Broker Check

Learn How to Avoid These 6 Common Tax Errors

Knowing how you need to file your taxes depends on your income and filing status, as well as which deductions and credits you can claim. In this free ebook, we share some common errors to avoid.



Thank you! Oops!

10 Mistakes That Can Derail Your Financial Strategy

January 08, 2024

We all make mistakes. The key is to learn from them and try not to repeat them. Financial mistakes can be particularly costly and can have long-term implications. Throughout my career, I’ve witnessed plenty of missteps and “I wish I hadn’t done that” moments. I thought it might be helpful to share some of the most common.

Here is a list of 10 common mistakes I’ve seen people make:

#1. Having too much cash in the bank. Bank accounts generate small returns and may lose purchasing power due to inflation. Assets in a savings account should typically be enough to cover 3 -6 months of expenses.

#2. Not having emergency savings. A good rule of thumb is to have an emergency fund of about 3 to 6 months’ expenses in case of a job loss or other unforeseen circumstances. 

#3. Not having enough insurance. Insurance is a safety net in case of an unfortunate event. There is car, home, umbrella, healthcare, short-term, and long-term disability; the point is, having an insurance strategy is important.

#4. Trying to time the market. Timing the market sounds good in theory but seldom works in practice. Studies have shown that being out of the market for only a handful of the best days can drastically reduce long-term returns. 

#5. Making poor fixed vs. floating interest rate decisions. Low-rate environments may be a good time to lock in a fixed rate. When rates are increasing or fluctuating, you might want to consider reducing debt or using short-term variable rate debt, which tends to be lower and could enable you to wait for a better time to lock in a fixed rate. 

#6. Lack of diversification. Having too many of your assets in a single investment or asset class increases market risk and volatility. An investment portfolio should be well diversified and represent multiple asset classes depending on your risk tolerance. Diversification and asset allocation are approaches to help manage investment risk. Both do not guarantee against investment loss. 

#7. Starting too late. Procrastination is a critical mistake for anyone looking to achieve their long-term financial goals. Systematic investing, time in the market, and the benefits of compounding are strategies that have helped build wealth over time.

#8. Not paying off high-cost debt. Maintaining higher-cost debt, like credit card balances, is never a good idea. Living within your means and paying off high-interest debt as quickly as possible should be a priority.

#9. Investing just for tax savings. Investment solutions should be judged on their inherent merits, not just on tax considerations. The investment should take into consideration your needs, risk tolerance, and objectives first and foremost. Taxes should never be the driving factor.2

#10. Lack of estate strategy. Not preparing for the transfer of your assets can lead to potentially significant tax consequences for your heirs and outcomes that are not in keeping with your ultimate wishes. Taking care of your legacy should be an important part of your overall financial strategy.

While these are 10 of the most common mistakes I’ve seen people make, it is far from an exhaustive list, and most are avoidable. I’d welcome the opportunity to meet and discuss strategies to help get your finances on the best course to meet your short and long-term goals.

All the best.

Click here for sources and disclosures