Financial Traps to Avoid: Professional Strategies for Preserving Your Financial Stability
There’s a reason why even athletes, entertainers, and business people with seven-figure incomes suddenly find themselves filing for bankruptcy. Money mismanagement can eat through even the biggest bankrolls. Here are some specific threats to financial stability that people can avoid to help effectively manage their wealth.
No Budget
A 2022 survey by Debt.com revealed that 90.24% of respondents believed everyone should have a budget (though only 85.6% of the respondents said they used one).
Budgeting does not have to mean skipping coffee and driving a jalopy for the rest of your life. It does mean paying close attention to how much money comes in and where it all goes. Use your financial goals to guide you in steering your money in the right direction.
If you have a lot of debt, a budget is even more important. It helps reduce the likelihood of relying on more credit to fill the gaps. A budget also helps you to collect all those extra dollars and cents that you could put toward paying more than the bare minimum on debt. When paying off debt, start with the higher-interest accounts first and work your way through to save money.
No Protection
Insurance can be expensive, but going without insurance can be even more so. Renters, homeowners, auto, health, disability, and life insurance policies are the main ones you should consider. If you have a business, getting business insurance can protect your livelihood in the event of a mishap with a client or customer.
No Retirement Planning
A survey by Clever estimates that nearly 30% of Americans have nothing saved for retirement and that retirees who have saved have, on average, only $191,659 saved, which is far less than the $514,800 recommended by experts.
It is never too early to start planning for retirement, no matter how small your contributions are. Remember to take advantage of matched contributions from employers whenever possible.
Too Much Risk
There is no investment that is 100% without risk. Taking on too much risk at the wrong time can lead to big financial problems. Taking on high levels of risk is appropriate for young people who have more time to recover and is not advised for people nearing retirement.
Poor Tax Management
Tax management is a great way to help keep money in your pockets. This is especially important after a divorce or large windfall, such as an inheritance. For instance, if you inherit an Individual Retirement Account (IRA) and choose to cash out, you may lose a portion of this in taxes.
Mismanaged Assets
Stocks are often traded frequently, making them active investments, but you still need to ensure your portfolio stays balanced. Unmanaged assets pose a problem, such as when people allow large sums of money to sit in accounts with low to no interest rates and high fees.
For some people, money management is a talent and financial literacy is almost an inborn skill. Others, however, could use a little help making financial decisions. Contact a financial professional who can help steer your finances in the right direction.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. This material was prepared by LPL Financial, LLC.
