Happy Halloween: Frightful Financial Follies to Avoid This Halloween

As Halloween approaches, the air fills with tales of ghostly apparitions and spine-chilling frights. Beyond the spooky decorations and candy corn, there lurks a more sinister realm—our finances. In the spirit of the season, let’s explore three frightful financial follies that can haunt you long after the last jack-o'-lantern has dimmed.

Not Having a Plan

Before anything else, you should have a plan in place. A proper financial plan directs the decisions you should make as it specifies the goals you are trying to achieve. How should I invest? Well, it depends on what you are investing for. What is the time horizon and purpose of the funds? How much should I be putting into my 401k? What do you want your retirement to look like? Do you plan to live simply or would you like a lavish retirement?

Not having a plan would be like trying to build a house without a blueprint. You may have all of the materials and tools, but without proper direction it is hard to know where to start. Don’t know where to start? We can help.

Lack of Emergency Fund

Everyone should have an emergency fund set aside. These funds should not be touched unless in the case of, well, an emergency. The emergency funds are there to ensure that your plan stays on track when life happens. Loss of a job, medical bills, and car troubles all represent an unexpected loss of income or large expenses which can severely hinder a financial plan.

The emergency fund should be liquid, in cash or a money market fund and should be sufficient to cover 3-6 months of non-discretionary expenses i.e. rent, mortgage, car payments, utilities, etc. In the case of an emergency, the fund prevents drastic measures such as overusing credit cards or taking a loan out of a 401(k). Do you have a sufficient emergency fund built up?

Unaligned Investments

All investment allocation decisions should start with the plan. The use, purpose, and time horizon for the funds should dictate where and how they are invested. One of the biggest mistakes we see is keeping too much in cash that is not growing. As mentioned, it is important to have an adequate and liquid emergency fund. However, above and beyond that, any excess funds should be invested, even if it is just in a money market account.

Additionally, we often see portfolios that are well out of tune with age or risk tolerance. If you are nearing retirement and will be reliant on, say, your 401(k), that account should not be in 100% equities, as they are too volatile in the short term. Reallocating a portion of the account to fixed income can provide much-needed stability.