Here are 6 Things Your Financial Planning Is Probably Missing

By Lynnet Okumu / Published August 6, 2022 | 7:45 am

KEY POINTS

Many people have no idea how much they are paying in fees on their investments or even that they are paying anything at all.

KEY TAKEAWAYS

Many people seem to base whether they are on track for retirement on how much they are saving or how much they have already accumulated.

While we try our best to plan our finances optimally, sometimes we run into some problems that we did not project for.

Financial Planning involves many things – our money, our efforts, our goals, our personality, and our behavior. One of the most frequent questions you can ask yourself when things are not going as you planned is, what am I missing?

Here are a few things you might be missing when planning for your finances:

Not having enough emergency savings.

Many people have high incomes, expensive homes, large retirement account balances, and yet little or no cash savings in case of an emergency. The reason for this they cannot even explain.

Maybe it is because the savings aren’t automatic. However, you can just set up an automatic monthly transfer from your checking account into a savings account for emergencies. You may be surprised by how quickly it builds up to the recommended 3-6 months’ worth of necessary expenses.

Overfunded emergency fund

There is a case for keeping your emergency funds invested in a conservatively diversified portfolio for higher returns if you have an overfunded emergency fund, there’s

Just be aware that if your emergency fund is the ability to borrow from your employer’s retirement plan, you could be stuck with taxes and a 10 percent penalty on the outstanding loan balance should you leave or lose your job and not be able to repay the loan.

When you consider that unemployment is one of the main reasons for even having an emergency fund, it might not be such a great idea.

Paying too much in investment fees.

Many people have no idea how much they are paying in fees on their investments or even that they are paying anything at all.

For those who did not know, the actual costs are more hidden in the form of mutual fund loads, expense ratios, and trading costs plus advisory fees that can all add up to several percentage points a year in lost returns.

Not running a retirement calculation.

Many people seem to base whether they are on track for retirement on how much they are saving or how much they have already accumulated.

However, the number depends on your period, income needs, and how much you will get from Social Security and other income sources. That is why the best way to know if you are saving enough is to run the numbers on a calculator.

Lack of estate planning.

Although many people understand the need for a will and other basic estate planning documents, only a few have put them in place.

It may not feel urgent now. But you never know when you and your family will need them and by then, it will be too late. Family members may stress and even fight over key health care decisions.

Even as they are powerless to manage your finances if you are incapacitated. Your death could leave decisions about who inherits your property. And takes care of your minor children in the hands of the court and sticks your heirs with unnecessary probate costs and taxes.

Not having an asset allocation plan

Asset allocation is considered the most crucial factor in determining the risk and return of your investments. Yet people often have a hodgepodge of accounts with randomly selected mutual funds.

The problem here is that you can be under-diversified with many funds that all invest in the same type of investment or have one perfectly balanced asset allocation fund that is thrown off balance by adding another fund that is too conservative or aggressive.

If you do not know how to create and manage an asset allocation strategy, you can follow a portfolio model or investment professional.

Recognize any of those mistakes in your financial life? Consider consulting a qualified financial professional. Then see what they say when you ask, “what am I missing?”