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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 plans.

Unsound financial planning errors
Detection and Solution
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 plan.

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 control expenses.

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 levels.

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 late.

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 good opportunities.

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 in peace.

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 of this.

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 all.

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 like:

  • 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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