I’ve come across a lot of excellent financial information over the years. Some of it came from books, some came from the web, and a lot of it came from talking to other people.
But, I’ve also heard some terrible financial information, and I’m sharing the top 5 worst pieces of advice below to help you avoid making these mistakes.
1. Stay out of the investment market, it’s too risky
The uncertainty of the financial markets over the last number of years has intimidated a lot of would-be investors. Political strife, economic uncertainty and sometimes the temperamental and unpredictability of the market has a lot of investors sitting it out on the sidelines. And although many are looking for safer investment pastures, they may not realize that without taking advantage of the equity markets, many will never meet their retirement objectives. By understanding your risk tolerance, having a diverse asset allocation, being mindful of the fees you’re paying, and working with a credible financial advisor, you can take advantage of the upside of the market without assuming excessive risk.
2. You don’t need a budget
This may be old news for those who have read any of my blogs, but the best way to relieve financial stress from your life is to wrap some predictability around it. Everything starts with a budget. It’s critical to understand your monthly expenses vis à vis your income. The easiest way to equate not having a budget is trying to get to a destination without directions. You may get there eventually, but there will be a lot of wrong turns along the way (adding more miles to the journey – and a lot more stress).
3. Living on borrowed money is the new norm
To err is human, but to use credit is human nature! Too many people live in the now, and unfortunately it can come at the sacrifice of their financial future. Putting that winter vacation, that new pair of shoes, and those weekend meals on your credit card may give you immediate gratification, but you’re heading for trouble if you can’t afford to pay off your credit card at the end of the month. It could even impact your ability to buy a home, build up your investment portfolio or retire at a certain age.
4. Emergency fund? That’s what credit is for
It’s been said that you should have at least six months of savings, or the equivalent to savings for the sake of an unforeseen expense or event. If you find yourself suddenly unemployed and without an adequate severance package, unable to work, or if you have a roof that needs replacing, you will need extra money. This money should be separate from your retirement savings. Far too many individuals live paycheque to paycheque and wouldn’t be able to afford their monthly expenses should an unforeseen event take place in their lives.
5. Insurance is a luxury, not a necessity
There are also many individuals that don’t have insurance or adequate insurance coverage. Many will rely upon insurance coverage from their group benefit plan at work in the event of a mishap. Some individuals may have disability coverage at work, even fewer may have critical illness insurance. However, group benefit plans often do not provide adequate coverage. If you are diagnosed with a catastrophic illness, the last thing you want to be thinking about is how you will pay your bills every month.
The financial mistakes I’ve outlined here are fairly common. The problem may not be felt immediately, however practicing this bad advice can result in long-term consequences. The other aspect is the additional stress and anxiousness that these mistakes can have on an individual and his or her family. The positive aspect here is that these mistakes can be remedied in a relatively short period of time, especially if you partner with a financial planner.