By Paul S. McNulty, CFP®
As an independent wealth manager, I get all kinds of reactions from everyone who steps into my office. From fear to confusion to stress and sometimes relief. Oftentimes, these reactions stem from lack of knowledge when it comes to my clients’ wealth management.
It is my personal mission to figure out effective strategies so my clients can obtain their financial objectives. It all starts with an open mind, sharp ears, and a willingness to learn.
If you are struggling to wrap your head around your finances, please review the following common financial mistakes to avoid, and read my tips to help you prevent potential pitfalls.
1. No Written Plan To Pursue Specific Financial Goals
It is one thing to say you are going to do something, it’s another to actually do it. While financial goals are made of dreams, they need to be brought into reality. In order for you to reach your financial goals, you have to have a plan as to how to make it all happen in a realistic frame of time. Take some time to sketch out some possible strategies or get together with your financial advisor to discuss all of your different options. Once you know exactly what you need to do, commit everything to writing so you know exactly how to move forward without question.
2. Not Preparing For The Unexpected
It doesn’t matter how lucky or careful you are, you just never know when life will take an unexpected turn: a sudden trip to the emergency room; your car breaks down due to major engine issues; the water heater in your house needs to be replaced. All of these hypothetical situations can happen at any time to anyone, and when they do, they can cost hundreds or thousands of dollars. This is why it’s extremely important to put some of your money away into an emergency fund should the unexpected happen. After all, it is better to deplete your savings for a rainy day than not have the money at all to cover these issues.
3. Not Using Tax-Advantaged Retirement Plans
Whether you have an independent retirement plan or a plan through an employer, one huge differentiator across the board for all retirement plans are the tax advantages, specifically how certain plans can benefit different individuals by applying different tax benefits depending on their needs and income. For instance, if you do not have an employer-sponsored plan and you know your tax rate will increase after you retire, then getting a Roth IRA would be well suited to your situation. Taxes are collected right away for Roth IRA contributions, and after that, any growth in the portfolio is tax-free. However, if you have an employer-sponsored 401(k), then the contributions would be taken directly from your paycheck, decreasing the amount of income taxes you have to pay to the IRS. Make sure to look at the retirement plans that are available to you and figure out which ones would give you the most tax advantages based on your career situation.
4. Underestimating The Length And Cost Of Retirement
While it is difficult to think about how much longer you are going to live after retirement, it is vital to think about it, as retirement is quite expensive, especially when medical bills start adding up. Currently, the life expectancy of the average citizen in the United States is 78.7 (1) years old, and the expected retirement age for the majority of the population is around 66 years old. (2) With this trend, this means that the average person would need to have enough income in their retirement to last them for 12 years, at least. When it comes to retirement, play on the optimistic side by planning to live a long time, and plan your retirement savings around that estimate.
Each potential mistake in this article presents an important lesson that everyone should know when it comes to their finances. The truth of the matter is, figuring out all of this on your own can be very overwhelming and hard to navigate. This is why seeking help and advice from an experienced financial professional is extremely important. A financial professional can get you where you need to go faster, while looking out for your financial well-being.
We’d love a chance to use our unique process to help you work towards achieving your financial goals. Please contact us at Boston Metro Advisor for a complimentary consultation by calling (781) 995-0253, or email me directly at [email protected] today!
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.
Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.