Financial Blunders Program Recap

Thank you to Larry Metzler from the Society for Financial Awareness for discussing the many mistakes we all make while managing our money and planning for our financial future.  Money is very important in our lives and we can often make small, seemingly insignificant mistakes that can hurt our financial well-being down the road.  Whether it is from ignorance, outdated advice, or a false sense of security, people keep making the same blunders and revert to old, bad habits. However, by making a written financial plan and determining where everything money-related fits into that plan, we can identify those mistakes and help better utilize the limited amount of money we have now and in the future.

Most Common Blunders

• Ignoring the Basics of our Cash Flow Planning (Budget) – We commonly think of our budget as our paycheck vs. our essential expenditures, but there is a lot more that should go into our thinking and preparing.  Do you have insurance to protect those we love in the event of a death or tragedy; most of the time, the answer is no or not enough.  How are your investments doing; just expecting them to work out in the long-run is not sound advice.  Are you preparing your taxes or planning for your taxes; you should try to plan ahead for your taxes, including all deductions, rebates, and penalties, and see how any payments can fit into your overall financial plan.  Do you have any estate planning, such as a will; it is never too early in your adult life to have a will and other estate planning documents.
• Tax Refunds! – Many people live for their tax refund each year, but that essentially means that your are deliberately overpaying the federal government throughout the year.  Could you use that extra money throughout the year?  You can adjust your withholdings to make sure that you paying only what is required and get money back in your pocket each paycheck, which can help you better plan your personal finances, such as setting money away for that new car or family trip.
• The Great Assumption – Some people have a belief that the stock market will always go down eventually so why waste your money.  While it is true that there are crashes and recessions, the overall trend of the stock market is positive.  Staying invested in various stocks or funds and diversifying your portfolio can have a positive impact on your finances, especially as you plan for retirement.
• Omitting Important Items from your Retirement Planning:
  • One of the biggest aspects of retirement planning that most people forget to consider is inflation.  If your rates of return on your retirement investments do not keep pace with inflation, you are loosing money because each dollar does not have the same spending power as it did when you invested it.
  • We often forget to think about increasing taxes when planning for retirement and may end up having to spend profits from investments or larger portions of our fixed income to pay for higher taxes.  For example, the Trump-era tax cuts will expire in 2026; are you prepared for taxes to increase after that?
  • Our spending behaviors have a great impact on how we should be planning for our retirement.  Do we like to shop for designer brands?  Do we love taking vacations and traveling the world?  Do I need to have that expensive brand name coffee every morning?  All of our these should impact how we plan for our retirement to ensure we can continue to live the lifestyle we have while actively working, should we want that.
  • Many retirement investments or employer pensions are tied to the stock market in some way, whether through direct investments or other vehicles that fluctuate based off of the stock market.  Therefore, your retirement assets/portfolio should be able to respond to market corrections with the least negative impact for you.
• The Credit Card – Credit cards are a great way to build your credit, but we often misunderstand how to use credit cards properly.  When determining whether to purchase something on a credit card, think about these 3 things:
  • Is the item I want too expensive?  Is there a less expensive version of the item I can afford without having to use a credit card?
  • Is this item a want or a need?  Many times we misrepresent our wants as needs to justify buying it.  The better option is to set up a separate account to save for our wants.
  • Why am I purchasing this?  Most times, you are purchasing something with a credit card because you don’t have the money.  Will you be able to pay this off right away? Are you able to afford the high interest rates?  Remember, credit cards are using an institution’s money, not your own!
• Our Mirror Test – We have to understand and own our spending habits and financial decisions, admitting when we’ve made mistakes.  Failing to do so creates denial and an environment where we can continue to make bad choices, increasing our debt and pushing our dreams farther away.
• Financial Professionals as a Cost – There are 3 key people who can help us become financially sound; financial advisors, accountants, and estate planning attorneys.  While it is true that there is a cost associated with their services, we should start viewing them as “sound investments.”  If used properly and in conjunction with each other, we can make sound financial decisions and plan for growth throughout our working lives and into retirement, even leaving a legacy for our children.
• I can take Social Security at age 62! – You can start collecting Social Security at age 62 (earlier for some situations), but is it worth it?  You’ll be receiving significantly less benefits than waiting to full retirement age or longer; would that extra money help?  Additionally, if you still plan on working, there are income penalties that may cost you a lot of money.  For example, if you take Social Security at age 62, for every $200 a month you earn in income, your monthly benefit is reduced by $100.  By the time Social Security notifies you, it may be past your 12 month period to change your Social Security claim decision.
• I Know Its Coming, But… – We all realize that things will happen in the future; new car, kid’s college, our retirement, child’s wedding.  However, we often fail to start planning for them early enough, if at all.  Start putting away money for important/large financial expenditures as soon as possible, even if it just a small amount.  Can’t afford it, try using the snowball method to pay off your debt.  Start with the lowest amount of debt and pay that off as quickly as possible.  Then, once that is payed off, use the money that would be spent to pay that debt and put it toward the next smallest debt amount.  Continue this until you are relatively debt free; look at all that money you have now to start saving and planning!!
• The Unspoken Assumption – We are often too complacent with the idea that the government or our employer will take care of us, creating a sense that there is little risk to only relying on Social Security or employer pensions to fund our our retirement.  While these retirement mechanisms are great and can certainly help us plan our financial future, there is no guarantee that those things will be there in the future.  Maybe the employer stops funding the pension temporarily or permanently; perhaps Social Security is dismantled and all funding is used to pay for other programs; what if your pension/Social Security cannot keep up with inflation?  What if…

If you have any questions related to the program or your own personal finances, please contact Larry Metzler at lmetzler@metzlerlaw.net or schedule an appointment at https://calendly.com/lmetzler-1/60min.  You can view a recording of the webinar at https://youtu.be/AOKkY5_VrP4.  You can download a copy of the handouts below:

LIFE Plan 2021
Sequence of Returns Risk White Paper