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10 of the Worst Financial Mistakes and How to Avoid Making Them!

By Rhiannon Williamson
Posted Saturday, September 11, 2004

1. Not having financial objectives & goals

Your money, your finances and your future do NOT take care of themselves! If you put off until tomorrow the planning you should be doing today and just spend as you go, chances are tomorrow will be too late! Protect yourself and your family; plan so that you can provide
adequately and your money can work harder for you. If you don't know where you're going, you can never get there and if you don't know what your goals are, you can never attain them.

2. Having too much of the 'wrong type' of debt

Debt is pretty inevitable nowadays right? - From mortgages, car finance, credit and store cards! But having the wrong sort of debt, debt that costs you massively in interest payments and brings you nothing in return can stop you from making any financial progress. For example, what's the point in spending a large percentage of your monthly income on a car, an item that depreciates in value the second you drive it off the forecourt? We all want nice things in life, but at what cost? Are you guilty of living for today and not planning for tomorrow? Spend in relation to what you have earned and not in anticipation of what you will earn.

3. Not having an emergency fund

Don't leave yourself wide open to fate. Cover yourself with a cash portion of your investment portfolio sufficient enough to take the pressure should you run into short term financial difficulties. This part of your portfolio is the most important part to cultivate first, and will provide you with easy access to funds in the short term. Your emergency fund should form your lowest risk safety net.

4. Failing to plan for retirement

Who is going to look after your interests when you retire? You can't rely on the state; it's unfair to rely on your children, you can't finance your retirement with a loan so what are you going to do? Do you enjoy a comfortable lifestyle now? Do you expect to improve your personal circumstances as you go through life? Surely you want to retain your current standard of living at the very least when you retire. Then you need to start planning today - YOU are the one who will have to keep you in your old age! It is NEVER too soon to begin your pension planning.

5. Not having life insurance

If, God forbid, something were to happen to you or your spouse, how would the surviving partner cope? Double the responsibility, no personal and emotional support and one main income lost - it doesn't bear thinking about. Take that consideration out of the picture; get sufficient life insurance to protect the future security of the ones you love.

6. Taking advice from friends & family

Without wishing to insult your family and friends! What is right for one person may not be right for another when it comes to financial decisions and investment planning. What was right for one person last year may most certainly not be right for anyone this year! Think about it, does your own personal circumstance reflect to the letter that of the advice giver? Understanding your personal and financial position, together with understanding and timing the market into which you are considering investing takes an awful lot of skill and professional judgement.

7. Not teaching children about money

Monetary bad habits can be learned and inherited; do your child the favour of educating them and setting a good example for them to follow. Don't let them get into the habit of believing that money grows on trees or is in endless supply. Explain the work ethic and that with effort comes reward. Introduce them to good financial management in the form of regular saving. Lead and they will follow.

8. Misjudging risk

Do you know what your risk profile is? Do you fully understand your attitude to risk? Are you cautious and not interested in unnecessary risk, are you fairly conservative but accepting of a reasonable level of risk? Or would you say you are adventurous and speculative when it
comes to money? Knowing yourself is only one part of the risk issue. Do you really understand the element and nature of risk involved in any investment you have or are about to take out? Know your own mind and be clear about what is acceptable to you, then be sure that what you decide upon in terms of financial commitment truly meets your requirements.

9. Doing nothing when in doubt

If you don't know the answer to something, ask someone who does. If you don't understand the answers, ask again. There is no such thing as a stupid question, there is however a great deal of stupidity in burying your head in the proverbial sand when you are unsure of what to do, where to go and whom to ask about your financial situation. If you ignore a problem in life it rarely goes away - in fact, quite often the opposite happens and the small issue becomes a great problem. The same is SO true when it comes to your own personal financial situation. Get informed, get in control and take appropriate action at every step of the way. Do not remain passive! This is your money and your future we're talking about.

10. Buying into unsuitable investments

Knowing what's right for you and when it's right for you are two key points to get to grips with. Your financial goals will develop and change as you go through life. What would have been a sound financial investment with a fair degree of risk for you at age 25 could spell disaster for you as you approach retirement at age 65! Sounds obvious right? But too often in life people fail to consider timing when it comes to investing. Whether that is failing to understand the timing of the market into which they wish to enter and buying high, selling low - or failing to understand the timing and stage they are at in their financial life. Understand your risk areas and get them covered and get sound financial planning advice from a professional at every stage in your life.

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