5 financial choices you will regret in 5 years

Financial choices you will regret In my line of work, I hear people express financial regrets often. Here is a list of top 5 money decisions that are likely to make you wish for a “re-do”. Catch them before it’s too late!

We all have regrets. From that cringe-worthy conversation to an awkward choice of attire, there are moments and photograph we wish could be deleted, undone, or otherwise erased forever. Financial regrets are no less painful, and the consequences of particularly poor decisions can haunt you for years to come.

Here are the top five money choices that you will likely come to regret with a few years’ hindsight.

Not maxing out on your retirement plan contributions

Pre-tax contribution, employer matching – we all know the benefits of using the 401(k) plan at work. Sadly, all too often contributions and investment decisions remain stuck in the past. Chances are, you have not looked at your 401(k) plan selections since you started your current job! A key take-away here is to assess your contribution decisions every year. Be sure you are maximizing on the employer matching, as well as your own contributions. Review your investment decisions, and if you are not happy with the choices that your employer is offering (whether because of limited fund options or high fees), consider one of the newer robo-advisors that work in the 401(k) space.

Not having a budget

What comes to mind when I say “budget”? Most people would say “restriction”, “austerity”, or “hassle”. In reality, a budget is nothing more than a tool to help you align your values (i.e. what matters most in your life) with your money. If you do not have a handle on your cash flows and have no clue where your money is going, you cannot possibly hope to plan for the future, set financial goals, or save in any meaningful way. If maintaining a budget sounds tedious, try one of the apps like www.Mint.com or www.YNAB.com – they take the time-consuming data entry and tracking out of the picture, and even turn the process of following a budget into a game.

Not consulting with a financial planner during your divorce

Not everyone goes through a divorce, but those that do can typically benefit from the expertise of a financial planner who specializes in shepherding clients through untangling their financial lives. From setting a realistic post-divorce budget to figuring out how to cover kids’ expenses, the right professional will know what questions to ask and will guide you around known problem areas. Working with a financial planner is also a key component of getting a fair share of assets.

Opting into the wrong insurance

We buy insurance hoping that things don’t go wrong. Whether or not they do, the investment in insurance is a sizable part of any family budget. Make sure you review your insurance decisions every year (and every time your personal situation changes). Just like Goldilocks, you want a policy that gives you the right amount of coverage for the right risks: not too little, not too much, but just right. This is particularly true of the more complex policies like long term care coverage, where changing your mind 3 years into a policy will leave your bank account feeling lighter without having provided you much value in return.

Bailing out your kids (at peril to your savings progress)

For parents, the kids’ happiness is a high priority. When the kids are little, that might mean catching them as they are about to tumble off a wall at a playground. When they are older, the temptation to extend a helping hand and a checkbook can be just as intense. From helping cover monthly rent to leasing their car, individual payments may not be large – but they can add up to significant “bailout money” over time. Any time a question of helping your kids financially comes up, be sure to consider boundaries and terms (as well as your personal financial circumstances). Will this be a loan or a gift? If you are considering a loan, what is the maximum amount of “mom and dad’s line of credit”, what are the repayment terms, and what happens if those terms are not met? A critical thing to remember is that your kids have more time ahead of them to build up financial well-being, whereas your personal timeline to retirement is much shorter. Be sure your own needs in retirement are well covered before you reach for that checkbook.