Don’t Make These Easily Avoided Financial Mistakes

We are all not perfect and everyone makes mistakes. However, the key is to avoid these financial mistakes as much as possible:

Penny wise and dollar dumb: The actual expression is penny wise and pound foolish, but I still remember a partner from my first job saying this to a client (maybe it’s the American version). I guess it doesn’t matter how you say it as long as you make your point. The message is to not be cheap so that you save a few dollars, but it ends up costing you a lot more down the road. This can happen with almost any financial transaction so always be aware of what you are trying to accomplish.

Ignoring tax notices: Don’t be surprised to find out that your bank account has been levied or there are liens against your assets if you don’t address tax notices. Surprisingly, the notice may actually be wrong, but the IRS or states do not know this. If you do not resolve the notice timely, then penalties, interest, and collection costs may be added to your balance or you may not receive your refund.

Not filing your returns: Sometimes taxpayers hesitate to file their tax returns when they know that they owe money, but do not have the ability to pay their balance. Fortunately, there are usually payment arrangements that can be made in these cases. Also, every now and then I come across a situation where there is actually a refund due to a client, but they took too long to file their returns so they are not longer eligible to receive it. Now that’s painful!

Not saving anything: Just about everyone can save at least 1% of their income to make this a habit, and then can increase their savings rate over time. The earlier you start, the better and don’t convince yourself otherwise.

Too much long-term savings/illiquid assets: Sometimes the opposite is true when people tie up all of their money in their retirement plans or real estate, but do not accumulate short-term savings. What tends to happen is that retirement savings are tapped if there is a financial emergency or long-term financial set-back, which in turns ends up creating a tax issue.