Top 5 Financial Planning Mistakes Women Make
Written by Melissa Cummings Wednesday, July 21 2010
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The greatest mistake women make in financial planning is not planning at all. But for those who’ve passed that first hurdle and decided to begin planning for their financial future, there are five mistakes commonly made.
Mistake No. 1: Not tracking your spending. If you don’t think tracking your spending is important, think again. Many women live within their means and therefore don’t feel they need to monitor spending or live within a budget. Knowing one’s financial limits is key, but saving for long-term goals requires careful calculation. Writing down clear financial goals that include the amount of money needed, a specific time frame, and a savings plan to achieve this is a great place to start. Adjust your budget to accommodate saving for these ambitions.
Mistake No. 2: Incorrectly estimating your retirement lifestyle budget. To know how much you need in retirement, you have to know how much you spend now. A common rule of thumb states that you need only 80 percent of the income in retirement that you currently spend to maintain your standard of living. But while some expenses decrease in retirement, particularly work-related items (clothing, gas, dry-cleaning), some expenses will increase, such as travel, new hobbies, and health care needs. Plan on spending closer to 100 percent of your pre-retirement budget (excluding your annual retirement savings), and don’t forget inflation.
Mistake No. 3: Not updating your budget for many years. Sticking to a budget is key, but updating it to your current situation is even more important. Two forces of change, internal and external, make it necessary to constantly adapt. Lifestyle changes such as getting married or divorced, having a baby, or children starting college expand and contract your resources. Even if external factors, such as the recession, are not affecting you directly, you may find yourself having to provide financial assistance to loved ones. Compare your budget to your actual spending to see if changes need to be made. Update your budget annually or after any major life change.
Mistake No. 4: Not having life insurance. Determining your need for such insurance is the first step. Your death would be an emotional loss to your family and loved ones, but determining how it would affect those you leave behind financially requires considerable thought and discussion.
