There will be pitfalls in nearly every journey we venture on. Here are some of the pitfalls to avoid in your life and financial planning journey.
It is usually difficult to see things through if you do not have a vision of the end in mind. This applies to many aspects in life, including your finances. In your life planning process, goal setting is the first and most important step. Establishing your life goals gives you clear direction in how you want to plan your life journey and systematically achieve the goals.
However, there will be pitfalls in nearly every journey we venture on. Here are some of the pitfalls to avoid in your life and financial planning journey.
This is the ultimate and most common pitfall. Spending nearly all of the paycheck is a common phenomenon among those in their 20s. This is even more likely if they are single and do not have family commitments.
Unfortunately, such a habit will negatively impact them if they decide to settle down and start a family. There is quite a huge sum of money needed for a wedding, purchasing a house, renovations, and even furniture. Without much savings to fall back on, many young couples resort to taking up loans to finance these.
While it is true that these young couples have the vigor and time to earn money and repay the loans, having to take up a loan puts you at a disadvantage compared to your peers who can start a family without having to take up a loan. Those who don’t have loans to repay can start planning for their children’s education, invest in a second property and start planning for retirement.
Your first paycheck is a pivotal point in your financial planning journey as it brings you from having zero income to receiving a regular salary. You should start saving right away from this moment and watch your savings grow. It will also be easier to save as your financial commitments and expenses will be low when you first start working.
Another common pitfall which can seriously be detrimental to your overall financial circumstances is overspending. This usually happens because people focus only on the first goal and fail to see or plan beyond it. For example, it is common to see young couples overspending on a lavish wedding or spending beyond their means on their first house.
People who do this usually also have the confidence that they would be able to save up enough again to reach their other goals. This is a blind spot because they fail to realize that they were only able to save as much as they could because they had little or even no huge financial commitments. It’s important to understand that you’ll only have more financial commitments as you get older.
After spending on your wedding and first house, you’ll need to spend on the mortgage which is a huge commitment that will deplete your finances fast. If a child comes along the way, that will also be another major financial commitment. With all these heavy commitments, you’ll find it much more difficult to save as much as you used to. It’s hence not wise to overspend on your initial goals and instead do proper planning and budgeting. This will prepare you for any sudden obstacles that arise.
Investments are all about time. Give any investment ample time and you’ll receive the due returns. It hence wise to start investing as early as you can as you’ll be giving yourself more time to fully leverage on the compounding interest on your savings. Starting early also give you more time to cushion the impacts of an extreme market downturn.
Perhaps being unaware of these perks to starting investments early, many young people will instead spend their savings on short term goals of indulgent activities like traveling or overspending on their children.
When it comes to achieving goals, most people don’t work towards their goals collectively. They instead look at their goals in isolation to the rest and mistakenly think that they would be able to reach each goal on its own. However, all your goals may be harder to reach than you think in reality if you view them collectively.
Chances are, you won’t be able to achieve it all at once. If your top priority is spending on your child’s education, then you might need to cut down on the annual holiday trips. Or if you wish to purchase landed property, you might have to settle for a mid range car instead of a luxury car.
Now that you’ve got your life and financial goals and plans laid out, you’re going to need discipline to follow through and not give yourself excuses. Acting it out is more difficult than planning and it takes willpower, focus and discipline to stay on course. It also important to review your financial plans or goals with your coach regularly so that whatever changes that occur in your life and finances can be accounted for and adjusted to.
Most of your life goals will revolve around money, and ensuring that you have enough of it to enjoy the quality of life that you desire. By avoiding the pitfalls above, you will have started on your journey to realizing your goals.
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