Financial planning is very important, but regrettably often overlooked by most investors. A proper financial plan consists of a comprehensive evaluation of your current, and future, financial state. At the most basic level, your financial plan should use current known variables to predict future income, asset values, and ensure your money outlives you. Regrettably, most investors (small and large) do not take the time to conduct a proper financial plan, instead they wing it, and hope for the best.
I spoke to V. Raymond Ferrara, CFP®, Chairman and CEO, of ProVise Management Group in Clearwater Florida who manages $1.5B for clients across the country. Ray has been in the financial planning business since the 1970′s and has served on the board of several national financial planning associations. After speaking with him, here are three common mistakes people make regarding their financial future and how you can avoid them:
NEW YORK, NY – JANUARY 02: Traders work on the floor of the New York Stock Exchange (NYSE) on January 2, 2018 in New York City. The Dow Jones Industrial average continued its upward climb on the first day of 2018 with stocks rising over 90 points by the the end of the day. (Photo by Spencer Platt/Getty Images)
3 Mistakes & How To Avoid Them:
1. Not Having A Plan
The most common mistake I see people make with respect to a financial plan, is not having a plan. It sounds odd, but it is very true. Can you imagine trying to build a house without a blueprint? Should someone invest in a business without a well thought out business plan? Should someone go into surgery and start cutting? If not, then why would you build your wealth without a financial plan? To be fair, if you don’t have a financial plan that doesn’t mean you won’t be successful, but your odds of success and the greatness of that success is enhanced by having a plan. Blindly buying the S&P 500, Dow Jones Industrial Average, or the Nasdaq is not a sound plan, there are many other factors that need to be considered. Solution: Get a financial plan.
2. Start Late
The second biggest mistake, especially for those starting out, is that they delay investing and get stuck with a ton of debt. This happens because people like instant gratification and most people spend more than they make. Naturally, this creates a ton of debt and little to no savings. Because of the laws of compound interest, the most important dollars you invest are your early dollars. Therefore, it is very important for to start saving and investing as early as possible. Millennials123, a privately-owned consulting firm, helps companies, Attract, Retain, and Inspire Millennials (both consumers and employees), told me that the vast majority of Millennials do not have a financial plan. Solution: Start saving/investing early.
3. Not Planning For The Worst Case Scenario:
The third mistake people tend to make is that they do not have the proper legal documents in place to assist in the case of one’s disability or death, especially if they have young children. Solution: Get your legal affairs in order to make sure your family is protected.
These are just a few mistakes people make regarding a very important subject- financial planning. Talk to your advisor: there are many good resources available if you want to conduct a financial plan, just make sure you are happy with your plan.
This article was written by Adam Sarhan from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.