The Biggest Financial Mistakes We See

By Net Worth Advisory Group

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After working in financial services for over two decades, we’ve had the chance to meet hundreds of people from all walks of life and at different ages and stages. Even though they’re all unique, many people we’ve met make the same financial mistakes. Here are 5 common errors that can impact your overall financial well-being and what you can do to prevent them from derailing your financial future.

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Failing to Have a Comprehensive Estate Plan

There is so much more that goes into being financially secure than just how much money is in the bank. Estate planning is a crucial aspect of a comprehensive wealth management plan, especially if you want to pass significant assets to the next generation, or properly plan for the succession of your business. Through the proper use of trusts and other estate documents, you can feel confident that what you’ve built over your lifetime is properly passed on while minimizing taxes and probate expenses.

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Many high-income earners often overlook the full scope of a comprehensive estate plan, and it can have devastating effects on your accumulated wealth. Making sure you’re adequately covered now can save you time, money, and energy in the future.

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Taking Too Little or Too Much Risk

In finance, every single investment made and penny saved comes with risk. If you buy stock in a new up-and-coming tech company, that comes with more risk than buying short-term Treasury bonds. Even a savings account comes with risk; although your savings accounts are likely insured, leaving your money in a savings account prevents your wealth from keeping up with inflation.  

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A big mistake we see people make is having too many debt securities like bonds when they should be considering having more equity securities like stocks. A less common one we see is when people have too much of their wealth in risky investments, leaving their retirement savings vulnerable to high volatility. Proper asset allocation with regards to your time horizon, income, and future plans allows you to balance making gains from riskier assets and safeguarding your wealth as much as possible.

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Not Planning for Unexpected Risks

Very few people, if any, predicted COVID-19 or the Great Recession. But these two events have made it abundantly clear that unexpected economic downturns must be considered when building a comprehensive wealth management strategy. People often think that an emergency fund is enough to ride out unforeseen major life events, but it usually takes more than that. Proper risk management is key to staying afloat during uncertain times. This can be accomplished by considering unexpected risks that are personal in nature, such as divorce, disability, accidents, and illness, and by making sure you are properly covered.

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Not Knowing When to Take Social Security

If you are not using a customized strategy for Social Security, you are most likely leaving money on the table. The earlier you take it, the lower the monthly benefit you will receive. Everyone will be different, so considering when to take Social Security should be a decision based on your goals, needs, and preferences. 

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For example, if you wanted to retire next year at age 65, you’d be faced with the decision of whether to collect your benefits right away or to defer to some point in the future. If you decide to collect at age 65, you will receive less of a benefit than if you waited until your full retirement age (typically age 67 for most); and if you delayed all the way to age 70, you would receive the maximum Social Security benefit available to you due to Delayed Retirement Credits. 

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Although for some delaying your Social Security benefits could mean delaying your retirement date, for others it may mean that they need to determine how they will fill the gap that is left between their fixed income and their expenses in the years prior to collecting their benefits. The solution in these cases could be as simple as taking larger withdrawals from their investments in the early years of retirement or working part-time for a few years to cover that gap. 

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Another consideration in determining when to collect your Social Security benefits could be whether anyone else is dependent upon you or has an interest in the benefits you will receive. Specifically, are you single, married, divorced, or widowed? For each situation, there may be a different strategy available to you when it comes to Social Security. It is important to be aware of this and make sure to customize how you go about utilizing Social Security during retirement.

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Paying Too Much in Fees and Taxes

It’s not how much you make, it’s how much you keep. We often speak to investors that don’t fully understand the cost or fee structure of the investments they’re in, or how the taxation of their investment accounts really works. It is important to be mindful of these items as they can take a big bite out of any potential returns you could receive.

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These costs include things like commissions, deferred sales charges, 12b-1 fees, and mutual fund expense ratios. Many of these expenses are simply “priced in” to the share price of the underlying asset, but it is important to know what those expenses truly are. Some may very well be justified by the work of the management team and the performance they are able to achieve, but some may not. Taking the time to analyze or inquire about these costs could be time well spent. 

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Additionally, some advisors don’t pay enough attention to the tax consequences of changes made to clients’ accounts, which can cause undesirable tax liabilities for you (both capital gains tax and ordinary income tax). When deciding things like what trades should be made or where to take a distribution from when you need cash, it is important to have a strategy in place that can help to manage your taxes both in the short term and long term. A plan to always minimize taxes today could leave you experiencing far more significant tax consequences down the road.

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Not Seeking Guidance

If you care enough about your financial future to read this article, it’s fair to say you are already doing better than most adults in the United States. But with work, family, and all your other duties, it can be difficult to know your options. Having a financial advisor on your side can really help, not just in growing your wealth, but in feeling confident about your financial future.

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At Net Worth Advisory Group, we create a financial plan that fits your values, dreams, how you think about money, and who you are. You have the freedom to change important parts of the plan, like how your income changes and where you save—and see the results right away. To begin, call us at 801-566-6639 or schedule a complimentary, no-obligation consultation to see if we are a good fit to help you pursue your goals.

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About Net Worth Advisory Group

Founded in 2003, Net Worth Advisory Group is an independent, fee-only, CERTIFIED FINANCIAL PLANNER™ and investment advisory firm located in Salt Lake City, Utah. We specialize in helping people transition from the workplace into retirement and ensuring that those who are already retired will not outlive their nest egg. Our top priority is to have clients experience a greater sense of ease with diligent, personalized wealth care and the implementation of customized financial plans and ongoing personalized asset management. We equip all clients with a comprehensive financial plan, meeting every six months to update as needed and review investment performance. Our team is passionate about providing comprehensive financial planning with the fee-only model, and we love feeling like we’re making a difference in our clients’ financial lives.

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As a NAPFA-registered fee-only advisory firm, our recommendations are untainted by a hidden agenda to sell financial products paying large commissions. Unlike our competitors at brokerage firms, insurance companies, and banks, we are compensated solely by our clients, so we are financially motivated to provide objective advice that is always in our clients’ best interests. Anyone can call himself or herself a financial planner, but only an advisor with the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation has met the education, examination, experience, and ethical requirements mandated by the CFP® board. According to the CFP Board, there are 97,000+ CFP® professionals in 2023, representing about 1 in 3 financial advisors in the U.S. Net Worth advisors are also members of NAPFA, which only has about 4,600 advisors, and are either CFP® professionals or CFP® professionals in training.

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Net Worth Advisory Group’s mission is to significantly improve the lives of our clients by delivering exemplary financial planning and wealth management advice that enables them to live the lives they have imagined.