We all know to check our blind spots while driving to help prevent accidents which are not in our direct line of sight. Blind spots also exist when it comes to our financial well-being. Like when you’re behind the wheel of a car, not identifying a potential financial blind spot can have an expensive and lasting effect on our finances.
Gerard Visser, Financial Planning Consultant at Alexander Forbes Financial Planning Consultants, outlines some of the mistakes people make:
1. Live within your means
Do not compare your life and what you need to be happy to someone else’s, especially when it comes to material objects. Live within your means and have a proper budget. Driving an expensive car is one example - expensive cars not only come with high instalments but also costly short term insurance and credit shortfall cover, which generally increases every year.
2. Budget for unforeseen expenses
Many people do not have an adequate emergency fund or have made unnecessary debt on their credit cards, because “something came up”. Many people do not budget for irregular expenses which they are actually expected – this could include your car expenses due to wear and tear. You might only budget for your car’s annual service, but end up having to pay for new brake pads and tyres, spending a lot more than you had planned. These expenses, although regular, are not monthly and often get forgotten when allocating your cash for the month. The simple solution is to budget for irregular expenses on a monthly basis.
3. Never cash in your retirement funds when leaving your employer
No matter how difficult, do not cash in your retirement funds. This is one of the biggest reasons why people do not have enough funds to retire comfortably or are forced to rely on family and the government. Do not underestimate how much you need at retirement. Remember that your investments will carry on growing and cumulative growth is your friend.
4. Take into account living longer
Consider you may have to work longer than anticipated and do not underestimate the cost of medical aids at retirement. Many people have their medical aids subsidised by their employer, and either do not know what the medical aid costs are or take these benefits for granted. Look after your health and live a balanced life - you are rewarded for healthier living by most of the long term insurers.
5. Have a plan for your retirement
When you retire you have a lot of time on your hands, and can easily get caught up in activities which end up costing you more than planned. Think about what retirement means to you. It is important to keep on reading, learning and try find hobbies that will sustain you.
When putting your unique financial solution together with your financial advisor, always look for a like-minded planner and start with a planning partnership. Look at setting up savings and investing in solutions that support your needs today and in the future.