It’s easy to think your personal finances aren’t as vulnerable as those of other people. You may think it’s unlikely you’ll be fired or that you’ll have to deal with a medical emergency. And retirement? Odds are, your retirement is many years into the future, so you can wait a little longer to tackle the planning for your golden years.
This way of thinking is a huge mistake. By identifying common mistakes people make, you can strengthen your own finances.
1. Not Discussing Money With Your Spouse
Money and finances are at the root of many couples’ troubles, but it’s a topic that quite a few people are hesitant to discuss before and after marriage. Personal finance seems, well, personal. Yours. Your money. After you marry, though, your financial decisions impact your spouse (and kids), and vice versa. There are joint purchases, for instance, and if one spouse is a free spender and the other is not, there’s potential for problems. Disharmony could exist too if spouses earn vastly different incomes but split expenses evenly.
2. Not Prioritizing an Emergency Fund
Emergencies happen. A car breakdown could affect your ability to get to work, or you may need to pay hospital bills for a surgery not fully covered by insurance. In any emergency scenario, and you should avoid turning to credit cards for payment. Ideally, your emergency fund should cover your needs for three to six months, but this task may seem overwhelming. Get started now by putting aside a little, and prioritize your emergency fund over paying more than the minimum on your credit card. Once you have an adequate fund, you can return to reducing your debts.
3. Bypassing Insurance
Insurance comes in many forms, including car insurance, home insurance and health insurance. The topic is confusing for many people, so it’s tempting to bypass insurance they should have. Before you do that, though, research the facts and figures for your situation. Get insurance quotes, and you may find that some types of insurance are more affordable than you thought. Having insurance could save you from ruin in the future.
4. Putting Off Retirement Planning
No matter how young or old you are, retirement planning is imperative. Starting as young as possible gives you the opportunity to build up funds that grow for many years. If you have yet to start, start now; stop putting off retirement planning. Define your goals, and get a realistic idea of how much you might need to spend on health care after retirement.
5. Forgetting About Other Income Sources
Income can be more than what appears on your paycheck after taxes. For instance, generous health and retirement benefits from your employer might be worth many thousands of dollars. Consider such factors and your priorities when weighing job offers. Also, it could be a mistake to leave money just sitting in your savings account. CDs, stock investments and real estate could help you make more money, and so could activities such as turning a jewelry-making hobby into a side job.
Other common personal finance mistakes include not updating estate plans and overspending on credit cards, but these five tips can help you get started on a good path. You could experience a domino effect when your overall financial picture falls into line. Effective tax planning is an all-year endeavor. Working with a CPA firm, like BWTP PC, can go a long way in ensuring you’re effectively using the tax code to your financial benefit. Call us today for a free consultation!