Don’t Commit the Seven Financial Sins

The “seven deadly sins” often referred to in religious literature are wrath, greed, sloth, pride, lust, envy and gluttony. Although it usually does not involve the same soul-searching, you may be guilty of some other “financial sins” in the way you handle your personal affairs, particularly as it relates to your investments.

Fortunately, redemption does not have to be difficult. Here is a list of seven common mistakes you may be guilty of making that may be rectified with relative ease. If you have not committed any of these “sins” before, continue to avoid them.

1. You are overly emotional. Do not let your emotions dictate financial strategies. For instance, when the stock market is booming, greed can lead you to make bad decisions. On the flip side, if you are faced with a declining market, you cannot let fear overtake your financial sensibilities. Try to maintain an even keel.
2. You are too optimistic. Back in the 1990s, investors took it for granted that they would generate annual returns averaging 10% or even higher. But that is no longer a realistic outlook. If you lower your expectations slightly, you can better position yourself for what might happen.
3. You pay excessive fees. Of course, you usually “get what you pay for,” but that does not mean you should pay exorbitant fees in connection with investments. Rely on trusted financial advisers to steer you in the right direction.
4. You do not have enough insurance. Insurance is a key component of most financial plans. This includes various forms such as life insurance, health insurance, disability income insurance, etc. Try to have your needs quantified based on your current and future objectives.
5. Your risk exposure is too great. It’s been said often that there is an inherent risk in making investments. Recognize that it is possible to make money, lose money or stay in the same basic position. Do not risk more than you can reasonably afford to lose. Consider your “risk tolerance” as part of your investment decisions.
6. You do not have emergency funds. It is generally recommended that you keep enough financial “cushion” to sustain your family through six to 12 months if financial disaster should strike. Consider an emergency fund that will last even longer if you are contemplating retirement or already retired.
7. You refuse professional guidance. This does not mean you are unqualified to manage your own financial affairs. But almost everyone needs a little help. As mentioned in #3, you should not pay excessive fees, but you should still obtain guidance when the situation calls for it.

Do not let your pride get in the way. Otherwise, this could turn out to be the “deadliest” financial sin of all.