All of us make mistakes knowingly or unknowingly. However, financial mistakes happen because we take our money matters for granted and choose to ignore proper financial planning for a very long time. Financial mistakes can take away all the luxuries that you are enjoying today and be detrimental for your financial health after retirement.
It is important to be proactive in planning out your financial strategy, when you still have a steady stream of income in the form of your salary. Here are certain financial mistakes you should try to avoid:
Having excessive debt
One of the biggest mistakes most people make is mounting their debt obligations excessively. This is mainly due to credit cards, which allows people to buy things which they don’t really need with money they haven’t yet earned. They get an immediate gratification with expensive clothes, gadgets, jewelry, etc. But at the end of the month, when the credit card bill becomes due; they find themselves stripped of cash and unable to pay the entire bill.
Not only does this hamper their ability to save effectively for the long term, it also worsens their credit rating. This means they will not be able to obtain loans from banks to invest in property or business in the future.
Borrowing from 401(k)
Some people have the habit of borrowing from their 401(k) when they are in need of some quick cash. While you can borrow from 401(k) for paying your children’s tuition, buying a house or refinancing your credit card, this could seriously undermine your retirement goals.
Even if you make regular contributions, you will not be able to benefit from market gains unless you pay back the borrowed amount.
Delaying Retirement to pay children’s tuition
You may want to help your children, but in the end you are putting a lot of strain on yourself by delaying your retirement. You will be forced for work for extra years because the tuition fees are quite high. Ask yourself whether you want to retire in your 70s?
If you can afford to pay your children’s tuition, then by all means, pay. But your children on the other hand, have all the time in the world to pay back their student loans as well as invest for their retirement plans.
Paying off mortgage before other loans
Many people make it their aim to pay back their mortgage before they retire. This is not a good strategy at all if there are other debt obligations as well.
This usually happens because the mortgage amount is too high and other loans seem too little in front of it. But these other loans, like car loan, credit card, student loan, have higher interest rates and can grow big if they are not repaid in due time.
Starting withdrawal from 401(k) in the 50s
You can start withdrawing from your 401(k) when you are at the age of 55, but this means that you will have to pay a 10% fee every time you make a withdrawal.
You must wait till the age of 59 ½ before making withdrawals as the fee won’t be charged from then onwards.
Making ad hoc investments
Depending too much on tips from the friends and family is also wrong while planning. This creates a mess of your investments and retirement plans. For financial success, long term focus is really important. You should have a plan of your own that is tailored to meet your requirements, rather than putting money anywhere which looks profitable.
What you need is a consultation appointment with Greg Marcus to help you plan out a long term financial plan. Greg Marcus is a finance professional who helps individual not just survive, but thrive financially. Book your appointment today.