How To Avoid an Unsound Financial Planning
Want to know how to avoid unsound financial planning? All you have to do is read about the common financial planning mistakes which we'll describe below, do a self-evaluation, correct them, and you're set! Sounds simple? Truly it is, commit to doing it is the hard part.
These financial planning errors are the most common and are
deeply rooted in our principles and values and lead to disastrous financial
|Lack of dedication and discipline
No matter how much you read, if you're not
willing to understand and apply the message,
nothing will change.
Commitment is the key to managing your
money and the base for a reasonable discipline.
You don't do a serious planning or you don't follow your
You get ideas, make notes on napkins,
constantly plan to do it, or making a plan and
never following up is not enough.
Simply not taking control of your money by itself can lead
to a nebulous financial future.
Your finances are important, so give them the
importance they merit to plan and control them.
|You fail to take into account all the considerations which
can affect your financial future.
Throughout your life you will experience
several events which will need your attention and
your money. However, it is too common that
we pay attention to only some of these and let the
rest go unnoticed -- or you mistakenly believe
that all you have to do is have some savings.
These mistakes can be expensive over the long haul when
unexpected events arise. On the other hand, if you plan for various possibilities and
situations which could affect you, you'll be on the right
road to financial security.
|You live with what you have and you don't worry about
having a supplemental income.
These days, economic changes require faster
action on our part. Inflation and
unemployment threaten every day and it's worse
when the family income depends on just one person.
Today an extra income comes in handy. Even
if your present income provides you with a comfortable
living, an extra income could improve or
maintain the standard of living for your family
and also open new opportunities.
You struggle to maintain and/or increase your income but
you ignore controlling or reducing your expenses.
It's natural when you're starting earn more
to spend more because you want new and better
things. After all, what good is an increased
income if you don't enjoy it?
But, it's even more common for expenses to stay the same
or even increase, even when income stays the same or drops.
In the long run, if you spend everything you earn you're
missing a chance to create an estate for the well-being of your family.
To concentrate only on one aspect often is not enough.
Therefore, the key is to increase income and cut or
|You see your credit cards as a status symbol and abuse it.
If you really think about it, you can see
that a credit card is a sign that a person doesn't
have enough cash to buy what they want and they
have to borrow.
Consumerism has reached the extreme that some people
couldn't buy toilet paper if they didn't have a credit card!
Banks are having a field day issuing new credit cards to
you because their business is to charge interest (and
they're earning lots!) increasing your debt to suffocating
For this reason, credit cards should be used for one
purpose only: as a substitute for cash.
|You see yourself as some kind of Super Hero and are
impervious to any threat or harm.
It is very common to believe that the
problems which affect others won't fall on us and
we don't realize our vulnerability until it's too
Sickness, accidents, law suits, layoffs and death are all
too common to ignore.
With this in mind, if you have felt that you have super
powers and are one of the Justice League's heroes, you'd be wise to think again and re-evaluate
the risks you face.
|You believe in the fountain of youth and you're never going
to have to worry about retirement.
Ironically we're growing old from the
moment we're born but we never worry about
retirement until a few years before it happens.
This is a frequent error that greatly limits the options
you could have by planning for retirement early.
Early retirement planning gives you the
most options to choose, adapting them to your needs with
ease and getting time to work for you.
|You invest like you were playing a slot machine.
Not knowing if we're investing a lot or a
little, or not really understanding what we're
investing in, is a sign that we may be facing
risks which are not necessary or for which we're
not prepared to face.
Following this logic is like buying a lottery ticket --
and we know that in the lottery most people lose and very
few come out winners, right?
Knowing your investment profile allows you
to invest without losing your shirt, and without passing up
|You believe that after you've built an estate all is done
and you can die in peace.
This mistake is like breaking a leg just
before you cross the finish line.
Besides causing a great disappointment and problem for
your family the cost of not planning your
estate is high because all of your life's sacrifices end up
leaving little benefit to your loved ones.
Plan your estate in advance to pass on the fruit
of your labours and you really can rest or recover
|You're unaware of the effect of taxes on your net worth or
you believe there's nothing you can do about it.
Although it's true that there's little we
can do to change our tax obligations as employees,
we still can take steps to optimize them.
On the other hand, if we are in business for ourselves,
the tax picture changes radically and we can take advantage
First analyze your tax picture from all
angles which affect the kinds of decisions and activities
which you can realize. Next act to optimize your
situation according to the goals you set.
As you've noted, all these mistakes which we all make beginning
with our basic values and education. For this reason they
are deep rooted and unsound financial planning is just another
reflection of what you believe and hold important.
Whit this I don't want to say that we're all going to fix
everything today. On the contrary, I believe a self evaluation
concerning these financial aspects can help you to know yourself
and show you some reasons why you act or react in a certain way
which leads to erroneous financial planning or even no plan at
The true cause of an unsound financial plan
To reach the solution to a poor financial plan, you first need
to uncover the real causes. You can ask yourself question
- Do I have enough self discipline? If no, why not?
- Am I a person who likes to plan or do I prefer to live one
day at a time? Will this feeling change when I have a family?
- Am I a risk taker or a risk avoider?
- Do I look to others for recognition and approval?
- Why do I go shopping when I feel down? Even more, why
do I feel down?
As we stated at the beginning, a poor financial plan can be avoided if correct the mistakes we've mentioned. In reality it is highly unlikely that a
person hasn't already made some mistakes, but this guide aims to
help you in the task of correcting them and avoid continuing through life with a bad financial plan.
Now you know how to avoid a bad financial planning that's not to say that you're going to be perfect. You'll make your own mistakes and learn from them, but you'll
also undertake to know yourself and avoid the pitfalls of others
in your financial plans.
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