Avoid These 7 Critical Financial Planning Mistakes

Avoid These 7 Critical Financial Planning Mistakes

A solid plan is foundational to your financial wellness, so it’s important to get it right. Here are seven common mistakes and ways to avoid them. 

1. Not having a written financial plan. The only way to know for sure that you haven’t missed anything important is to write it all down. Your financial plan should include all aspects of your personal finances, including your budget, investment targets, retirement goals, debt reduction strategy and insurance protection. 

2. Not reviewing your plan. Did you make a financial plan a long time ago but haven’t looked at it since? That could be a problem. Once you’ve written everything down, meet with a qualified financial professional regularly to make sure you remain on track, and make any needed adjustments. Do this at least annually or whenever your situation changes significantly. 

3. Delaying saving for retirement. It may feel like you have all the time in the world when it comes to preparing financially for retirement, but your golden years will be here before you know it. Don’t neglect this crucial part of your financial plan. Setting up automatic contributions to your 401(k) — and increasing them regularly — is one of the easiest things you can do to put yourself on track for retirement readiness. 

4. Lacking sufficient emergency funds. Having to deal with an emergency can derail any financial plan and potentially land you deeper in debt. Set up an emergency fund of at least three to six months worth of expenses. That way, if your vehicle or computer breaks down, you don’t have to reach for your credit cards or raid your retirement account to pay for it. Also make sure you have adequate insurance protection for your car, home and other possessions.  

5. Paying only the minimum amount due on credit cards. It may be tempting to just meet the minimum obligation on your monthly credit card bills. After all, why pay more than you have to? But that reasoning falls short when you look at how it affects you in the long term. Over time, your total interest costs will be higher, and you’ll be in debt longer, if you only pay the minimum balance. In fact, card issuers are required by law to include a “minimum payment warning” on each statement, which shows you the total amount you’ll pay, including interest, if you choose to send only the minimum required amount each month. Instead, pay as much as you can above the minimum — or if possible, pay the statement balance in full.  

6. Overspending on housing and cars. Housing, food and transportation are often the three largest expenses in household budgets. And overspending on any of them can make it difficult to stick to your financial plan. Many financial experts recommend spending no more than 28% of your total income on housing — and no more than 36% of your income on your total debt, including credit cards and car payments.  

7. Not seeking help from a professional when needed. If you’re struggling financially, don’t just wish that things will get better. Sit down with a qualified financial professional to create a realistic and comprehensive financial plan that meets your needs and goals. Because when it comes to your financial future, a solid plan will beat out a wish every day of the week.  




What Is ESG Investing?

What Is ESG Investing?

If youre committed to social and environmental causes, you may already purchase products from companies that align with your values when you shop. However, you may not be aware of the ethical investment choices that might be available right within your 401(k) plan. These funds are called ESGs.  

ESG stands for environmental, social and governance. The designation is given to investments deemed environmentally or socially responsible. Heres an overview of ESG funds and considerations when deciding whether to invest in them.  

ESG Ratings Vary 

There’s no definitive standard to determine whether a fund receives an ESG designation, but many organizations — such as MSCI ESG Research and the Dow Jones Sustainability Index — have their own rating systems. And they can use different criteria to rate investments, which means the same fund may receive different ESG ratings. 

An ESG investment doesnt have to meet criteria for all three categories, which is why its important to research funds for yourself. If your primary concern is sustainability, for example, an ESG label doesnt necessarily mean the fund is environmentally friendly. It could have been categorized as an ESG fund because of its labor policies, diversity or leadership.  

Categories Can Be Broad 

ESG designations can cover a wide range of ethical considerations even within each of the three individual components.  

  • Environmental. Environmental factors include sustainability and conservation efforts both within a company as well as its supply chain. For instance, a carbon-neutral business could get an ESG rating, but so could one that uses renewable resources.  
  • Social. Social issues pertain to how people, both inside and outside of the company, are treated. Criteria may comprise fair wages, worker health and safety, employment benefits, nondiscrimination policies and commitment to supporting social causes. This category may also apply to the products a company sells.  
  • Governance. Governance considerations encompass company leadership and structure, such as how equitable and diverse the companys management is, and how ethically they conduct themselves. It can also reflect an organizations political contributions, lobbying efforts and initiatives to improve diversity and inclusion. 

Evaluating ESG Investments 

While it may be important to you that a fund aligns with your values, you should evaluate it as you would any other investment especially when youre considering including it in your retirement portfolio. Even if the fund reflects your ethics, consider its investment risk, management and historical performance. 

If an ESG fund appears to be a prudent choice for you, research the companys investment philosophy and actions. An investment might receive an ESG designation because of how it functions in one area, but there could be other factors that dont reflect your values.  

Good Business Can Be Good for Business 

While an ESG fund doesnt ensure positive returns, many of the practices that lead to an ESG rating can be good for business and customers in the long run. Reducing waste, for example, can save money, and keeping workers happy can help avoid costly strikes. Plus, conservation can help everyone living on the planet avoid paying a premium for limited resources. Nonetheless, just as with any investment, its always a good idea to do your homework first and make sure ESG funds are a good fit for both your values and your wallet. 


Beat These 5 Budget Busters

Beat These 5 Budget Busters

It happened again. You started the month determined to keep spending within your budget, only to come up short on contributions to your retirement and other savings.  

How can this be? 

Many factors can steer you off course on monthly spending, but a few particularly common culprits are often to blame. Here are five budget busters and some smart strategies to beat them.  

1. Subscription Services 

Premium sports and movie channels are great fun, but subscription creep is common as more channels join your viewing rotation, monthly charges increase over time and free trial periods quietly end.  

Smart savings strategy. Cut back channels to just your favorites. Avoid in-app purchases and only watch shows included in your programming package. When possible, replace premium services with free or lower cost, ad-supported plans.  

2. Unexpected Repairs 

Things break thats life. Computers crash, TVs stop working, appliances wear out, cars break down and phones get dropped. And it can be hard to stay on budget when they do unless you take steps to prepare. 

Smart savings strategy. You cant expect things to never go wrong, but you can establish an emergency fund of at least three-to-six months of expenses for when they do. Good maintenance habits can also help minimize repairs. And be sure to take advantage of any purchase protection that might be available for items bought with your credit card. 

3. The Urge to Splurge 

Weve all walked out of the grocery withextraswe didnt plan on buying or come home from the mall with a new sweater that was too good a deal to pass up or given into the desire for a pricey mochaccino at the coffee shop. While occasional indulgences are rarely problematic, frequent ones can add up. 

Smart savings strategy. Bring a list to the store and avoid recreational shopping. And dont grocery shop when youre hungry — going to the supermarket with an empty stomach increases the chances that you’ll leave with a loaded cart. Spend cash to help keep credit card balances under control and set limits for online shopping (its just too easy toclick to buy). If a purchase is beckoning you, consider layaway or wait to see if the urge passes. 

4. Dining out 

Eating at restaurants is a treat, but it can be easy to spend more than you intended. If your monthly restaurant tab is starting to look more like a car payment, there are things you can do to prevent your favorite eatery from taking too big a bite out of your budget. 

Smart savings strategy. Limit eating out to once or twice a week or month, depending on your budget. Instead of fine dining, try informal, less expensive bistro meals. Alcohol adds a lot to the check, so limit consumption when dining out. Split a meal or have an appetizer instead of an entree. Look for early bird or happy hour specials and swap out a steak splurge for a less expensive pasta dish. 

5. Delivery Fees 

You can get almost anything delivered today, from cat food to a new car. But convenience can come at a hefty price. Whether for meals, clothing or other online purchases, delivery services can make everything you buy more expensive.  

Smart savings strategy. Drive to the store instead of paying delivery fees and forgo rush shipping. Dont fork over hard-earned cash for meal delivery services, which often dont even include tipping the driver. Eat in more or use convenient curbside pickup instead. 

And Most Importantly … 

Whatever you do, theres one way to prevent budget busters from derailing your retirement or other savings plans and thats to pay yourself first. Having retirement plan contributions automatically deducted from your paycheck is an effortless way to accomplish that. Put your financial future at the top of your budget each month to help ensure you can always afford what matters most. 

Budgeting for a Home Renovation

Budgeting for a Home Renovation

There are many reasons to renovate your home. It may be missing features you want, like a nicer kitchen or a more luxurious master bathroom. Or perhaps you need more space and would like to convert your basement into an extra guest room or home office. Particularly when housing prices or interest rates are high or rising, home renovation can be more cost-effective than selling (paying commissions and closing costs) or buying new (paying more closing costs and resetting your mortgage to a higher rate). 

Whatever your reasoning, a well-planned renovation can increase the comfort and enjoyment — and the value — of your home if you set a reasonable budget one can afford and stick to it. If you don’t, you could end up in over your head with a money pit on your hands. Here are several considerations to keep in mind when planning your project. 

Envision Your New Space 

Start with what you want to accomplish and write out a plan for each room of the house (including the overall footprint for additions and any exterior spaces like garages, outbuildings, decks, etc.). Take your time. Sit in each area you want to remodel and visualize what you want it to look like, plus any additional features (more electrical outlets in the office or a wet bar in the family room, for example). With an outline of what you want to do, you can use an online calculator to get a first impression of your likely costs. The more you have, the better your budget will be and the more accurate the quote from your contractor.  

Bear in Mind Frequently Overlooked Items 

Some things that may not be included in your estimate are architect’s fees, engineering fees (if needed), building permit costs, hauling services for demolished materials and site prep for outdoor work. There’s also the potential cost of regulatory compliance in your neighborhood — for example, you may need to remove a tree to accommodate an additional room, requiring a separate permit fee.  

Other things to consider include:  

  • Your property taxes may increase. 
  • The cost of your home insurance may go up. 
  • You may have higher water and sewage costs if your usage goes up (e.g., adding a bath/Jacuzzi/pool. 
  • You may have to finance the remodel, which would involve interest charges and other potential changes to the terms of your loan.  
  • You may need new furnishings for the remodeled areas. 

With your detailed plan, find a contractor and get a more accurate quote. And always get several estimates before you make a final decision about who to go with. Add in necessary items (permits, architect) not included in the quote. This is the baseline for your budget.  

Allow for Contingencies 

You now have a plan and a budget, but almost no remodel goes exactly to plan — especially if you’re renovating an older home. You may also find you need additional work when you begin demolition and learn what’s really behind those walls. An undetected waterpipe leak could have caused mold to grow, or existing wiring may have deteriorated.  

You may also realize after you start the project that you want to make additional alterations or add more features. Anticipate supply-chain problems with materials and furnishings, especially appliances. Recently, homeowners have been waiting six months for refrigerators and other major appliances. You may also encounter delays in getting some kinds of building materials, including drywall, tile and roof shingles.  

To help cover surprises and additions, plan an additional 20% over your baseline budget.  

Professional Guidance 

Sometimes, spending money up front can give your wallet a break in the end. Hiring an experienced interior designer can often help you come up with ideas that will save you money over the course of time. For example, he or she may show you how the proper furnishings can enable a room to serve double duty instead of adding more square footage. And if you pay your designer a flat fee, they’re not incentivized to drive up the cost of the project the way a builder might who charges a markup on materials. 

If you have a solid plan and a budget, you can make it happen. But there’s one other professional you should consider engaging. As with any large purchase, consider discussing your plans with a financial professional — before you start tearing down walls and ripping up the floors. 



Are You Underinsured?

Are You Underinsured?

For some, insurance is just one more item on their financial checklist. Whether you mortgage a home, buy a car or start a business, some type of insurance is usually required. But what if, despite paying all your premiums on time, your coverage comes up short when you encounter a loss? 

There are at least three ways you might be underinsured: 

  • Not carrying insurance for new risks as your life circumstances change.  
  • Having a policy with coverage limits that are too low to cover a potential loss. 
  • Failing to notice policy exclusions that dont protect all your assets. 

To avoid finding yourself in one of these situations, its important to understand where your coverage may be insufficient or lacking altogether.  

The Home Valuation Problem 

Prices, especially on homes, can rise and fall dramatically. In most cases, the insurer will pay for damage to your home up to the limit set in the policy. But what if that upper limit is no longer enough to replace your home when prices for materials and labor go up due to inflation or other causes?  

Some policies include extendedor guaranteedreplacement coverage. Its not uncommon to see materials and labor jump in price following a natural disaster that damages multiple homes. Extended coverage will increase the maximum amount the insurer will pay, adding a percentage 20%, for example to the stated policy limit. Guaranteed replacement is just that: You are guaranteed to get enough money to rebuild your home no matter what it costs. Naturally, both options will add to the cost of your premium. 

The Value of Valuables 

The valuation problem also applies to your possessions. For personal property coverage, you can choose between replacement cost and actual cash value. Replacement value means the insurer pays to replace your belongings with new comparable items up to your policy limits. If you lose your home in a fire and you had an older iMac sitting on your desk, youll get enough to purchase a new iMac. However, if you choose the actual cash value option, youll get the current cash value of that computer as determined by the insurer meaning purchase cost minus depreciation, which is going to be less than the cost of a new comparable model.  

Change in Circumstances 

If you previously had no one financially dependent on you and then get married or have a child, you may be underinsured as a family if you have no life insurance to replace your income should something happen to you. Your children or other family members may develop conditions or needs that your existing coverage is insufficient for. Or perhaps there are now grandchildren you want to include as beneficiaries. Think through all the people in your life who you might want to provide for in the event youre no longer around.  

Get Help from an Expert 

As with all things related to insurance, seek out a knowledgeable agent or speak to a financial professional for advice to get the coverage you need at the best price and terms. Be sure to read part two of this discussion, where well examine policy exclusions, protection against lawsuit risk and the importance of understanding your health insurance deductibles.  


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