If insanity is doing the same thing over and over again and expecting a different result, financial insanity is holding onto beliefs that will assuredly give you poor results. Here are a few.
I believe I can make better financial decisions for myself than anyone else.
While it’s theoretically possible that you might be able to make better financial decisions than anyone else, it’s a remote possibility. Why do you think Warren Buffet has a business partner? Did you know that some of the smartest and most competent people in the financial world discuss their opinions and practices with their peers?
These people spend their lives studying financial matters, and the best of them still seek out others to discuss and debate ideas.
My financial life is so simple that I don’t need anyone advising me what to do.
You may think your financial life is simple, but if you started writing down all the financial decisions you make on a regular basis you’d be amazed.
Anyone who has taken the time to put together a budget will tell you of their surprise when they looked at the result. And then there are taxes, insurance, managing debt, dealing with emergencies and, when you get past all that, investing and risk management.
Many people mistakenly believe that the most important financial decisions are made when they are older when in fact the opposite is true; financial decisions made when you are younger have greater long term implications which are frequently overlooked at the time these decisions are made.
I don’t need to be concerned about saving for retirement because I’ll just keep working as I get older and work things out as I go along.
You cannot predict whether you will want to continue working in your 60s or 70s because you cannot predict your health later in life, the possible future obsolescence of your job skills, and the job market in general. Of these three, the first – health – is probably the most critical. Statistics on declining health, both physical as well as mental, are readily available, and can be sobering.
I can wait until I’m in my 40s to start thinking about saving for retirement since I can easily make up the money later.
You can, in fact, wait until your 40s to think about setting aside money for retirement, but you cannot “easily” make up the money at that time. Why? Because the amount you will have to put aside will be substantially higher than if you had started 15-20 years earlier. Compounding is the reason.
Here’s a way to grasp this: in the first 15 years of a 30-year period, the money you contribute makes up most of the balance. After that, appreciation on this money begins to take over and subsequently far exceeds the amounts you contribute. The earlier you start the better.
I know exactly how much money I’ll need to save for my retirement.
No, you don’t. See How Much Do I Need to Retire?
I don’t need to be concerned about the future because I’ll be getting a big inheritance later.
Inheritances are great. I wouldn’t ever rely on getting one. Catastrophic medical expenses can wipe them out before they even get to probate. Divorce and remarriage can complicate things. Poorly written wills can cause unforeseen problems. Wills can be contested after the fact especially when one sibling is favored over another. And people can and do change their minds as they age.
Relying on something that is totally out of your control is not the best way to plan for your future.
Only wealthy people need the services of financial planners.
Have you considered the possibility that some people became wealthy by embracing financial planning when they were younger? Defining and setting goals and making plans to support them is financial planning. Some financial planners manage investments, and some do not.
Financial planners can help with budgets, insurance needs, college financing, retirement projections, estate planning, mortgage guidance, and debt management, among other things.
One of the biggest benefits a financial planner can provide is to get you thinking like a finance person – setting financial goals for yourself, figuring out ways to achieve these goals, and then tracking your progress towards meeting them.
Financial planners are far too expensive to even consider. I don’t need yet another expense on top of my already challenging financial life.
“Expensive” is a relative term. It’s possible that some financial decisions you’ve made in the past are costing you far more than you realize; a $100,000 student loan with a degree in art history is expensive. A $60,000 new car that depreciates 35% in the first three years is expensive. Paying someone outrageous fees for managing your investments and getting mediocre results is expensive.
A financial planner who charges $150 an hour is expensive, but a good planner may be able to show you how you can make up that fee many times over through better budgeting, reduced taxes, and lower investments costs with better investment choices.
Consider thinking of it this way; if you see your family physician for a checkup every few years or change the oil in your car every 5,000 miles, then you might consider getting a period checkup for your financial life.
I can rely on advice from financial planners that is always in my best interests.
Yes, you can, but only if they are fiduciaries, are willing to sign a fiduciary statement, and are therefore legally obligated to always act in your best interests. See What’s a Fiduciary and Why Should I Care?.
I’m a “now” person and just don’t have the interest or discipline to plan for the future.
I am reminded of this comment usually attributed to Eubie Blake: If I knew I was going to live this long I’d have taken better care of myself.
You don’t have to choose between good health and financial stability – you can have both. Go for it!