Sabotaging your financial future - Your Life - Financial Planning Association, - Financial Planning Association

According to the Financial Planning Association, Denver, Colo., Americans frequently mismanage their finances. The organization specifically cites eight ways families can rail into this fiscal trap:

Don't plan. Many people earn, spend, save, and invest their money without a great deal of thought or planning. They have only vague goals and don't analyze whether their limited financial resources are being put to the most-productive uses to achieve those goals and provide financial stability. In short, without a financial plan, and accompanying tools such as a budget, it is difficult to know where you are going or how best to get there.

Don't communicate. Spouses often have different styles of investing and managing money. These differences need to be discussed and then either reconciled or accommodated. Otherwise, financial conflicts can damage the overall household finances and even lead to marital problems. Leaving a spouse out of the "financial loop" also can be devastating should the other spouse die first. Financial planners strongly recommend that couples discuss finances with their offspring, particularly adult children who may inherit family wealth. A financial discussion with one's parents also can be critical in the event you have to take care of them or eventually settle their estate.

Wait to save and invest. People, particularly the young, often say, "I'll start saving later when I can afford to save." This overlooks the tremendous power of compounding.

Don't diversify your personal finances. The extended bear market has painfully illustrated the benefits of diversifying among a variety of investment categories, but diversification might well involve more than just investments. Take, for example, a couple who both work in the same industry, perhaps even for the same company. In addition, they invest heavily in stock options and employer or industry stock in their retirement plans. If that employer or industry suffers hard times, they could lose their jobs and much of their savings in one fell swoop. Furthermore, if their employer dominates the region where they live, the value of their home could surfer at the same time.

Chase the market. In the 1990s, many investors chased higher-risk stocks right over a cliff. Now, some observers worry that investors are over-concentrating on bonds, with the potential for bad results when interest rates rise. Constantly trying to outwit the market year after year frequently causes investors to take excessive risks that, in the long run, leaves them well short of their goals.

Assume bad things won't happen. Newspaper headlines should convince most people that personal catastrophes or life-changing events with negative financial consequences can occur unexpectedly al any time. Yet, families routinely fail to prepare financially for such events. For example, they don't have sufficient emergency cash funds in case of job loss or carry disability or long-term care insurance.

Procrastinate. families may have good intentions to get wills, develop an estate plan, rebalance their portfolio, update their insurance, or take an inventory of their financial health, yet never quite gel around to doing it--until it's too late. This is especially common in estate planning, with its overtones of mortality.

Do it yourself. While you should always be involved in the details of your finances, it can be beneficial to consult or work with an outside financial planner who takes into account your entire financial picture to provide impartial, technical advice and, often most importantly, motivate you to put your financial house in order.

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