6 Common Mistakes Professionals Make with their Finances
Written by Tanya Carlson, Amplify Wealth Management
As a busy professional, you likely face unique challenges when it comes to managing your finances. While your career may be highly respected and well-compensated, the demands on your time can lead to some common financial planning mistakes. Here are six mistakes that professionals often make and how to avoid them:
1. Failing to Plan
One of the most dangerous strategies is doing nothing at all. Failing to plan means spending all of your income without setting structures and plans to create future wealth. Over the long term, the value of compounding interest cannot be underestimated. Taking an impulsive approach to investments, such as buying property or shares based on a friend's recommendation or news reports can also lead to poor financial outcomes. A real financial plan should be based on the aspirations that are important and significant to you (not someone else).
2. Making Investment Decisions Solely Based on Tax
While it's understandable to want to save on taxes, making investment decisions with the primary objective of saving tax can be risky. Many schemes that promise tax reductions have instead cost investors greatly. For example, negative gearing of properties often focuses on tax deductions rather than long-term capital growth. All investment decisions should be made with consideration to your future needs for income and capital growth as well as risk tolerance and cash flow requirements. Investments should be reviewed regularly to track progress.
3. Forgetting About Superannuation
Superannuation offers many benefits that will reward you at retirement, but it's often ignored until the last minute. Leaving it too late may limit your ability to build up your super balance due to contribution limits. Planning to use superannuation as a major income source in retirement requires time to build wealth in this structure. It's important to start planning well ahead of retirement, ideally 15-20 years in advance.
4. Not Considering Personal Protection
Your biggest financial asset is your ability to earn an income throughout your career. Many professionals don't adequately protect their incomes from disruptions caused by sickness or injury. Without sufficient personal insurance (life, disability, and income protection), you can be hugely exposed. Getting adequate cover in place early is critical, as health issues that impact insurability can accumulate over time. Insurance products can be complex to navigate so seeking professional advice can result in tailored policies.
5. Doing It All Yourself
While you may be well-read and enjoy finance, making investment decisions for your future takes time and consideration. It's important to stress-test and model your decisions. Getting assistance from financial professionals can also help you stay disciplined, track progress and keep accountable to your goals. Collaboration with your accountant and other experts ensures that your structuring is suitable to your circumstances.
6. Taking on Too Much Debt
Access to private banking facilities with special lending terms can be tempting, but it's important to consider your time frame and goals to ensure debt can be repaid within your chosen time frame. Understanding how debt can assist you to achieve your goals and then stress testing this against your current cash flow and expenses is essential to ensure you are not taking on too much.
By avoiding these common mistakes and seeking professional advice, you can create a solid financial plan that supports your long-term goals and provides peace of mind.
Author Tanya Carlson has worked with individuals, families and businesses on a full range of financial planning services. With a passion for superannuation and wealth creation, she has helped her clients achieve their goals in the lead up to retirement and managed their assets through their golden years. Tanya has extensive experience in all areas of personal insurance. This is an area of financial planning she holds strong beliefs in due to an unforeseen disability in her family. Tanya will educate you on the areas of insurance that may be applicable to your needs. Tanya is also known in the community for assisting clients going through separation and divorce. Seeking financial advice early can provide some peace of mind and clarity during this difficult time. Her clients love her due to her warm and caring nature and her knack for making complex financial matters easily understood. They take great comfort in knowing they are dealing with an expert as Tanya is highly accredited and holds a Master of Financial Planning as well as many years of experience.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with our team one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and/or other advice as may be appropriate having regard to their particular circumstances.
