Nationally-Recognized Finance Expert & Award-Winning Author at Laura D Adams
Answered 2 years ago
ANSWER: A common financial mistake many people make after the New Year is not increasing their retirement account contributions. For instance, if you boost contributions by at least 1% annually, you can gradually get closer to maximizing your retirement plan. The sooner you can contribute 10% to 15% of your gross income to a retirement account or max it out annually, the more wealth you can build. That could allow you to retire early or enjoy a higher living standard when you do leave the workforce. For example, if you earn $100,000 and contribute 3% ($3,000) to a workplace retirement account (such as a 401(k) or 403(b)) with a 7% average annual return, you’ll have close to $307,000 after 30 years. But if you contribute 3% for five years, increase the amount by 1% annually up to 15%, and maintain that level, you’ll have over $750,000 after 30 years. That’s an additional $443,000 for your retirement without accounting for the likely income raises you’d receive over that period. Laura Adams, MBA, is an award-winning personal finance author and expert with Finder.com. Learn more at https://www.linkedin.com/in/lauradadams.
Personally from my experiences, I've noticed that early in the year a lot of people miss something important: they don't revisit their insurance policies, like life and disability insurance, while planning their finances. It’s all too common for people to talk about their budgeting or investments and totally forget if their insurance still matches up with their latest financial realities and life goals. Ignoring the need to update your insurance with changes in your income, family size, or after major purchases can really backfire. You could end up underinsured or shelling out cash for coverage you don’t even need anymore. Being underinsured might mean facing steep costs out of your own pocket or, worse, risking your family's financial safety if something goes wrong and your life insurance falls short. And if you're over insured? Well, that’s just throwing money away. I always advise checking your insurance coverage early in the year. It's the best way to make sure your policies are still a good fit and to adjust them so they keep your assets and loved ones secure without busting your budget. Regular reviews are important—they make sure your insurance works for you as your life evolves.
My extensive experience in the fintech sector has given me unique insights into common financial pitfalls, particularly those occurring at the start of each year. Many individuals make critical errors at the beginning of the year by neglecting to review and adjust their budgets. This oversight can have significant financial repercussions, costing thousands of dollars annually. Let's consider a real-world scenario: A client of mine, Teddi, failed to reassess her spending habits in January. She continued her holiday spending patterns well into the new year, racking credit card debt. By March, she had accumulated an additional $3,000 in high-interest debt. Assuming an average credit card interest rate of 18%, this mistake cost her over $500 in interest alone by year's end. Another crucial point to consider is the missed opportunity for savings and investments. If Teddi had redirected that $3,000 into a retirement account earning an average 7% annual return, she could have gained over $200 in investment growth in just one year. Over 30 years, this single misstep could cost her nearly $25,000 in lost compound interest. These numbers highlight why individuals must reassess their financial strategies at the start of each year. A simple budgeting exercise in January can prevent substantial economic losses and set the stage for a more prosperous year.
As the CEO of BlueSky Wealth Advisors, a common mistake I see investors make at the start of each year is failing to rebalance their portfolios. While it’s tempting to leave investments alone if they’re performing well, over time certain asset classes will grow disproportionately. A failure to rebalance means taking on more risk than intended and missing opportunities. For example, in the bull market of 2017, equity allocations for many clients grew 10-15% beyond targets. By rebalancing in early 2018, we were able to lock in strong gains and re-allocate to undervalued areas like real estate. When markets turned later that year, those rebalanced portfolios were better positiomed to weather volatility. The cost of inaction was significant. Another example is when interest rates rise. Without rebalancing, bond allocations won’t keep up with rate changes and clients lose yield opportunities. In 2013, failing to shift from older bonds into newly issued, higher-yielding ones cost some clients 1-2% in annual returns. Over decades of compounding, that single mistake translates into hundreds of thousands lost. In summary, start each year right by meeting with your advisor to review allocations and rebalance as needed. Staying disciplined avoids emotional decision making, reduces risks, and optimizes returns over time. An hour of planning saves years of second-guessing and underperformance. Your future self will thank you.
One of the most common financial mistakes I see at the start of every year is people buying large, unnecessary items using their holiday bonuses and first paychecks. There's a psychology around this, often called the 'windfall effect', where people perceive bonus money differently from normal income and thus feel freer to spend it. For example, someone who gets a $5,000 bonus might think 'I'm getting an extra $5,000 today' rather than 'I just got a $5,000 raise'. In the first case, the person might go out and buy a high-end TV or take an expensive vacation as bonus money. The impact in financial terms is bigger than you might think. If such a sum isn't spent but instead put into an investment earning perhaps 7 percent a year, that one-off investment decision will be worth tens of thousands of dollars over 30 or 40 years! So, I would discourage people from making large, impulsive purchases at the beginning of the year, and encourage them to instead look at any extra income as a chance to invest in their own financial future by paying off debt or putting money in wisely chosen long-term investments. This not only promotes long-term wealth, but also establishes healthy financial habits.
A frequent financial misstep I observe at the beginning of the year is people not fully utilizing their employer-sponsored retirement plans, particularly regarding contributions and matching opportunities. Many people base their contribution levels on the previous year's goals, failing to take into account salary increases or changes in financial circumstances. This oversight can result in missed opportunities to maximize employer matching contributions—essentially free money. If someone is eligible for a match of, say, 5% of their salary and they only contribute 3%, they're leaving money on the table. Over time, this could result in a significant shortfall in retirement savings, potentially costing tens of thousands of dollars in lost investment growth. I always encourage clients to review their contributions at the start of the year to ensure they’re making the most of available benefits and to set clear financial goals that align with their current situation.
One common financial mistake people make around the start of the year is failing to review their business cash flow projections in light of new year expenses. Often, businesses assume that early-year cash flow will mirror the end of the previous year, which can lead to a cash shortfall. A client I worked with in the retail space learned this the hard way when they neglected to account for the surge in expenses for restocking inventory after holiday sales. Their cash reserves were quickly depleted, forcing them to take on high-interest short-term loans to cover payroll and overhead. The financial impact was significant and these loans ate into their profit margins for the first quarter, putting them behind on growth targets. Once we recalibrated their cash flow forecasts and implemented more rigorous budgeting, they were able to avoid this issue in future years. The result was a 20% improvement in cash reserves, which allowed them to reinvest in new marketing strategies and expand their operations. This simple adjustment in cash flow management not only stabilized their financial health but also increased their annual revenue by nearly $500,000.
As an estate planning attorney and financial advisor, one common mistake I see is failing to review and update beneficiary designations. Life changes like marriage, divorce, birth of children often require updates to ensure your assets transfer as intended to the right people. Without these updates, I've seen situations where ex-spouses receive life insurance payouts or retirement funds go to distant relatives instead of children. The financial impact varies but can easily amount to hundreds of thousands of dollars that end up in the wrong hands. Another area often overlooked is income taxes. New laws, dependents, deductions, and credits may apply from year to year. Failing to account for these changes means potentially missing out on thousands in tax savings or even pemalties for underpayment. It always pays to review your tax strategy and financial plan at the beginning of each year. A few hours of time can translate to major financial benefits. Lastly, many people simply don't have an estate plan in place at all. The costs of probate, lack of control over asset distribution and guardianship of minor children can be devastating without proper planning. A basic estate plan may cost a few thousand dollars but provides invaluable peace of mind that your affairs are in order. The price of not planning is simply too high. Take time at the start of each year to review planning and make sure your ducks are in a row.
One common mistake people often make at the beginning of the year is not adjusting their budgets or financial plans to account for changes in their personal or financial circumstances. They usually continue with the same budget from the previous year without considering factors like pay raises, increased expenses, inflation or new financial goals. Drawing from my professional experience, this oversight often leads to budget imbalances and missed financial targets. Moreover, in terms of quantifiable financial impact, it could potentially lead to hundreds or even thousands in missed savings opportunities each year. It's crucial to start the year with a clear and up-to-date financial plan, which is tailored to one's current circumstances and future prospects.
A common oversight I've noticed at the start of each year is neglecting to update financial strategies to reflect new tax laws or benefits. Last January, we at PinProsPlus adjusted our approach after realizing there were updated tax credits we hadn't claimed. By incorporating these changes, we managed to save over $5,000 in just a few months, funds we redirected into enhancing our product line. This adjustment not only improved our financial health but also allowed us to innovate further in our designs.
One common financial mistake people make at the start of the year is neglecting to revisit their budget and financial goals. It's easy to carry on with last year's assumptions without accounting for changes in income, expenses, or financial priorities. This oversight can lead to missed opportunities for savings or investment and potentially result in overspending. By not updating your financial plan, you risk falling short of achieving your annual financial objectives. The impact of this mistake can be significant, as even small budgeting errors can accumulate over time, hindering your overall financial health. Setting time aside at the beginning of the year to review and adjust your budget can make a considerable difference, enabling you to align your financial actions with your goals more effectively.
A common financial mistake people make around the start of the year is failing to adjust their savings or investment strategy to reflect their changing goals and economic conditions. This can happen, for instance, when people do not increase their contributions to retirement accounts despite a pay raise, missing out on compound growth. The financial impact, while it varies for each individual, can be substantial over time. Not tweaking investment contributions can mean the difference between a comfortable retirement and financial strain. In my experience within the finance sector, I've seen such oversight cost individuals thousands of dollars in potential earnings due to passive decision-making. Emphasizing the importance of active participation in personal finance can transform how effectively one's money works for them. By neglecting to tune financial strategies with one's evolving life circumstances, individuals miss the chance to let their finances grow in alignment with their life goals.
A frequent financial misstep at the beginning of the year is overspending during the holiday season. The festive atmosphere, filled with holiday decorations and cheerful music, creates an environment that encourages spending. The pressure to buy gifts for loved ones can be intense, leading to impulsive and excessive spending. People often feel the need to purchase the perfect gifts, which can result in maxing out credit cards or dipping into savings, only to face the financial repercussions in the new year.
One common financial mistake is getting swept up in New Year's resolution enthusiasm and overspending on gym memberships, diet plans, or other wellness packages. The financial impact can be substantial. Suppose you purchase a $100/month gym membership, a $300 diet plan, and a $200 wellness application subscription, suddenly you've spent $600 upfront. If you slack off or abandon these resolutions by February, that's a hefty sum wasted. To prevent this, create a sustainable plan for health and wellness goals—one that aligns with your financial capabilities. It's crucial to evaluate which services will truly deliver long-term value. As a financial advisor, I always encourage my clients to think investment, not expense.
As a financial advisor for over 20 years, one mistake I commonly see is failing to review insurance policies. Life changes quickly, and coverage needs may increase or decrease. Without annual reviews, clients often pay much higher premiums than necessary or lack adequate coverage. For example, a client had been paying high premiums for a $2M life insurance policy for years after his children became adults. By reducing coverage to $500K, we saved him over $10K annually in premiums. Another client needed to increase disability insurance when his business expanded, but a lack of review left him vulnerable had he become unable to work. Tax planning is another area often overlooked. New laws or life events like marriage or children can lead to missed deductions worth thousands. One client failed to deduct $12K in qualifying business expenses, costing him $3K in unnecessary taxes. By reviewing records and the latest laws each year, such oversights can be avoided. The costs of not planning are simply too high. An annual review of insurance, taxes, and financial goals ensures maximum benefit at minimum cost. While a few hours of time may seem tedious, the rewards of optimized policies, minimized taxes, and peace of mind are invaluable. Overall, a little time each year reviewing the areas so critical to financial well-being can translate to substantial long term gain.As a CPA and financial advisor, a common mistake I see around this time is failing to do year-end tax planning. Many business owners get caught up in closing out the year and forget this crucial step. According to my experience, the average small business owner can save over $25,000 per year through tax planning. For example, one client came to me with an $80,000 tax liability for the year. By accelerating expemses, maximizing deductions and tax credits, and other strategies, I was able to reduce their taxes to $42,000 - a savings of $38,000. For small businesses, that amount can mean the difference between struggle and success. Another frequent error is not taking advantage of opportunities to defer income into the next year. If tax rates are going down, it often makes sense to delay bonuses, contract payments or other income so it's taxed at a lower rate. I've helped many clients defer large payments this way, saving them thousands each time.
One common financial mistake people make at the start of the year is not adjusting their financial plan to account for year-end expenses and changes in income or tax laws. After the holiday season, many individuals may find themselves carrying higher-than-expected credit card balances due to increased spending on gifts, travel, or entertainment. Failing to prioritize paying off this debt can lead to months of accumulating interest, potentially costing hundreds or even thousands of dollars over time. For example, if someone enters the year with a $3,000 credit card balance at a 20% interest rate and only makes minimum payments, they could end up paying over $1,000 in interest alone before clearing the debt. Additionally, many people overlook changes in tax laws or income thresholds that could impact their finances, leading to missed opportunities for savings. For instance, failing to adjust contributions to retirement accounts like IRAs or 401(k)s could result in lost tax advantages or not maxing out employer-matching programs, which is essentially leaving free money on the table. The financial impact of these mistakes can be significant, often creating long-term debt or missed growth opportunities. To avoid this, individuals should start the year by reviewing their financial situation, setting goals for paying down high-interest debt, and adjusting their savings or investment strategies to maximize tax benefits and returns. Proper planning can prevent costly mistakes and set the stage for a more secure financial future.
One common financial mistake that many people make at the start of the year is setting overly ambitious resolutions without a solid plan. It's easy to get swept up in the excitement of a new year and set lofty goals like saving a huge amount of money or paying off debt quickly. However, without clear steps or realistic timelines in place, these resolutions can quickly become overwhelming and lead to frustration. Many individuals end up abandoning their goals altogether within a few months because they didn't break them down into manageable actions. The financial impact of this mistake can be significant. For instance, if someone sets a goal to save $5,000 by December but doesn't create a monthly savings plan to reach that target-like saving roughly $417 each month-they may find themselves falling short when they realize they haven't consistently set aside money throughout the year. This not only affects their savings but can also lead to missed opportunities for investments or emergencies that require funds. To avoid this pitfall, I always advise clients to set SMART goals-Specific, Measurable, Achievable, Relevant, and Time-bound. By breaking down larger goals into smaller steps and regularly reviewing progress throughout the year, individuals can stay motivated and on track with their financial aspirations while also building good habits along the way.
As a co-founder of Reliant Insurance Group, a common mistake I see clients make is failing to review their insurance policies at the start of the year. Whether it be auto, home, business or life insurance, needs and risks change over time. Without an annual review, clients often end up overpaying on premiums or find themselves underinsured in the event of a loss. The financial impact varies but could mean thousands paid in unnecessary premiums or tens to hundreds of thousands in uncovered losses. For example, a client's teen may now be driving, requiring an update to the auto policy. Or a home renovation could change the coverage needs for the home. In business, expanding operations or hiring new employees presents new risks to insure properly. Life changes like marriage or children also often require updates to ensure policies are set up correctly. A few hours meeting with your insurance advisor to review policies can prevent costly mistakes and provide peace of mind that risks are properly protected against. On the personal side, tax planning is another area commonly overlooked. Laws change, dependents age out, credits expire - all impacting your tax liability. Failing to review strategies with your tax advisor could mean missing out on dedictions or paying excess taxes unnecessarily. For many clients, a tax planning meeting translates to thousands saved or avoided in additional taxes owed. The minimal time investment pays major dividends. While clients are busy with day-to-day responsibilities, making time for annual insurance and financial reviews is critical. An ounce of prevention is worth a pound of cure, and that is certainly true when it comes to managing risks and maximizing opportunities. A few hours can provide invaluable financial protection and tax savings, giving peace of mind and stability for the year ahead.
One thing that often gets overlooked is the importance of adjusting your budget for any year-end bonuses, holiday spending, or even raises. Instead of taking those extra earnings as an opportunity to splurge, people should be folding them back into their financial plan thoughtfully. Take bonuses, for example. A lot of people treat them as "found money" and end up spending it on lifestyle upgrades—new gadgets, vacations, or even just dining out more. It feels rewarding in the moment, but when you look back, that money could have been a cushion against unexpected expenses or used to chip away at high-interest debt. If someone gets a $5,000 bonus and spends it all without planning, that’s $5,000 not contributing to their long-term goals or padding their emergency fund. The financial impact can be huge, especially when you consider that the alternative could have been to put it into a high-yield savings account or an investment, where over time, even with modest growth, it could have doubled or more in value.
A frequent financial misstep at the beginning of the year is overspending during the holiday season. I have seen this mistake firsthand with clients who have spent beyond their means during the holidays and then struggle to keep up with their mortgage payments in the following months. This often leads to missed payments and even potential foreclosures if they are unable to catch up. Furthermore, overspending during the holiday season can also affect one's credit score and ability to secure loans for major purchases such as buying a new home. A high credit utilization ratio due to overspending can lower an individual's credit score, making it harder for them to qualify for favorable interest rates and terms on loans. In addition, the financial impact of overspending during the holidays can also extend beyond just the start of the year. Many people may carry debt from holiday expenses well into the new year, incurring high interest charges and prolonging their ability to save and invest for their future.