Five common mistakes we make during financial planning

Financial planning refers to the process of having well laid out structure on how finances will be used. It is a way of ensuring that the available finances are spent well and can be accounted for.

Creating a financial plan helps you see the big picture and set long and short-term life goals, a crucial step in mapping out your financial future. When you have a financial plan, it’s easier to make financial decisions and stay on track to meet your goals.

Some of the common Personal Financial mistakes include the following:

Lack of a long-term financial strategy

Long term financial strategy is key in financial planning. With finances, one needs to have a long term plan in place so as to be ready for the future. Unfortunately, this is the most common mistake that people do. One needs to be disciplined enough to know that finances will not only be needed in the present but in future too. By outlining where one wishes to be in the coming days is important as far as achieving goals is concerned. The capital built up over the term of one’s working life may have to last another 20 to 40 years in retirement. So living for the moment during youth or early family years can make it difficult to live a financially prosperous life during retirement.

Read:

• Smart Investments Involve Diversification and Informed Decision-Making 
• Tips on How to Start Investing Small

 Failing to work within a budget

A workable budget is absolutely necessary to ensure a healthy balance of income, expenditure and savings. By documenting your spending patterns and itemizing regular expenses, you can access the answer to that perpetual question “where does all my money go?”. Once you know where it does go, you’ll be able to direct your cashflow more effectively. Apart from predictable outgoings, one should also remember to factor in irregular expenses such as car or house maintenance. By anticipating these expenses, one is able to avoid the budget blow-out that can be disheartening or an excuse to forget budget guidelines.

Neglecting to get professional advice

Naturally, everyone has an opinion on financial matters and how to get the most from your hard earned cash. But it is important to remember that not everyone is fully aware of your particular situation, needs and goals. It is important to keep yourself informed on financial matters and it is often helpful to discuss issues with friends and relatives, however, professional advice is essential. An educated and reputable professional can relate their advice to you personally, as well as assisting you when your circumstances alter, legislation changes or movements occur in the industry.

Looking for the quick fix

We all know that the truth is that there is rarely a quick fix to any issue! When you discover an investment opportunity that looks too good to be true, it probably is. When interest rates are low this is good news for people with mortgages, however it’s bad news for those trying to save. And all accounts of the share market in the media show the volatility. Be aware that a high return brings with it a higher degree of risk. When it comes to investments, it may be better to recognise and ride out the short term ups and downs. The best option is to refer back to your financial strategy to ensure that your investment is in line with your objectives.

Not reviewing your situation regularly

Your circumstances will change over time as does the financial marketplace. It is essential to review your needs, plans and investments regularly to make adjustments as necessary. Check that your investments over the medium to long term are at least keeping pace with inflation. Reviewing short term performances for long term investments is not always a prudent review strategy, but there should be some reasonable explanation for the poor performance.