of the risk of putting your retirement future entirely in the hands of employer stock. Enron, WorldCom, Lucent, the list goes on…
Instead do this: Consider the numerous strategies available for diversifying your portfolio beyond your company stock. Look at other vehicles outside your retirement plans such as using exchange funds or individual stocks. When you get the opportunity, sell off some of the company stock you own (when price is optimal and time restriction, if any are gone) and invest in other areas. SEC rules make it easier for you to divest company stock.
Mistake # 8: Depending on your business for retirement
Don’t do this: It’s common for many small business owners to depend on the eventual sale or family succession of their business to fund their retirement. This carries the same risk as overloading on company stock.
Instead do this: Set up a company retirement plan where you can invest in outside assets. Try to diversify your investments outside your industry.