Whether you’re maxing out your 401(k) in the US, waiting to qualify for the pension in the UK, or using SMSF accounting services in Australia, there are certain pitfalls you’re at risk of falling into as you prepare for your future. In this article, we cover five of the biggest mistakes people all over the world make when planning their long-term finances.
Mistake 1: Not planning for retirement
When you’re in your 20s and 30s, it’s hard to put money away into an account you won’t be able to access for 50 years. You might not even live that long, so why lock your funds up when you could be using them to enjoy the present moment?
While there is some merit to this way of thinking, and you certainly should enjoy your youth, it’s also crucial to take advantage of the retirement funds available to you. The younger you are when you start investing, the more time you have for compound interest to work its magic.
Mistake 2: Not tracking your expenses
If you’re managing to save money each month and invest regularly into your retirement account, you may get complacent about tracking your expenses. Why go to all that effort when you’re doing just fine?
Once again, this line of thinking makes sense. However, you could be missing out on the opportunity to make your money go the extra mile for you. $10 spent on a fast fashion impulse buy will never do more than get you that shirt you only wore once. That same $10 invested in your retirement fund will grow by the month, giving you far more value in the future.
By tracking your expenses, you’re forced to face any wasteful habits, helping you move your money in more meaningful ways.
Mistake 3: Counting on your inheritance
Even if you’re an only child lined up to inherit everything, it’s a mistake to rely on this as your sole retirement plan. From romance scams and costly hospice care to fires and natural disasters, all sorts of things can eliminate this windfall from your future. It’s far better to make yourself financially independent, and if you do eventually receive an inheritance, you’ll be even better off.
Mistake 4: Trying to time the market
When the pandemic was first announced, many Australians logged into their superannuation accounts to see a dip of as much as 30%. This triggered panic among people who’d never seen their accounts drop so drastically. The Australian government offered people the opportunity to withdraw from their retirement funds to cover unexpected costs related to the pandemic, and many people did. This move locked in their losses, which is the opposite of what you want to do as an investor.
Instead of trying to time the market, just invest consistently and avoid checking your balance too often. Over time, the ups and downs will even out into steady growth. To ensure you never need to pull from your investment accounts when they’re down, it’s also vital to have an emergency fund.
Mistake 5: Not maxing your company match
If your employer offers to match voluntary contributions to your retirement fund, it’s vital to max out this opportunity. Failing to do so is quite literally throwing away free money. So take advantage of every cent you can get.
Keep these factors in mind as you assess your finances, and avoid falling into the traps. With patience, discipline, and a healthy dose of willpower, you’ll be on track for a more comfortable financial future.