Are you aiming for significant life goals, such as purchasing a home or achieving early retirement? A crucial first step is to manage your spending wisely to enhance your savings and investment efforts.
Here are some financial errors you might be making that could have significant consequences:
1. Excessive Cash in a Savings Account
Many individuals keep an overly large sum in their savings account out of uncertainty about other options or fear of losing money.
While it’s advisable to maintain an emergency fund, typically, this should cover only three to six months of your fixed and variable expenses.
2. Inappropriate Risk Balance
Randomly selecting investments can lead to a portfolio that doesn’t align with your risk tolerance, either being too conservative or too aggressive.
Understanding your risk tolerance and your investment goals—whether short-term, medium-term, or long-term—can help you formulate a suitable investment strategy.
3. Misaligned Investment Time Frame
Have you considered when you will need to access your investment funds? Are you investing with a short-term, medium-term, or long-term perspective?
Knowing your risk tolerance and investment horizon will guide you in crafting an appropriate investment plan.
4. Overconcentration in Individual Stocks or Single Asset Class
Relying too heavily on one industry (like tech stocks) or one asset class (such as Australian shares) can be risky and lacks diversification. To mitigate risk, consider diversifying your investments across different sectors and asset classes.
5. Inadequate Financial Protection for Loved Ones
To safeguard your superannuation investments, ensure that your accounts have nominated beneficiaries, which can help bypass probate. Similarly, non-superannuation investments held in joint names can facilitate smoother transitions to the surviving partner, avoiding probate delays and expenses.
Additionally, having life insurance policies with each other as beneficiaries ensures that, in the event of one partner’s death, the surviving partner can use the insurance payout to cover debts and maintain their standard of living.
If you need help overcoming any financial mistakes you may be making, now may be the perfect time to engage or reengage with a financial planner.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.