The beginning of the year is a perfect time for advisors to help consumers ensure that their financial resolutions become reality. In Part 1 of this post, we looked at four critical moves that can help most consumers. Now, let’s look at the most common financial mistakes we can help consumers avoid:
- Lowering Savings Over Market Concerns – Listening to the financial media each day can make people lose track of the big picture. We must encourage consumers not to react to daily movements or the latest bad – or good – news. Ensure your clients are saving what they need to save, and check their asset allocation to make sure it reflects their goals and risk tolerance.
- Ignoring Their Largest Asset – If a client takes their annual income and multiplies it by the number of years until their retirement, the result is likely a number larger than any of their current investments. The ability to earn income is probably their largest asset. If they do not have that asset insured with disability income insurance, they are putting their future at risk.
- Procrastinating – Let’s face it, most of us put off those things that aren’t urgent. So, really important things like having a will, starting a college fund for the kids, or making sure we have enough life and income insurance don’t get to the top of our “to do” list. But once they become urgent, many times it is too late. Help your clients make a list of the important things, and make sure they do one of them at least every week (or every month if they have fewer items on the list).
- Not Actually Maxing Out 401(k) – Many people I counsel say they are maxing out their 401(k), but when we look at how much they are investing, they are only putting in the amount their company will match. The match is just one small benefit of a 401(k). The other benefits are significant enough that people should contribute as much as they can above the match amount.
What other common mistakes are your clients making when it comes to financial planning? What other tips do you have for helping consumers achieve better financial success in 2008? Any success stories from 2007?
