Money mistakes are a dime a dozen. Except, you know, they end up costing us a bit more than that.
To prevent those costly financial blunders, we asked some financial advisors and professionals what clients tend to get wrong—and you should do differently going into 2019.
Think More Critically About Your Resolutions
Don’t make News Year’s Resolutions. They don’t work.
Set your goals now, or in early January (after the holiday). The goals need to be realistic. This is key. If they are too hard or not remotely achievable, most folks give up before they even start. When setting goals, start small, then move up. For example, if you are contributing an extra three per cent of your income [toward superannuation], increase it to four per cent. Then plan six to nine months down the road to increase it to five per cent.
Similarly, if your cash reserve fund is only one month’s living expenses, give yourself a period of time, say six months, to [get to] two months’ living expenses.
Small steps that are actually implemented have a much higher chance of staying implemented. Then you can go from there and again, slightly raise the goal.
The other thing people need to do is check in with their goals. This doesn’t mean following every movement in the stock market. This means reviewing your progress. This should be quarterly.
— Thomas Scanlon, CFP, Raymond James
Pay Yourself First
The tumultuous markets sometimes cause people to quit contributing to their retirement plans, when we should do the opposite and continue to defer into our retirement plans. If you are worried about volatility, you should still contribute, especially if you are many years away from retirement. Markets have historically gone through periods of decline and subsequently recovered.
— Kathleen Grace, CFP, United Capital
Remember It’s Time in the Market That Counts
Timing the market vs time in the market. Statistics show most active managers lag, and trying to time markets presents more risk for individual investors. While it may not always be comfortable to stay invested, so long as the world economy continues to improve and grow, investors should be rewarded with time and compounding growth on their investments.
— Shannon Lynch, CFP and senior financial advisor at Personal Capital
Remember, time is your most important investing asset. Similarly:
Review how your portfolio is allocated – and make sure that its riskiness is in line with your level of risk tolerance. Having a portfolio that is riskier than you are really comfortable with may have helped boost your returns while things are going up but it can present an issue if markets turn, especially if it causes you to overreact and sell in the depths of a downturn. Solid investment strategies require staying invested through full investment cycles – going to cash when the market is down takes your temporary paper losses and turns them into realised loss of capital and often means you will not participate in the eventual market recovery. Having a reasonable investment strategy only really works as intended if you stick with it and don’t chase returns in up markets and panic sell in down markets.
— Michael Ciccone, CFP, Tradition Advisers
Be on the Defensive When It Comes to Your Credit
In 2019, be more proactive about protecting your credit. Check your credit card accounts online daily and make sure each transaction is legitimate. Online credit card fraud has been increasing, and you can save yourself from having a giant headache if you catch a fraudulent purchase before too much damage has occurred.
And don’t forget to check your free annual credit reports, too. This is how you can catch a fraudster who has opened a new account in your name.
— Beverly Harzog, consumer finance analyst at U.S. News & World Report
Here’s how to check your credit reports, and here’s how to protect yourself from scammers. One step you should definitely take: Freezing your credit accounts. Just don’t forget to check in on the financial accounts that don’t appear on your credit report as well.
Cut Down Investing Expenses
Most people don’t realise the substantial impact that high expense ratios can have on their investments. A one to two per cent annual fee on a mutual fund may not sound like much, but when it’s applied to a growing balance over the course of decades it can easily result in having several hundred thousand dollars less than they would have otherwise had. It’s not only the direct fee amounts that are lost, it’s also the opportunity cost of the growth that would have otherwise occurred on the amounts paid in fees. There’s a simple calculator at this link that demonstrates the impact. There are plenty of low-cost index funds available these days, with a tremendous amount of academic research backing up their use for individual investors.
— Steven Fox, CFP and founder of Next Gen Financial Planning
Make the Hard Choices
In today’s world, we are all responsible for ourselves. It used to be that the unions would take care of the workers and they would make the financial decisions on the worker’s behalf and that managers and other mid to high level executives had pensions.
We don’t have that anymore. It is every man for himself. We have to make hard choices about whether to live in the moment or save and invest for the future. The government will not save us. We need to make sure that we educate ourselves (and others) to do the best that we can to live within our means so that we can have a life that is worth living in retirement. This current working generation will likely not have the means to support itself in the same standard of living that our parents had.
— Monica Dwyer, CFP, Harvest Financial Advisors
Check Your Withholdings
The end of the year is also a good time to review your paycheck withholding — the amount of income taxes taken out of your paycheck by your employer. If it’s too much you may get a refund in the new financial year; too little, you could have taxes due. Keep in mind, any changes made to your withholding at the end of 2018 won’t go into effect until the 2019 filing season and will not impact the 2018 tax year.
— Christina Taylor, senior manager of tax operations at Credit Karma Tax
Take Advantage of Credit Card Rewards
Many consumers don’t take advantage of their credit cards’ rewards programs. It’s a new year, so make a resolution to read the rewards program details for each rewards card you have. If it still seems unclear, then call your issuer. Master the details and keep track of the rewards either by setting up your own Excel spreadsheet or by using a free app. Once you start using your rewards credit cards strategically, then you’ll be able to profit from your credit cards.
— Beverly Harzog, consumer finance analyst at U.S. News & World Report
The More Specific, the Better
Have a specific financial plan – specific being the operative word. Many people make the mistake of setting objectives that are too vague such as “pay off debt” or “save more money.” Instead, have clear and measurable financial goals. For example, commit to putting $200 toward your highest interest credit cards every month and $20 a week into an emergency fund. This makes it easier to track progress, stay motivated and adjust your plan if needed.
— Bethy Hardeman, personal finance expert at Tally
Prioritise Your Savings
Save 15 per cent of your income off-the-top. Have it deducted automatically so you never see it in your checking account.
— David J. Haas, CFP, Cereus Financial Advisors