Top Wealth Management Pitfalls - Part I
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By :
Morgan Petersen
Submitted
2010-01-24 11:31:31 |
Most people tend to think that they need a financial advisor to develop a wealth management strategy. However, real truth about wealth management can not be any farther than usual perception that is out there. Wealth management is all about exercising fiscal discipline and taking responsibility for your financial future. In this article, we are going to take a closer look at the biggest wealth management pitfalls and how to navigate around these and stay focus on your wealth management strategy.
PART I
No Real Retirement Planning and Strategy
Too many times people ignore retirement planning because they believe they will have enough money to retire. However, when time comes, they find themselves unprepared and short on cash. Remember, even professional athletes earning millions go broke when they don't plan for future. Whether you're a millionaire or close to poverty line, you need to take care of your retirement and develop a solid retirement strategy. If you have a job, make sure you take full advantage of any retirement plan such as 401(k) offered by your employer. If you're self employed and don't have that option, take a closer look at traditional IRA or Roth IRA products. Whatever is your final choice, make sure you contribute as much as you possibly can. If you often change jobs, don't ruin your retirement by opting for the distribution of retirement funds. Tax implication due to early distribution will destroy your retirement funds. Make sure you understand your options such as rollover, when changing jobs.
If you have a spouse who does not work, you need to remember that he/she needs to retire too. You can contribute towards their retirement plan(such as IRA) and take advantage of tax benefits. Also, make sure you're making good investment choices with your retirement funds. For example, there is no reason for putting 100% of your retirement funds in your company stock just because it has done well in the past.
Always remember to read quarterly or annual statements from your retirement plan. If you're not comfortable with this material and feel overwhelmed with the terms and information, call for help and ask them to explain it to you. After all it is your money and you have the sole responsibility to make sure your retirement funds are there for you when you need them most.
Poor Debt Management and High Debt Load
Do you have your debt getting out of control? Most people fail to realize that out of control debt can destroy your financial and personal life. If you continue to struggle with debt, may be step back and take a closer look at your financial habits. Do you have debt that you don't need? Do you buy things without justifying their needs? Most of us carry some sort of debt, whether is it mortgage, car loans or student loans. Debt is part of your financial life but you should have a very good reason to have it. For example, mortgage debt is justified because you are building equity in your home and building wealth in long-term. A debt that helps you build wealth in long-term is considered good debt. But if you have credit card debt or loans that were just not necessary, you may have a big problem that you should recognize and put together a plan to fix. Remember, even if you have bad debt, there are smarter ways to control and manage it. Have you considered taking a home equity loan and paying off your credit card debt? May be you didn't know that interest on home equity loan is tax deductible as compared to interest on credit card debt. These measures will only work if you have a resolve to fix your debt problems. Remember, if you have not made any significant changes in your financial lifestyle, chances are that you'll take on more credit card debt once your previous balances are paid off using a home equity loan. Bottom line - You'll end up losing your home on top of the debt you have from credit cards.
One final note of cautious. Mortgage debt is good only if you can manage it and you have not over stretched your financial capabilities. There is no reason to buy more house than you actually need or can afford. Also, don't jump on adjustable rate mortgage loans (ARM Loans) because initial interest rates are low. Your house is your biggest and most important asset and you don't want to lose it because you were financially challenged and didn't care to ask anyone.
Failure to Protect Your Financial Assets
Who doesn't want to protect their investment and assets? Most people understand the importance of protecting their financial assets but very few really understand the asset protection strategy. It is not a rocket science but it does require common sense and willingness to explore the risks and rewards. First of all, whether you're successful or not, you need to protect your family if you're gone. It's not a difficult task and there are plenty of options, from as simple as a term life policy to as sophisticated as variable life policies with complex riders. Whatever you choose, make sure you have enough coverage to help your family get back on its feet. What about disability coverage? Can you pay your bills if you become disable tomorrow? Social Security will pay but you will be surprised to know how little it will pay for your disability and chances are you'll not be able to maintain your lifestyle without disability coverage. Another important factor is your medical life. Remember, problem related to your health could easily ruin your financial life. If you anticipate medical problems and expensive care in your retirement years, consider taking a long-term care policy.
Make sure you have adequate insurance on your home and automobiles. If you or someone in your family had an accident, would your insurance company pay for the damage? What about lawsuits that could arise from an accident? Having enough coverage is the key to be protect and keep your assets financially secure. Most home insurance policies also offer inexpensive "Umbrella Protection" policies that could be a good choice to start with.
Continue reading PART II
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Author Resource:-
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Article From Fiscalwealth | Personal Finances, Investment and Wealth Management
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