We all slip up when it comes to handling money. But sometimes small infractions we think are no big deal, end up becoming mistakes that sabotage our long-term wealth. Be careful not to make these five mistakes.
1. Carrying debt
Debt, especially consumer debt, is the mortal enemy of long-term wealth! One of your first goals in protecting your long-term wealth is to make a debt pay-off plan and stick to it.
The techniques are two effective ways to dig your way out of debt. One thing you can start doing immediately is paying as much as you can above the minimum due on your debts so more money goes toward paying off the principal balance.and
2. Committing common investing mistakes
One of the surest ways to build long-term wealth is to start investing early and stay consistent with those investments. You also need to have a plan in place that ensures your investments are diversified and aligned with your time horizon (when you need to use the money), asset allocation (into which type of investments – e.g. equities or bonds – you put your money) and risk tolerance.
It’s also easy to forget to rebalance your portfolio from time to time to ensure that your investments still sync up to your asset allocation. If one investment performed particularly well, it could’ve thrown your allocation out of whack. For example, you could have had an 80 percent stock, 20 percent bond split – but after some stocks did well, you’re now at a 90 percent stock and 10 percent bond allocation, which no longer aligns with your risk tolerance.
You also need to understand how.
3. Failing to put a tax strategy in place hurts your long-term wealth
Of course, you have to pay your taxes, but it’s a time-honored American tradition to figure out how to work within the rules to pay the least amount possible. You should aim to take advantage of every opportunity to lower your tax liability. Ultimately, that gives you more opportunity to save and invest more into building your long-term wealth.
Do some research, and determine whichyou can use. You could try maxing out your retirement savings, creating a charitable trust, or even going so far as to move to a state with no state income tax.
If you filed with TaxAct this year, log back into your account to download your free, customized My Tax Plan*. It’s a detailed action plan that can help you make next year’s refund even bigger through tax-smart savings recommendations.
4. Not being properly insured
It’s an unfortunate reality that one major medical emergency could do some serious damage to your net worth. For this reason, it’s important to maintain adequate, effective health care coverage. You should also aim to save up the amount of your deductible as part of your emergency fund. That way the money is there if you ever need it.
If you’re eligible, Health Savings Accounts (HSA) are a great way to save for future medical expenses. You also get a nice tax benefit out of the deal because your contributions are tax free when spent on qualifying medical expenses.
It’s also important to have appropriate insurance coverage for the other areas of your life. For instance, think about the insurance needs for your home or apartment and vehicle. It’s also imperative to have both life and disability insurance – especially if a family depends on your income.
5. Poor retirement planning
Saving up to be financially independent and not reliant on a paycheck is a huge long-term wealth goal for everyone.
One of the easiest ways to start is to save for retirement is through a 401(k), IRA, 403(b) or similar retirement plan. If you’re eligible for a company match on your retirement plan, save at least enough to take the match. Retirement contributions are also another great way to lower your taxable income.
If you’re too overwhelmed at the thought of actually picking investments, you can start by using a target-date fund. That automates your investments to move from aggressive to moderate to conservative as you reach retirement. Once you become a more confident investor, you can start and .your investments to align with your own
*We’ll create a customized My Tax Plan with refund-growing opportunities and easy-to-follow instructions based on information you provide for your current tax return. We will highlight potential tax savings, so your next year’s refund could be bigger.
More to explore: