The seven financial sins

Blew the bank on a spending splurge? Welcome to the club. You’ve just committed one of the top seven financial mistakes that many of us make. Left untended, they could shrink your nest-egg or even delay your retirement for years. Here are the seven deadly financial sins, and some hints on how to become virtuous again.

1. Banking it

Perhaps the most common mistake that even smart individuals make is thinking of the bank as a kind of surrogate advisor. It isn’t. A bank provides various financial services for a fee. And a bank account pays little or no interest these days. Certainly not enough to cover all the assorted fees that banks charge. Not only is the interest paid on deposits virtually non-existent, but taxes and inflation will pretty much eat up whatever return you get.

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2. Too many cooks

In fact, in our busy, busy lives, we’re almost always “running late” for just those everyday things, like dinner or picking up the kids from practice. There just never seems to be enough time. Never mind time for something as complicated as financial planning. For most of us, “it just sort of happens” (or, often, doesn’t happen.)

The mistake here is that with all that “busy-ness,” we’re apt to end up with an indigestible stew of different “advisors.” A bank “representative,” an insurance agent, a mutual fund salesperson, a stock broker. Before long, you won’t know whether you’re coming or going. Still worse, you will probably end up with conflicting advice.

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But in one way or another, all of the pieces of your personal financial world are inextricably linked! To render sound advice, an advisor needs the whole picture.

So how should you pick an advisor? That’s the third financial mistake many of us make.

3. Rolling the dice on an advisor

“She has a nice office!” Or “He really knows investments – I didn’t understand a word he said!” Or “She’s my second cousin – she must know what she’s doing.” Believe it or not, those are pretty typical reasons why people select a financial advisor. And none of those are good reasons.

Once you’re established in your profession or career, and you’re accumulating a sizeable nest-egg, a second cousin, a bank teller, insurance agent, or a friend of a friend “in the business” will no longer be enough. Chances are you’ll need expertise in these three key areas: financial planning, investment, and insurance.

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Very often a financial planner can fulfill all of these roles, acting as a quarterback for all your other “advisors.” Start with someone who has the Certified Financial Planner designation.

4. Waiting for the dough

“How can I have an advisor if I’m broke?”

If you’re scratching around the bottom of your purse for the price of your daily latté, or your debit card regularly gets rejected for “insufficient funds,” that may be clue that you really do need a financial planner. And soon! If you have a good job, perhaps a home and a growing family, and some money set aside in a nest-egg, a planner could help you set reasonable objectives and work out a plan to achieve those objectives. Like having cash on hand for that latté and a debit card that always works.

5. Relying only on mutual funds

Chances are that at some time in your life you’ll invest in a mutual fund. The reality is that very few mutual funds perform better than a standard benchmark market index, like the S&P/TSX Composite Index or the S&P 500 Composite in the U.S. And now with very low-cost exchange-traded index funds (ETFs), you can actually invest in an entire stock index.

Fees and expenses associated with mutual fund investments can be a major factor in your standard of living at retirement. Get proper professional and unbiased advice.

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6. Buying an insurance guarantee

Many people invest in products sold by insurance companies that guarantee the principal investment and/or or guarantee an income stream for life. But those guarantees come at a steep price, typically in the range of 1% of assets annually. If a guarantee is what you really want, there are alternatives without the high cost associated with some of these products. Do your research and speak to an advisor.

7. Living beyond your means

Let’s face it: Too many of us tend to spend what we make, and then some. But when you blow the budget on that new Coach bag, you have no money left to invest. There is no magical way around this. But a good financial planner can really help put that spending genie back in the bottle. With a plan, you can visualize your situation. Remember, your plan and budget are a process – one suited to your lifestyle and your objectives.

GoldenGirlFinance.com is a free personal finance and education site for women.

Nothing contained herein is intended to provide personalized financial, legal or tax advice. Nothing should be construed as an offer to sell, or a solicitation of an offer to buy a security, a recommendation for any product or service by Golden Girl Finance or any associated third party, or a suggestion regarding the purchase, holding or sale of securities. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.

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