Almost everyone has a story about a financial mistake that they made at some point in their lives. These mistakes are some of our best learning moments, and they teach us a lot about how to make good choices in the future. We hope that by sharing our past mistakes with you, we can help you avoid these same mistakes.
Mistake #1 – Not having enough cash reserves on hand. You should have somewhere between 3-6 months of income in cash reserves. These reserves should be available to you at a moment’s notice to cover you in the case of an emergency. We all sleep better knowing that we have money available to us if we need it in a crisis.
Mistake #2 – Know what you are investing in. Brian shares his story of getting involved with a Seperate Account Manager before understanding the true ins-and-outs of the investment. With a separate account manager, you give them a large amount of money and they assign you a manager who buys specific stocks for you. The problem with this is that they have model baskets of stocks, and they divide the money between a large list of stocks and invest small dollar amounts with each company. The performance is sketchy so it’s difficult to tell if you are doing well. When you want to sell the stocks, you have to pay transaction fees on each stock so it can cost you thousands of dollars in fees to get out of this mess.
Mistake #3 – Don’t invest money without a core investment philosophy. When hiring an investment advisor, make sure you ask them about their core investment philosophy. Advisors who are not experienced and just “chasing the hot-dot” are likely to not make the best investment decisions.
Mistake #4 – Know what you know, and know what you don’t know. Give yourself some time to build a base of knowledge before you start considering yourself to be an expert. You need 10,000 hours of learning to become an expert in anything. Remember, just because it looks like a good idea, doesn’t mean that it is a good one.
Mistake #5 – Don’t gamble and call it investing. Some products are very risky, such as options. The problem with options is that they have a time-certain period on them. You can be right about the stock but the timing can be off and this can be a dangerous gamble. Also, try not to get emotionally attached to any certain investments, and know when to let go.
Mistake #6 – Don’t be too cheap. There is a big difference between brands and good value. Buying a high quality product is a much better idea than buying something cheap that doesn’t hold its value. You should also be careful about spending lots of money on trendy things or brands that may not be good value products.
Mistake #7 – Be careful with your stretch goals. Just because you can afford the monthly payment doesn’t mean that you can afford the purchase.
A few extra pointers…
- Don’t take unnecessary risks. Come up with a good plan and follow it through.
- Be careful of things that seem too good to be true.
- Make sure that you have accountability with your financial advisor.
We will all make mistakes, the important thing is to figure out how to take your mistakes and turn them into successes in the future.