Top 5 Financial Mistakes Ad People Make

1)  Holding too much cash – with inflation ranging between 2-3% per year, that will eat away at your savings. We always look for our clients to have 3-6 months of living expenses in cash, about that needs to be working for you and out pacing the rate of inflation. What’s inflation? What your grandparents paid for their house, is what we pay for our cars now.

$100k of cash in 2020 = the same buying power of $97k in cash in 2021.

2)  Revolving credit card debt that takes more than 6 months to pay off – Interest rates on credit cards are astronomical, to the tune of 20%+. If you have over $10,000 sitting on cards, that’s $2000/year paying to the credit card company. At the very least, transfer as much as possible onto a 0% card. From there, pay the left-over balance on the card that has the 20%+ aggressively and pay the 0% minimum until the card with the interest is knocked out.

3)  Not having enough risk management in place – Awesome, you got your home, your yard, and it’s all working out. What if it doesn’t? We never think of the worst, until it actual happens to us or someone we love. What we see in the marketplace for life insurance is companies offering roughly 1- 1.5x salary in life insurance for a death benefit. Absolutely take it, it’s usual free or very cheap. Let’s run the math with a significant other, 2-year-old child and $600,000 mortgage, with a household income of $300k. Total monthly expenses are $10,000 per month. If heaven forbid you pass early, what happens? You get $300k-$450k. We usually want to make sure that you have 10-15 times income of death benefit. This would be used to pay off the mortgage, fund your child’s education, and provide income (for a 2-year-old) until they graduate college and are out of the house. Cost of school for 4 years approx. $200k + mortgage of $600k + 20 years of living expenses at $10k per month is $2.4M to equal $3.2M of total death benefit need. Now there is the long-term disability. Your company will offer you between 60-65% of your salary should something happen to you and will pay you out for 2 years. You have to pay tax on that benefit, to net you roughly 40% of your income take home. Then what? There are inexpensive options out there to protect your income and make sure that if something happened to you, where you’re unable to do your job, you can receive income until you are 70 years old without having to pay the premiums while you’re unable to work. This is crucial piece of plannin for any working professional, unless your parents are willing to take you and your family in.

4)  Not having a clue of the monthly budget – a lot of the ad community does well enough to not have to worry about making ends meet, they just spend money and save whatever, if any is left over. Having an idea of the overall expenses (fixed and discretionary) for the last 90 days can be an eye opener and a good kick in the tush. Seeing what is spent on average is crucial to being able to decide if you can cut back and also save more. 401k’s through the agency are great, but they shouldn’t be the sole focus on saving for later. We have to look at the attrition on the money when it comes out of the 401k and how much tax will be paid in the future. 401k’s are pre-tax dollars with most likely 40-50% going back to the government when you want to take the money out. This is why is so important to allocate appropriately, but also locate money in different places looking at the specific bucket and it’s taxation.

5)  Putting kids’ college planning above your own planning – We all love our kids and of course want them to be educated and lead fantastic lives. The truth of the matter is, you can take out loans for college, but you can’t for retirement. Instead of Legos or today’s top toys, have grandma and grandpa contribute to their savings plan to complement what you can do. It’s a team effort. Look at maximizing your savings to achieve your goals, then focus on your kids to get them into the school of their choice.