Managing your money is not the most exciting thing on earth, but it is important to maintain a personal financial strategy if you want to reach your savings goals and avoid exhausting your funds.
There are different ways you can save money, but right now, we want to go over some money traps you will want to avoid while saving.
Four money traps to avoid when saving
- Ignoring your emergency fund — Studies reveal that nearly 25% of Americans have no emergency funds set aside. It is recommended that each individual or household sets aside some emergency savings to cover unexpected events, such as medical emergencies, home repairs, automobile accidents or losing a job.
Our team recommends setting aside at least three to six months’ worth of your income in an easily accessible savings account to help keep you covered in the event of an emergency.
- Failing to invest for the long term — In 2020, the market took a dive when the COVID-19 pandemic started. Short-term investors, day traders and swing traders, and even some long-term investors panic-sold many of their investments, causing the market to dip and the DOW Jones Industrial Average to report its single greatest loss day in history.
While short-term investors were struggling during this time, long-term investors were able to hunker down and weather the storm. Short-term investments may be an important part of your investing strategy, but you should also hold long-term investments to help protect your portfolio during periods of extreme volatility.
- Concentrating your investments — There are a variety of sectors that companies are categorized under in the market, such as energy, utilities, technology, communications, health care and real estate.
One trap is to concentrate too much of your funds into one of these sectors. A major catalyst could cause companies across the board in a particular sector to lose value, and if all your investment eggs are in one basket, they will fall and break. Diversify your strategy across a range of sectors to help protect your portfolio from losing value due to volatility.
- Putting off saving for retirement — Simply put, the earlier you start to save for retirement, the better. Even if you are young and your retirement is far off, saving earlier can help you grow your wealth so you can meet more of your retirement goals, such as paying off your house or traveling.
We recommend setting up a tax-deferred retirement account, so your savings can grow tax deferred until you are ready to withdraw them when you are retired. A 401(k) is a great option if your employer offers one. There are other options as well, such as an individual retirement account (IRA), that you can open on your own if your employer does not offer a 401(k) or if you want to supplement your savings with an additional account.
Talk to a ProVise CFP® professional about investing risks
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about investing? Contact ProVise today to schedule a complimentary consultation.