Financial mistakes can take one of two forms. The first is something you notice relatively quickly and correct with little impact. The second is a mistake that can go unnoticed and can impact a budget or relationship for years. No one is perfect, and we're all prone to mistakes. We all want to correct mistakes as soon as possible and be in the best financial position possible. Following are three such money mistakes, how costly they can be and how to reverse their course.
Leaving Someone in the Dark
Managing finances as a couple can be a challenge at times. Both individuals come from different backgrounds and have different expectations when it comes to money. It’s not surprising that a recent survey shows that 13 million Americans have accounts kept secret from their partners – otherwise known as financial infidelity. There very well may not have been sinister motives, but it can be ruinous to a relationship. (For more, see: The No.1 Reason Why Couples Fight.)
In nearly every instance communication will help bring both parties to the same page. “The biggest thing couples can do to avoid making major money mistakes is to communicate. I often recommend that clients set a time every week, away from distractions, to talk through their finances. Make a habit of talking about it,” says Aaron Hatch CFP, co-founder of Woven Capital.
As Hatch points out, set up a regular time to discuss your finances. Make it personal in order to set yourself up for success. Also, remember to share responsibilities, so each partner feels a part of the team and knows what's going on within the bigger picture of the family’s finance. If you're single, you can accomplish the same thing – which is regularly staying on top of your finances to ensure you're still on track to reaching your goals. (For more, see: Top 6 Marriage-Killing Money Issues.)
Ignoring the Stock Market
Ignoring the stock market is easy to do when it's a tumultuous period. It's also easy to ignore when you're a novice to investing or have little to invest. A problem arises with this approach as you're doing very little to grow your net worth and build the nest egg you’ll need in your retirement years. In many instances, there are opportunities available regardless of market turmoil or what you have to invest that will help, not hinder your long-term financial health.
Simply starting is the main goal. You may want to hire someone to help manage your investments but feel you don’t have what’s needed to hire an advisor. Hatch adds: “…the next best option would be to use a service like Betterment or Wealthfront that will automatically diversify your investments, rebalance, and in some cases do tax loss harvesting.” (For more, see: Top 7 Most Common Financial Mistakes.)
Not Having a Fall Back Plan
Life is unpredictable, whether we like it or not. Things break and emergencies pop up that we must handle. This can be difficult to manage if you have nothing to fall back on, such as an emergency fund. An emergency fund is even more important if you have consumer debt or live paycheck-to-paycheck.
If you're in this situation, you may feel like you can't start an emergency fund. "Even if you carry consumer debt, it’s important to your economic well-being to put at least some money into a savings account each month. The easiest way to do this is to live off a percentage of your monthly income (to put 5%-10% of your pay into a savings account each month),” says Leah Thurber of Get Academic Help. By simply starting with anything as little as $10 or $20 per week or month you can build up a respectable emergency fund that can help when things go awry. (For more, see: Squeeze a Greenback Out of Your Latte.)
The Bottom Life
We all make mistakes, but with a little work they can be easily avoided. Simply addressing and starting to solve the problem is often the best approach to success. (For more, see: 7 Common Investor Mistakes.)