As the economy recovers from the COVID-19 pandemic, it’s going to be more important than ever to be vigilant with your finances. Most Americans were not at all prepared for the hardships they endured during the economic lockdowns — often due to poor but extremely common financial decisions.
On this note, we thought it would be fitting to tackle what financial advisors say are the three most common financially-related mistakes that they see and how to avoid them.
Here’s a closer look:
Mistake #1: Living Beyond Your Means
Regardless of your age, living beyond your means can be a real issue. For a young couple buying a house, it might be tempting to “bet on themselves” and purchase a home that exceeds or is close to exceeding their budget with the expectation that they’ll continue to evolve and progress in their careers to the point where they can more comfortably afford it. The same can be true for retirees, as they may live beyond their means to the point where they risk tearing through their savings in a matter of just a few years.
So how do you avoid living beyond your means? Aside from making educated, realistic money-related decisions, it’s important to regularly assess and revisit any financial goals and make adjustments where necessary. Simply using budgeting apps for day-to-day spending to more thorough annual 401K consultations can help. Also, don’t just assume that living beyond your means is something that happens only with young people. Like we said above, it can happen to people at any age.
Mistake #2: Failing to Consider Taxes
How well do you understand basic tax laws? From property taxes to how you’re taxed on retirement savings accounts to self-employment taxes, it’s important to have a grasp on what tax law means for your situation – and even how you can use certain tax laws to your advantage. A financial advisor can certainly help guide you in this manner if you’re not willing to self-educate, but the bottom line is that you don’t want to put yourself in a position where you ignore this.
Many people brush aside taxes, finding them too daunting to understand or fully comprehend. And while taxes are one of the certainties in life, familiarity with them can actually end up working well for you in the long run. For instance, a Health Savings Account, which carries over funds from year-to-year, can be a great weapon when it comes to covering healthcare costs during your retirement years.
Mistake #3: Individual Stock
Simply put, financial advisors caution Americans from getting too attached to just one investment opportunity. We’ve talked before in this space on how important it is to diversify your portfolio so that all your eggs aren’t in one basket, metaphorically speaking, and it continues to ring true. So don’t fall in love with any one stock investment, work to diversify your portfolio. Sell stock when the time is right, and don’t get too big in one or two specific stocks because if they tank, then your financial future is jeopardized.