By Steve Conard, CFP®
Financial planning professionals see a variety of preventable problems that are common among the average American household. Lack of basic knowledge is partly to blame, but often the real culprit is bad choices. Putting consumption, borrowing, and risk ahead of saving, investing, and insuring is always accompanied by some form of rationalizing. A few we hear often are:
“I stopped adding to my 401(k) because the market stinks” – I have yet to see an instance in which these people have put that same money aside in a “safe” place to provide for their future security. Instead, the former 401(k) deferral is paying back a new car or boat loan. Never mind that the 401(k) offers a safe option by allowing you to go to cash as an alternative to investing in the stock market, or that they are passing up an employer’s matching contribution.
“I have no health insurance because my employer doesn’t offer it” – this is becoming more common due to rising insurance costs, but alternatives do exist in the individual market as well as via publicly funded options (subject to qualification). Health care costs are the major cause of personal bankruptcy in the USA, so we all need to explore every angle to insure against catastrophic medical expenses.
“I got slammed by taxes” – this one is a favorite among self-employed individuals forced to take a bank loan or a withdrawal from their retirement plan to pay Uncle Sam. While I sympathize, the usual reason for getting “slammed” is that they made more money than in the prior year and failed to set aside the cash to cover the additional tax due.
“I don’t have disability insurance” – unless one is independently wealthy, their income is their most important asset. Missing one or more paychecks due to illness or accident would cripple many families. Many people don’t realize that this coverage is often available through their employer for a modest cost. Failure to protect one’s income is a glaring hole in any financial plan.
“We took a home equity loan because we need the tax write-off” – this excuse makes zero mathematical sense. The tax deduction is a fraction of the interest cost, so taking on debt for consumption purposes never “saves” money. Many times the home equity is used to pay off credit card debt – this might save money, but only if the credit cards stay locked up.
“I have life insurance through my employer” – many employers provide a small basic life insurance benefit that is vastly insufficient for most families. Having the right amount is the only way to protect one’s family against their premature demise.
Excuses don’t cut it if you want financial security. A qualified financial planner can help you identify cost-effective strategies to protect your loved ones and prepare for your future.
Steve Conard is a CERTIFIED FINANCIAL PLANNER™ professional with Compass Financial Services, a registered investment advisor with offices in West Des Moines and Adel. Securities offered through LPL Financial, member FINRA/SIPC. Financial planning offered through Compass Financial Services, a registered investment advisor and separate entity from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual and not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.