Why You Shouldn’t Put Off Your Finances

why you shouldnt put off your finances

Human beings are optimistic creatures. Sure, we run into the occasional Debbie Downer, but deep down, most of us believe everything will work out in the end, and we cling steadfast to that belief. This has certainly helped many people through a rough patch or two, including myself. However, I also know this mentality can be incredibly dangerous when it comes to your finances. Your finances won't magically fix themselves on their own. You need to play an active role. Most people recognize this but still put off dealing with their finances. Why take the risk? There are many reasons, but the most common are:

  • Lack of time
  • Lack of knowledge
  • Fear of hearing they do not have enough

After 20 years as a financial advisor, I cannot express how many people have come into my office and said, "I know I should have done this years ago", or "I am so embarrassed", or "I really do not have much". I suspect some of you may have uttered these phrases yourself. :)

The Danger of Neglecting Your Finances: 5 Common Money Mistakes

The bottom line is if you want to put your finances in order and experience financial freedom—you need to start making informed decisions that will help you achieve your goals. Here are five areas that most people need to address.

1. Not Having Clear Financial Goals

save, spend and invest diceWhat is important to you financially? Too often people have very generalized goals (I want to retire. Great. But when? What will you do?) or no goals. Unless you have clear, personal goals that you are strongly invested in achieving, it is very hard to make good decisions around your money.

You must first determine where you are today to figure out where you would like to go tomorrow. Yes, that means crunching some numbers, reviewing your debt obligations with the intent to eliminate it and learning to live within your means.

2. Lack of Cash Reserve:

Cash reserves or a lack thereof affected many families during the Great Recession. Ideally, you should have a cash reserve to cover monthly expenses for 3-6 months. Some might think there is no need to build a reserve that deep, but those who avoided creating more debt when their car broke down or were able to take advantage of a once-in-a-lifetime opportunity would strongly disagree.

A proper cash reserve shouldn't be considered a nicety but a necessity. It can give you great peace of mind knowing you are prepared to handle whatever life throws at you without falling into an endless cycle of credit card debt.

3. Inadequate Protection Coverage (Life, Disability & Health)

pill capsules with money spilling outI understand confronting our own mortality isn't always easy, but I also know if anything happens to me, I want to ensure my family is properly taken care of. Life insurance is often viewed as an unnecessary expense, even though we buy car and homeowners insurance and even insure expensive memorabilia, heirlooms or jewelry.

Yet, the most valuable thing you own is YOURSELF and your ability to earn an income. If you're not here or no longer able to earn a salary, then what happens?

It's a little too late to find out you're uninsured or underinsured after a loved one dies, or becomes disabled or gravely ill. When disaster strikes, the financial strain can be overwhelming during an already difficult time.

4. Not Knowing What You Own

Often our first investments are in our company's 401k. We invest our money, then forget about it. As the years go by, we move from one company to another and have multiple accounts with no idea of our overall allocation or risk exposure.

In the recent market downturn, I spoke to many people who realized their risk exposure was much higher than they thought, which led to a greater decline than they were comfortable with.

The common reaction is to pull their money out of stocks at a low point and solidify their loss, which may really hurt them in the long run. If you know what you are invested in and why you are taking the risk you are, it is easier to stick with your plan during volatile markets.

5. Not Understanding How Taxes Affect Investments

taxesWe are taxed when we earn money, spend money, make investments, take retirement income and die. We sure like to complain about paying taxes, but few understand the basic mechanics. While you can never avoid paying taxes, it's important to take taxes into consideration when building your investment strategy.

It can guide your investment choices now and minimize your tax burden when you begin withdrawing retirement income.

I am an optimistic person by nature, but I won't pretend that you can snap your fingers and put your financial house in order. It takes time and ongoing attention. I can also tell you the hard work is worth it. Now you're no longer hoping everything will be okay but actively working to help make it a reality.

In my next post, we'll move from the reasons why you shouldn't put off dealing with your finances to some specific steps to help put your finances back on track.

(Images courtesy of: www.freedigitalphotos.net)

shannon ryan

Shannon Ryan

Shannon Ryan, CFP® is a Mom on a mission to help busy parents teach their children simple, value-based principles that guide their money decisions and support their long-term financial well-being. Shannon wrote The Heavy Purse to help parents start money conversations with their children through a fun, bedtime story and developed companion workbooks to help deepen those conversations. Visit TheHeavyPurse to learn more on how to raise Money Smart Kids.

  Connect with Shannon on Twitter,  Facebook, and YouTube




    • DC @ Young Adult Money

      DC @ Young Adult Money 04/24/2013 5:47 a.m. #

      Great post Shannon! It's so important that we commit time to our finances on a monthly (or more frequent) basis. If we keep putting it off, we are only hurting ourselves.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/24/2013 9:59 a.m. #

        Thanks, DC! So true! It's sad that people put more time into other, less important things. Unfortunately many people feel overwhelmed by their finances or scared by what they might discover so they keep on going - hoping everything will work out. Yet when they do take a look - even in really bad situations - you can almost immediately see a change them. They are taking back control and that's a huge step towards righting their financial ship.

    • Laurie @thefrugalfarmer

      Laurie @thefrugalfarmer 04/24/2013 6:09 a.m. #

      Great post, Shannon. It's SO easy to just stick your head in the sand and hope all of your financial problems will go away. I'm the first to admit that facing your mountain isn't easy. But after we got over the shock of facing our situation, we found such peace and joy in getting and following a plan. Just do it!

      • Shannon @ THe Heavy Purse

        Shannon @ THe Heavy Purse 04/24/2013 10:06 a.m. #

        Thanks, Laurie! I know it wasn't easy for you and Rick to face your "mountain" but you did! I absolutely agree once you figure out and plan and start following - there is great peace of mind and joy in watching debt disappear. Nike is right - just do it. There may be some initial sticker shock, but conquering your debt will be your gold medal.

    • Glen @ Monster Piggy Bank

      Glen @ Monster Piggy Bank 04/24/2013 6:31 a.m. #

      It is amazing that people don't know what they own and don't manage their retirement savings.

      I consider it prudent financial management to know how many assets I have, what they are worth and what the expected ROI is.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/24/2013 10:23 a.m. #

        It always surprises me too, but it's a very common problem. Too many people enroll in their 401k and then forget about it. I'm certainly a proponent of good diversification, but having multiple 401k from all the various companies you've worked at - is NOT being diversified. :) I always tell me clients - it's important to know what you have, so you know how much need in order to get to where you want to go.

    • AverageJoe

      AverageJoe 04/24/2013 8:27 a.m. #

      I'm always amazed when I see how the right investment is often less important than the right tax treatment on the investment. Paying attention to tax treatment is far bigger than most people realize. Good stuff. Thanks!

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/24/2013 10:28 a.m. #

        I know - people are so caught up in finding the perfect investment (doesn't really exist) that they overlook taxes! For many people, when they retire, they are at their peak earning power and in the highest tax bracket - something they want to consider when they decide which fund to withdraw from first.

    • John S @ Frugal Rules

      John S @ Frugal Rules 04/24/2013 9:09 a.m. #

      Great post Shannon! I think a lot of what you pointed out goes back to clear lack of preparation and making wise decisions. I saw the same regret in my role prior to our business and while it was saddening to see at times it encouraged me to make sure our financial house in order and help those who do not. It's not really rocket science, but I think fear of dealing with it holds many back.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/24/2013 10:41 a.m. #

        Thanks, John! Fear definitely holds a lot of power over us - especially when we're in debt. We imagine all kinds of horrible things and figure we're better off not knowing! I can't think of a single instance where the person has not been better off understanding their financial situation, even when it's in poor shape.

        There is a lack of preparation and I think that happens because people again don't know how to think big picture with their money because NOBODY has told them or shown them how to do so. To see how everything interconnects. People don't want to buy life insurance but inherently understand if they own a home or car that they must insure it. But yet won't insure the life that bought that home or car.

    • Corina Ramos

      Corina Ramos 04/24/2013 9:44 a.m. #

      Hey Shannon,

      How good is it to see you here! I know I can relate to some of these mistakes. The last two years have been all about putting the money back we took from our emergency fund and paying down our debt.

      It's not easy especially when unexpected expenses happen at the same time but we're are getting there :)

      I know all this stems from the decisions we made when we were younger and just starting out but when I stop to think about the damage we created and how long it's taken to fix it...if I knew then what I know now I would have been more careful with our finances. :)

      Great post lady!

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/24/2013 4:41 p.m. #

        Thanks, Corina! In hindsight there are many things we'd all probably do differently! But at least you recognized the changes you needed to make and are doing them. Unexpected expenses fall into the same category as taxes and death - they are always going to happen! :) I'm glad you're rebuilding your emergency fund and eliminating your debt at the same time. There is nothing more frustrating then getting rid of some debt than having to add more debt because something unexpected happened!

    • krantcents

      krantcents 04/24/2013 10:28 a.m. #

      If you are not paying attention to your finances your priorities are upside down! Everyone should do tax planning every year.

      • shannon @ The Heavy Purse

        shannon @ The Heavy Purse 04/24/2013 4:43 p.m. #

        Agreed! Unfortunately, I think many people have a skewed sense of what taking care of their finances are. You and I look at our whole financial picture while many other believe paying their bills and taxes is all they have to do.

    • Grayson @ Debt Roundup

      Grayson @ Debt Roundup 04/24/2013 12:51 p.m. #

      Nice work Shannon. I would also say about not knowing how much you owe. You talk about how much you own, but also, if you are unclear about how much you owe, then you can be in a world of hurt.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/24/2013 4:48 p.m. #

        Absolutely, Grayson! I should have hit that a bit harder. Part of knowing where you are today - means knowing your debt obligations. Too many people don't realize how deeply in debt they are until they sit down and crunch the numbers. They assume because they are paying their bills that everything is fine, which is not always the case. It's easy to get comfortable with a little bit of debt but then it continues to grow until it reaches a number you're no longer comfortable with and now have to deal with it.

    • Brian @ Luke1428

      Brian @ Luke1428 04/24/2013 8:03 p.m. #

      Great post Shannon! I think #3 is so often overlooked. I view insurance as the "sleep-well-at-night" part of my financial picture. Knowing that my wife and kids would be adequately taken care of should something happen to me is really comforting.

      • Sicorra

        Sicorra 04/25/2013 10:38 a.m. #

        I do as well Brian!
        No matter how difficult our finances are we always make sure to have insurance coverage for every area of our lives.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/25/2013 11:01 a.m. #

        Thanks, Brian! People do unfortunately neglect insurance. I have witnessed too many times where this neglect has hurt people but also seen the comfort it provides during difficult times. I's definitely gives me peace of mind to me too.

    • bbrian017

      bbrian017 04/25/2013 8:28 a.m. #

      This is the story of my life. I collect currency in 4 different dollars and accounting this year has just been a nightmare with quick books and paypal.

      • Sicorra

        Sicorra 04/25/2013 10:36 a.m. #

        I can just imagine how difficult that is Brian! We collect money in 2 different currencies and it was fun to do our accounting and taxes as well.

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/25/2013 11:03 a.m. #

        I can't even begin to imagine what that is like, Brian! Technology has really freed us to work globally, although it certainly adds a few headaches too. :)

    • Tushar @ Everything Finance

      Tushar @ Everything Finance 04/25/2013 10:11 p.m. #

      These are all great points. I've heard of cases where families lacking insurance coverage have been completely blindsided and put into a hard financial position. I've also seen many cases of people having no financial goals. That doesn't help at all!

      • Shannon @ The Heavy Purse

        Shannon @ The Heavy Purse 04/26/2013 1:23 p.m. #

        Thanks, Tushar! Sadly, I've witnessed that too. Too many people overlook life insurance. Sometimes they are lucky and don't need it, but other times, it is something they deeply regret not doing.

    • CarolB

      CarolB 04/28/2013 7:28 a.m. #

      Great review! We tend to stay on top of most of our finances, but reading this, I realize we probably aren't so good at the Life and Disability aspect. Guess it's time to review these two. Thanks for point this out to me.

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