You’ve Made It – So What Next?
We all dream of becoming millionaires, or even just coming into large sums of money. Yet it’s surprising how often millionaires go broke. Even the legendary Marilyn Monroe died penniless – how this can be? To our minds, this scenario always plays out in the same way. No matter how much money you have, there are lessons to be learnt if you don’t want your financial success to be fleeting. So, what are the financial mistakes people make? And what can you do to avoid them?
Mistake 1: Living Beyond Your Means
Congratulations! You have achieved the high income or capital which many people aspire. But this doesn’t guarantee financial success. Time and again, we hear of those upping their lifestyles beyond their means. It’s a dangerous trap to fall into – and one that has only a downward spiral for a way out. Irrespective of your income or assets you should always keep an eye on what is going out. Actually work out what your outgoings are, and how much surplus cash you have afterwards.
If there is a handsome amount leftover, how much of that could you happily live on? Can you discipline yourself to put the rest into savings, and commit to do so each month? The number one financial mistake people make is spending without thinking practically about how long their money can last.
If you have not been used to having a lot of money, or are just not ‘money-minded,’ then seeking professional help may be (quite literally!) worth its weight in gold. An objective view can help you budget your money so that the hard work is taken care of for you. Remember! There’s no outspending bad spending habits! And there’s little excuse for not getting your finances in order…
Mistake 2: Not Getting to Grips
Remember to have a little humility! The chances are you will have worked extremely hard to get where you are. But having an amazing career and the salary to boot, doesn’t necessarily mean you’re great with money. So, if dealing with financial issues alarms, frightens or, dare we say it, bores you, it’s ok to acknowledge that you might benefit from some professional help.
Those who enjoy long-term financial success tend to be those with a good grip on money. It doesn’t matter whether the grip is actually theirs or someone they enlist the help of to oversee it. So, do make sure your money is being monitored properly – and if you are in any doubt about how to do this yourself, remember that no one loses face by asking for help which could have exponential gains!
Mistake 3: Not Tracking your Spending
You may be in the envious position where you have so much money you think you don’t need to worry about what you’re spending. But tracking your spending can significantly improve your financial situation for years to come – and for those you leave behind when the unthinkable happens. Nor is tracking spending exclusively a practise for the wealthy. We would actively encourage everyone to track their finances. Doing so has many hidden advantages.
When you start tracking your spends, you become familiar with how much you spend on food shopping, bills, entertainment, travel etc. Knowing how much value is applied to these everyday outgoings will not only help you be more savvy when it comes to your money – but it will also protect you from being seen off by those willing to help alleviate you of some of your riches.
A common financial mistake people make is assuming that their high incomes negate the need to watch their money. As such it is easy to fall into the rut of haemorrhaging money for the sake of it. Most of us will remember Posh and Beck’s finally enlisting the help of AEG back in 2010 to stop them wasting money. It’s a concept that we can all benefit from. While the Beckham’s last £125 million is undoubtedly now being well looked after, how much more could have been salvaged had they recognised the liberalness of their spending habits earlier, is likely to have been colossal!
Mistake 4: Not Going Automatic
A financial mistake people make time and again problem is with people not automating their savings. The time factor is all in the set-up, but once that’s done, it’s plain sailing. Yet… many people simply don’t bother to take the time to do the set-up! It’s very easy to think of the various places you want to put your money, but to never get around to putting it there. And your money won’t magic itself there without a little input from you at the start.
So, you cannot expect your higher-yielding savings account to siphon funds from your current account on your behalf without automating it do so first. Automating such transactions takes relatively little time and prevents the situation where it’s easy to forget to do it manually. Often, we see situations where simple automation would have both seen savings and encouraged greater growth. It’s very easy to fall into the mindset where you think you have more cash to spend than you actually do. This is all the more relevant if your ‘surplus’ money hasn’t been put into the respective savings accounts in the first place!
Mistake 5: Not having Proper Tax Planning or Estate Planning in Place
As financial advisers, this is our absolute pet hate – (and no, not because we’re the people who can set this up!). We hate it because of the amounts of money people could save themselves if they simply got it sorted sooner rather than later; and because the implications are so hard hitting… For example, as far as estate planning goes, statistics currently show that some 70% of people die intestate; and 83% of couples have no estate planning in place at all. These numbers are particularly scary when considering the implications for any children these people have.
When you earn a lot of money, it can be easy to think you don’t need any professional help. Yet we frequently see examples of clients paying more in taxes because their assets are not titled correctly, or because they don’t have the right estate plan set up. What this boils down to is that people need to be smart enough to realise they can’t know everything. There are many different professional tax and estate planning strategies that could see you considerably better off if you don’t assume you know it all.
Mistake 6: Not taking IFAs up on a free introductory meeting
We are always slightly alarmed by the realisation that many people would like to speak to an IFA to see what it’s all about, but are worried about finding themselves embroiled in some relentless sales pitch. As far as we are concerned, this should never happen – and all of the advisers we know would be of the same opinion. So, here’s the low down on a first meeting with an adviser!
- Most reputable advisers will happily offer a free introductory meeting. There is no charge. There is no hard sale.
- It’s a one-to-one chat where you can meet an adviser and see what they’re about.
- You get the chance to outline your unique situation (along with your specific requirements) directly to an adviser
- The adviser will listen and ask questions to develop an understanding of your goals and what can be done to help you achieve them. (It may be that you don’t know what your goals or requirements are – and that’s ok too! The adviser will talk you through to help discover these.)
- You get an initial snapshot of the kind of things that you might benefit from without any pressure to go ahead.
- You get an idea of the costs involved for the kinds of financial services you require – and as this meeting is free, you haven’t lost anything if you decide it’s not for you!
Mistake 7: Trying to do it all yourself
The final financial mistake people make that we want to highlight is the misassumption you have super-powers. Having a high-earning career doesn’t necessarily mean you know the best ways to invest. In fact, more often than not, it means you probably don’t have the time or mental energy to spend pouring over your finances.
Sadly, there have been many cases where ‘trying to go it alone’ has resulted in situations where people haven’t saved or invested enough for their long-term goals. Often this means that those high-earning careers have to go on for far longer than planned. And while we all probably dream of a successful and profitable career – few of us would want it forever.
The lesson to take from this is that while you may cope with your finances admirably alone, there is a balance to be had between the value you attach to your riches and your time. It’s ok at any time to say ‘I can do this myself,’ if you are able to. But it’s equally fine to offload some of the work if you need more time to yourself. That’s what the professionals are there for! At Lewis Brownlee Financial Services, we are reputable professionals who can give peace of mind over a vast range of financial services.
If you would like to speak to an adviser, or have a free introductory meeting to see what we do and how we do it, please do give us a call on 01243 767 469. Alternatively, you can email us from our contact page, and an adviser will be in touch!
Written by Ian Barnett
Ian is an experienced Chartered Financial Planner as well as being a Fellow of the Personal Finance Society, with over 25 years’ experience in the financial services industry. With a broad range of client experience and expertise, Ian specialises in financial matters from Pre-Retirement Planning to Inheritance Tax Planning and all points in between.