Five Financial Mistakes to Avoid When You Have Money in the Bank

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By Bennett Whitlock, CRPC®, Private Wealth Advisor

Even people who are financially secure can fall into money traps that put their futures at risk or miss out on opportunities to further strengthen their financial position. Here are five common mistakes financially accomplished people make, along with a few tips to counteract them.

Overspending

You’ve worked hard to get where you are. Don’t abandon the budgeting strategies that helped you get this far. Give your discretionary fund a boost if you must, but continue to keep an eye on what you spend each month. You can easily fall behind in your financial goals by consistently overspending in small amounts. This could add up to large sums over time.

Not having an emergency fund

If you earn a healthy sum each month and have money set aside in investments, you may not think you need other savings. However, having a workplace plan [like a 401(k) or 403(b)]or an IRA is not an emergency fund. Withdrawing funds earmarked for retirement prematurely can incur costly tax penalties and make you lose potential future earnings. Instead, store away three- to-six months’ worth of income in liquid savings to provide a cushion in the event of job loss, natural disaster, illness or another unexpected event.

Prioritizing saving for college over retirement

As the cost of a four-year degree in the U.S. continues to rise, it may be tempting to put your child’s tuition ahead of your own future. Yet, boosting your retirement savings should take priority. Your child has an array of options for financing college tuition, including job earnings, merit-based scholarships and various loan programs. When you retire, you simply won’t have access to these external sources of funding if your retirement savings come up short. If you are on track with your retirement savings and want to set aside funds for your budding student, be strategic and diligent about creating a plan to achieve both goals.

Being underinsured

Take a critical look at what you own. How easily could you replace those items if an unexpected event occurs? Standard policies may not cover as much as you think, especially if you’ve recently upgraded your home or added to your art collection. Check in with your insurance agent and upgrade your coverage as needed. If you live in an area prone to severe weather, you may be able to add a rider for flood or storm damage. Bump up your life insurance if it makes sense and review your potential need for disability income and long-term care coverage.

Failing to diversify

You heard it a million times growing up: don’t put all your eggs in one basket. If your money is tied up in your home, or if your investments are over- or under-weighted in one sector of the market, you may be on risky ground. Work with your financial advisor to evaluate your level of diversification within the context of your goals. Annual or more frequent reviews are recommended to help ensure a productive portfolio that’s within your tolerance for risk.

Bennett Whitlock, CRPC ®, is a private wealth advisor and managing director with Whitlock Wealth Management, a franchise of Ameriprise Financial Services Inc. Learn more at WhitlockWealth.com or call 703-492-7732.

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