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The Biggest Financial Mistakes I See

The Biggest Financial Mistakes I See

June 11, 2024

After spending over two decades working in the financial industry, I have had the pleasure of connecting with people from all walks of life. And you know what? Despite their unique backgrounds and different stages in life, they often trip over the same money hurdles again and again. In this article, I shine a light on 5 most common financial mistakes I see that can have an impact on your financial future and well-being—and how to avoid them.

Failing to Have a Comprehensive Estate Plan

There is so much more that goes into being financially secure than just how much money is in the bank. Estate planning is a crucial aspect of a comprehensive wealth management plan, especially if you want to pass significant assets to the next generation, or properly plan for the succession of your business. Through the proper use of trusts and other estate documents, you can feel confident that what you have built over your lifetime is properly passed on while minimizing taxes and probate expenses.

Many high-income earners often overlook the full scope of a comprehensive estate plan, and it can have devastating effects on your accumulated wealth. Making sure you are adequately covered now can save you time, money, and energy in the future.

Taking Too Little or Too Much Risk

In finance, every single investment made and penny saved comes with risk. If you buy stock in a new up-and-coming tech company, that comes with more risk than buying short-term Treasury bonds. Even a savings account comes with risk; although your savings accounts are likely insured, leaving your money in a savings account prevents your wealth from keeping up with inflation.  

A big mistake I see people make is having too many debt securities like bonds when they should be considering having more equity securities like stocks. A less common one I see is when people have too much of their wealth in risky investments, leaving their retirement savings vulnerable to high volatility. Proper asset allocation with regards to your time horizon, income, and future plans allows you to balance making gains from riskier assets and safeguarding your wealth as much as possible.

Not Planning for Unexpected Risks

Very few people, if any, predicted COVID-19 or the Great Recession. But these two events have made it abundantly clear that unexpected economic downturns must be considered when building a comprehensive wealth management strategy. People often think that an emergency fund is enough to ride out unforeseen major life events, but it usually takes more than that. Proper risk management is key to staying afloat during uncertain times. This can be accomplished by considering unexpected risks that are personal in nature, such as divorce, disability, accidents, and illness, and by making sure you are properly covered.

Not Knowing When to Take Social Security

If you are not using a customized strategy for Social Security, you are most likely leaving money on the table. The earlier you take it, the lower the monthly benefit you will receive. Everyone will be different, so considering when to take Social Security should be a decision based on your goals, needs, and preferences. 

For example, if you wanted to retire next year at age 65, you would be faced with the decision of whether to collect your benefits right away or to defer to some point in the future. If you decide to collect at age 65, you will receive less of a benefit than if you waited until your full retirement age (typically age 67 for most); and if you delayed all the way to age 70, you would receive the maximum Social Security benefit available to you due to Delayed Retirement Credits. 

Although for some delaying your Social Security benefits could mean delaying your retirement date, for others it may mean that they need to determine how they will fill the gap that is left between their fixed income and their expenses in the years prior to collecting their benefits. The solution in these cases could be as simple as taking larger withdrawals from their investments in the early years of retirement or working part-time for a few years to cover that gap. 

Another consideration in determining when to collect your Social Security benefits could be whether anyone else is dependent upon you or has an interest in the benefits you will receive. Specifically, are you single, married, divorced, or widowed? For each situation, there may be a different strategy available to you when it comes to Social Security. It is important to be aware of this and make sure to customize how you go about utilizing Social Security during retirement.

Paying Too Much in Fees and Taxes

It is not how much you make, it is how much you keep. We often speak to investors that do not fully understand the cost or fee structure of the investments they are in, or how the taxation of their investment accounts really works. It is important to be mindful of these items as they can take a big bite out of any potential returns you could receive.

These costs include things like commissions, deferred sales charges, 12b-1 fees, and mutual fund expense ratios. Many of these expenses are simply “priced in” to the share price of the underlying asset, but it is important to know what those expenses truly are. Some may very well be justified by the work of the management team and the performance they are able to achieve, but some may not. Taking the time to analyze or inquire about these costs could be time well spent. 

Additionally, some advisors do not pay enough attention to the tax consequences of changes made to clients’ accounts, which can cause undesirable tax liabilities for you (both capital gains tax and ordinary income tax). When deciding things like what trades should be made or where to take a distribution from when you need cash, it is important to have a strategy in place that can help to manage your taxes both in the short term and long term. A plan to always minimize taxes today could leave you experiencing far more significant tax consequences down the road.

Doing It On Your Own

If you are reading this, it shows that you are already ahead of most people in the financial game. But the truth is, juggling work, family, and a hundred other responsibilities can make it difficult to avoid every money mistake. This is where having a financial professional in your corner comes in handy. Not only can they help you build wealth, but they can also boost your confidence in your financial future.

Is your wealth being managed in a way that is improving your life? Life-centered financial planning should improve your life. Our Return on Life (ROL) approach helps you get more out of your wealth. Here at Wellstone Wealth Management, we do not do one-size-fits-all plans. Instead, we take the time to craft personalized financial strategies that match your situation, values, and goals. 

Ready to take control of your financial future? Schedule a complimentary introductory meeting by contacting us at 503-594-1210 or info@wellstonewealth.com

About Greg

Greg Allen is a CERTIFIED FINANCIAL PLANNER™ professional, Life-Centered Financial Planner, Managing Member, and second-generation owner of Wellstone Wealth Management, a life-centered financial planning firm that takes a unique Return on Life (ROL) approach to help their clients live the best life possible with the money they have. With over 20 years of experience, Greg holds fast to his mission of helping clients plan their finances around their lives, instead of the other way around, resulting in fulfillment, confidence, and a meaningful life. Greg also provides a caring, trusted long-term relationship and life-centered financial behavioral counseling. He specializes in working with people who have recently retired or are close to it (typically five years or less) and relates well to corporate executives and upper-management couples who often have complicated financial pictures and need help maximizing their wealth, reducing their taxes, and preparing for retirement so they can maintain their ideal lifestyle. 

When he is not helping his clients find meaning and purpose, you can find Greg spending time with his friends and family, especially his wife, Sandy, children, and grandchildren. As a native Oregonian, Greg loves the outdoors, visiting the Oregon Coast, and retreating to their family cabin in the mountains. He enjoys staying involved with his church, reading, watching sports, and anything to do with exercise and wellness. To learn more about Greg, connect with him on LinkedIn.

Information provided herein is provided by Wellstone Wealth Management, LLC. This information is for general informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Information was compiled from third-party sources believed to be reliable and accurate but cannot be guaranteed. Investment advisory services are offered through Wellspring Advisors, Inc., an SEC Registered Investment Advisor. Neither Wellstone Wealth Management, LLC nor Wellspring Advisors, Inc. render any legal, accounting, or tax advice. All investments involve risk, are not guaranteed, and may lose value. We recommend that all investors consult with a qualified adviser to assess your personal situation before implementing any strategy.

Please remember to contact your advisor when your financial circumstances or objectives change. Your advisor may recommend adjustments to your financial planning and investment strategies to better suit your current situation.