Five common financial planning mistakes and how to avoid them

When it comes to managing our money, everyone is a little different, and, in our industry, we see a wide range of approaches. We also see the planning errors that prevent people from reaching their goals. So, whatever your approach to finances, here are five common mistakes and how to avoid them.

#1 Procrastination

Not taking any action is an all-too-common mistake when it comes to your finances, and in my experience, there are usually two core reasons for this. The first is the ‘too busy’ mentality; you know you should be making financial decisions and plans, but life gets in the way, and it keeps dropping down the to-do list. But time out of the market, particularly in today’s low-interest environment, isn’t furthering your financial position. So if that’s you, consider talking to a financial planner to stop thinking and start taking action.

The second is the ‘head in the sand’ approach. This often happens when we think there is a problem with our finances or that they are in such a mess they will be a headache to untangle. However, this approach isn’t going to make them better. It’s just going to drag the matter on, causing you stress and potentially affecting other areas of your life, such as relationships and health. Getting financial advice will help you build a roadmap forward, alleviating worry and taking control of the situation.

#2 Keeping up with the Joneses

This old saying rings more true than ever in today’s world of social media. When we see friends or family members making lifestyle purchases, it’s easy to get caught in the trap of trying to keep up. But the reality is that the only person you should be keeping pace with is yourself. Everyone has different financial and life goals, and for the vast majority of us, they involve some trade-offs.

Everyone’s trade-offs will be different, as are their attitudes towards finances. Some will ‘live rich’ spending up big now, others will ‘die rich’, living frugally today in service of their legacy, and others will find a balance that suits their lifestyle.  Your financial plan should be tailored to your long and short-term goals, so focus on that, not on how others live, because you don’t know how their choices fit into their plans.

#3 Not knowing where your money goes

One of the first things we ask new Apt clients is about their regular expenditure, and we often find that people vastly underestimate how much they are spending. However, it’s essential to understand in detail where your money goes each month, so if you haven’t taken a look at your outgoings for a while, it might be time to revisit them.

When completing this exercise, it’s not uncommon to find expenditure that doesn’t add value to your lifestyle, where you can easily cut back and save or invest the money elsewhere. However, if you don’t know exactly where your money is going, you can’t be sure you are making the best financial decisions for yourself and your family.

#4 Looking for quick wins

When it comes to wealth accumulation, there aren’t any quick fixes. And while you may have some good fortune along the way, looking for these opportunities is rarely a good strategy.

With the potential for high reward comes commensurately high risk. (And if the risk isn’t proportional, take a closer look, because if it sounds too good to be true, it likely is). Even the most informed experts struggle to time the market, so focus instead on time in the market and long-term gains to get the most out of your investment strategy and grow your wealth.

#5 Setting and forgetting

Your financial plan should be a living document updated whenever something in your life changes. Of course, there are some significant life changes, such as marriage, children, divorce and retirement, but it’s also about recognising those smaller moments when your values shift. Many of us experienced these value shifts during COVID-19, but they can occur at any time.

Keeping your financial plans aligned with your values is critical to ensure you make the most of your money.  If you haven’t revisited your values in some time, Apt’s free Values Roadmap can help you get started.

You should be regularly updating your financial plans, including your insurances, to make sure you are protecting and growing your wealth at every life stage. If you haven’t revisited your plans in a while, contact an Apt Adviser to get started.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommend that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.