Having a plan for your money is a wise decision, since your future may well depend on the financial choices you make today. You don't want to make any major mistakes, since a misstep can affect the rest of your life. The following are some common financial planning mistakes along with how to avoid them:
#1: Not setting a goal
Goals are important – you need to know what you are planning for. Early in your financial life, goals may not be set in stone. For example, you may be planning for paying off student loans, an eventual marriage or home, and retirement. As you get older, the goals should become more solid. Whether you are simply saving for retirement or also saving to put kids through college or for a major around the world trip, make sure you have a goal and have set a goal amount. Even more important, write down the goals and set a clear plan for achieving them.
#2: Only focusing on the big picture
The big picture is important, but you also need to set smaller short-term goals to help you stay on track. These goals can be a monthly target savings amount, or they could be a more defined goal such as saving a specific amount by a specific date. If you have multiple things you are saving for, such as a big vacation, a child's tuition, and retirement, then you may have multiple big goals on a short and long-term track. On the other hand, if you only have one big goal, like retirement, you need to set smaller goals to help you stay focused on something that may be far away. Otherwise, it can be tempting to ignore your plan for short term gratification.
#3: Falling for gimmicks
It can be too easy to fall for a financial gimmick, especially if you are nervous because you were late to think about your financial future. Unfortunately, financial get-rich-quick schemes rarely work, and often you will end up worse for wear at the end. High-risk stocks and other investment vehicles may have their place in your financial plan, but they should not make up the bulk of it. Your best option is to work with a financial planner to come up with a solid low-risk plan to reach your financial goals, then reserve a small amount to dabble in moderate to high-risk financial investments. This gives you security without taking away your chance to beat the odds.
For more help, contact a financial planning company near you.