5 mistakes I’m making with my money, according to a financial planner

  • I made a lot of money mistakes when I was in my 20s and I’ve been trying to work things out.
  • I finally sat down with a financial planner and he pointed out five mistakes I keep making.
  • I have too much cash in savings, too little tax spread, too many individual stocks, and more.

Just before I turned 30, I decided to get serious about my finances. I spent most of my 20s making all kinds of money mistakes (from not saving for retirement to racking up credit card debt). I was eager to enter a new decade of my life with my finances in a strategic place so I could meet the big goals I had for my future, like retiring early and buying a property.

I didn’t know what to do first, so I did my best to adjust my spending and start investing. Having never personally worked with a financial professional, I always wondered if I was making an obvious mistake. Turns out he was.

I sat down with Adam Scherer, a financial planner and president of Greenbeat Financial, to go through every inch of my financial portfolio to not only identify the mistakes I’m making, but also make a game plan for how I can begin to correct them.

1. I have too much cash in a savings account

The first mistake I knew Scherer was going to mention is a mistake I have knowingly made for years. More than half of my financial portfolio is made up of cash that is in my savings account. I am making this mistake because I am not sure what else to do with that money and I am afraid of losing it.

Scherer said it’s great to have cash on hand as an emergency fund, and a good rule of thumb is that a couple should have six to nine months of fixed and variable expenses in their cash account.

So how can I fix this error?

Scherer says it’s important to assess my risk tolerance first, then be clear about when I’d want to access that money in the future (whether it’s to retire in 20 years or buy a house in five years). Once I know the answers to those two things, I can consider putting that money in the market for retirement (through indices or mutual funds), or investing in real estate (either directly by buying real estate or through a REIT, which allows you to invest in real estate without buying one yourself).

2. My risk balance could be wrong

A few years ago, after many friends advised me to do this, I opened an investment portfolio on a platform that automatically manages your money for you. All you have to do is set your risk tolerance and they do the rest. Without much thought, I did what my friends did and set that tolerance to 90% stocks and 10% bonds, which made this allocation very risky.

Scherer says that because I’m a bit risk-averse right now and unsure of my financial goals, it might make more sense to cut it from 90/10 to 80% stocks and 20% bonds.

“If the idea right now that your money is 90% in risky assets and only 10% in something that’s safe makes you uneasy, it’s okay to adjust this to put yourself in a more comfortable place while you seek advice and guidance.” guide from a professional. Scherer says.

3. I have too many random individual actions

I confessed to Scherer that during the pandemic, I put a little money into a lot of individual stocks without much research or thought. What Scherer noted was that most of those stocks fell in one sector — technology, media and telecom — and holding a portfolio that was heavily weighted in one industry can be risky and not strategic.

Scherer recommends diversifying across different sectors as these sectors are more in tandem at different times.

So what are my options? Scherer said I can sell my current individual stocks and use that money to invest in stocks from different sectors, or I can go further and buy ETFs that are sector-focused for a fully diversified portfolio.

I was wondering if this meant that I had to make sure to invest equal amounts of money in each sector.

“It depends on the rate of return you’re looking to generate, where we are in the fashion cycle, where we’re headed and more factors,” Scherer said.

4. I need more tax diversification

One thing Scherer said was missing from my portfolio was tax diversification. He explained that there are three categories of taxes: taxable assets (such as money in a taxable brokerage account); tax-deferred (where the money is taxable, like my SEP IRA); and tax-free (where the money is not taxable, such as a Roth IRA).

The challenges Scherer said I would have with a Roth IRA is that I potentially make too much money to contribute to a Roth IRA, and I’m married filing separately from my spouse, so I don’t qualify for the higher Roth IRA limit. . However, he mentioned a solution.

“You can still run a backdoor Roth IRA strategy to get more investments into your ‘tax-free’ investment bucket,” Scherer said. “To do so, you would open a traditional IRA and a Roth IRA, then make ‘non-deductible traditional IRA contributions’ and convert the funds to the Roth IRA.”

5. My husband and I do not protect ourselves financially

One thing I mentioned to Scherer at the end of our meeting was that I recently got married. Although my partner and I keep most of our finances separate and do not


declare taxes

Together, I wondered if there was anything my partner and I should do about our finances now that we’re married.

Scherer said yes.

“One thing they can do is have others profit on their different accounts,” Scherer said. “If the contract for an asset (such as your retirement account, savings account, investment portfolio) has a beneficiary, you can skip the lengthy process of legalizing your assets in court. Instead, your assets will be automatically transferred to that person, saving time and money.”

One more thing Scherer mentioned was that now that we’re married, we should consider getting life insurance.

“If you both have a life insurance policy, you can ensure that the other person can pay off some debts and maintain the quality of life you’re used to if your partner passes away,” Scherer said.

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