Individual financial planning without common sense is like driving a car without a steering wheel: You aren’t going to get very far without driving off the road.

When it comes to planning personal finance, you have to think very clearly about your money because it’s so, so easy to make the following five mistakes when you don’t.

Mistake 1: Ignoring financial goals

Without financial goals, you won’t have any idea what direction to take your individual financial plan. Equally as bad is not writing them down.

Having a clearly defined set of financial goals will not only motivate you to find financial success but also help you decide how best to manage your money. That way, it grows into a reliable safety net for you and your family for life.

Mistake 2: Thinking without foresight

A big part of planning personal finance is being prepared for unforeseen circumstances, such as sudden disability, an emergency surgery, or the loss of your business. To manage these and other financial catastrophes, you need insurance coverage and an emergency fund.

You need to know the value of your noncash assets — everything from antique furniture to spare gift cards — to sell them off at a moment’s notice. Further, you need to maximize your savings. These should all be part of your individual financial plan.     

Mistake 3: Relying on year-end balance goals

New investors often make the mistake of relying on betted returns on the year-end balances of their investments. But no one investor can control what happens to the markets.

You just can’t make a solid financial goal this way, so it’s a mistake to base your personal financial plan on betted returns—doing so can throw your plan off course. It’s better to focus on goals under your control, such as how much money you plan to save in any given year.

Mistake 4: Planning retirement too late

The earlier you start saving, the bigger your retirement nest egg. If you start your retirement savings late, you risk having to retire later. As soon as you can, talk to your employer about starting a 401(k) or Simple IRA.

If you’re self-employed, starting a solo 401(k) or traditional IRA may be more your thing. If you’re serious about retirement savings (and you should be), consider high-return, low-risk investments, such as real estate investment trusts, tax-advantaged municipal bonds, or annuities.

Mistake 5: Betting on unlikely financial scenarios

Here’s a fact: Your chances of winning the lottery are about 1 in 303 million, according to CNN. So don’t make winning the lottery part of your financial plan.

The example is extreme, but it illustrates a key point: Be realistic about your financial goals, and don’t bet on unlikely financial scenarios.

A more reasonable example may be pooling all your money in one high-risk investment. You might get a huge return on your investment, but that investment very likely could tank out of the blue, losing you vast amounts of money.

You’re far better off diversifying your investment portfolio to mitigate the risk of devastating financial loss.

The bottom line on personal money mistakes

Individual financial planning doesn’t have to be a disaster — just use common sense. Now that you know these common personal money mistakes to avoid, you’re a little less at risk of compromising your stable financial future.

Your path to financial freedom starts here.

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