By Mark Colgan, CFP®

“Deciding what not to do is as important as deciding what to do.” — Steve Jobs (1)

This may be hard to believe, but just thinking about a plan or simply writing it down is not enough to spur change and trigger future success. Case in point: New Year’s resolutions. This is also true of financial planning. Even after creating a detailed financial plan, you’ll need to continuously monitor, review, and update it to stay on track with your goals. 

There are, of course, other reasons financial plans fail; complacency is just one of them. Let’s take a look at some of these pitfalls and, more importantly, the actions you can take today to steer clear of them for good. 

1. Not Having a True Financial Plan

You might have an idea of when you want to retire and about how much you need to save before then, but that’s not really a true financial plan. To cover all of your bases, it’s best to partner with a qualified financial planner who can help you design a comprehensive plan tailored to your life, goals, dreams, and challenges.

2. Maintaining Unrealistic Expectations

While it would be nice if you could invest your money with a 8%-10% return, that’s not only unreasonable but also unrealistic. Yes, you may see years where your investments grow at unexpected rates, but the markets  are also likely to produce negative returns from time to time.

It’s unwise to make a savings plan based on the type of growth you want to see. When and if the markets don’t work in your favor, you’ll fall short of your goals. To avoid being misled by the unrealistic application of average returns, have your financial planner run your financial plan through a Monte Carlo simulation, which incorporates random market results. This will give you a more sensible picture of your financial future.

3. Not Sticking to Your Budget

It may not be fun to talk about budgets and limits, but what’s worse is suffering the consequences of overspending and under-planning. It’s not uncommon to underestimate how much you’ll need to maintain your desired lifestyle in retirement. For example, sometimes we see parents spend beyond their means to help their children, often at the expense of their own financial futures. But this can backfire, as you may end up needing to rely on your kids financially if you run out of money earlier than expected.

All this to say: It’s easy to underestimate your expenses—and this can result in excessive portfolio withdrawals and ruin your financial plans. Instead, let us help you build a realistic budget based on your current expenses and include estimates for unexpected costs you may otherwise overlook. We’ll also include inflation when analyzing future expenses. 

4. Failure to Plan for Volatile Market Conditions

In the last 15 years, we have seen three significant stock market corrections. Between 2000 and 2002, markets dropped 38%, in the 2008 Great Recession, they dropped 40%, (2) and last year the stock markets plummeted during the pandemic. Investors without proper guidance were mostly unprepared for all of these events. And, as a result, many pre-retirees had to postpone their retirement dates and retirees had to dramatically change their lifestyles.

While you can’t predict what the market will do, you can work with your financial planner to design a money management strategy that can help you minimize risk in turbulent conditions. Also, before a stock market decline occurs, talk with your financial advisor about what you are likely to do in the event of a big decline. Discussing the scenario beforehand allows logic to overrule emotions. 

5. Neglecting Social Security Planning

For many years now, people have been applying for Social Security benefits as soon as they become eligible at age 62 because they’re afraid someday this government money won’t be available to them. While this is a practical concern, it certainly shouldn’t determine when you begin withdrawing your Social Security benefits.

How and when you should claim your benefits depends on your unique situation. To get the most out of your Social Security benefits, you should request a Social Security benefits analysis from a qualified financial planner who understands the nuances of the system, is intimately familiar with your financial circumstances, and can educate you on your options. 

6. Not Creating an Estate Plan

According to a study, two out of three American adults don’t have estate planning documents in place. (3) Their reasons for neglecting this incredibly important task? Not knowing where to start, not having enough assets, cost, and procrastination.

The last thing you want to do is leave your family with unnecessary stress after you die. For the sake of your loved ones, sit down with your financial planner to discuss estate planning. Then schedule an appointment with an estate planning attorney to create your will (or trust), and designate an advanced healthcare proxy and power of attorney. 

7. Not Having Proper Insurance Coverage

Most people routinely carry insurance for their cars, house, and health. But often we see a disconnect between how much coverage they carry and how much they need. Even worse is the situation where life, disability, or long-term care insurance is in order but it has never been discussed or purchased. I am not suggesting that everybody needs these sorts of insurance policies, but they should at least be explored.

We see it all too often. A client is unexpectedly diagnosed with a long-term illness that prevents them from working and making an income, or worse yet, they die and leave their family with a financial crisis to contend with. We can help you figure out what insurance you need, if your coverage is sufficient (or too much), and if there are better options available in today’s competitive marketplace. 

8. Letting Emotions Take Over

Money is personal and emotional. When something threatens your finances, it’s not unusual for people to get scared and  make irrational decisions. But if you have already put together a logical, long-term strategy for your investments, you are less likely to fall prey to your emotions. Work with a financial planner who will help you define your investment strategy and avoid irrational decisions when the going gets tough. 

Set Your Finances Up for Success

Having a thorough, personalized financial plan is the first step toward avoiding mistakes that can derail your future. The second step is to continually monitor your plan, making sure it still aligns with your circumstances and goals as you move through life. 

If all this seems overwhelming, don’t fear! Having someone by your side to help you navigate these important decisions, properly prepare, and hold you accountable can make all the difference. At Montage Wealth Management, our team of qualified, experienced, and attentive financial advisors can help you identify unknown threats and opportunities, so you can plan proactively and look to the future with confidence.

Connect with us today by emailing or calling (585) 419-2270 to set up an introductory meeting.