Putting yourself in the best financial situation possible will likely require personalized advice to ensure you’re making the right moves, even if it looks different than your peers.
But there are still plenty of money habits and attitudes many of us share that could be holding you back from feeling financially secure — or getting rich.
Here are five red flags money experts see when creating financial plans for their clients, and what to look out for if you want to be smarter with your own money.
1. Living beyond your means
Do you really know how much you spend each month? If it’s more than you can actually afford, that’s a red flag.
Every financial planner and wealth manager CNBC Make It spoke with highlighted how common it is for first-time clients to look for advice without really knowing how much money is coming in and going out each month.
Plus, young people may be especially susceptible to overspending, Emily Safford, a certified financial planner and wealth advisor at Girard, a Univest Wealth Division, based in Pennsylvania, tells CNBC Make It.
She often sees young people focused on designer items and tying to keep up appearances, “but on the backside you might be really squeezing yourself financially in order to do so,” Safford says.
“[Credit card debt] can snowball and get out of hand very quickly and when you’re young, you’re putting yourself at a real disadvantage moving forward.”
Not only can everyday buys add up, but you may also want to focus on big-ticket items, like a wedding or a house. While you probably won’t pay all cash on those occasions, Safford recommends still making sure you can continue to meet all your other financial obligations, such as saving for retirement.
“It’s really easy to fall into [a mindset of] ‘OK, let me pause everything else and just focus on this one goal and not save anything and maybe lower my retirement savings contribution at work,’ and things like that,” Safford says. “But it goes back to making sure you’re living within your means and being able to do it all at the same time, if possible.”
2. Letting your emotions get in the way
Money can be a highly emotional subject for people. For the average consumer, emotions like avoidance and shame can make it difficult to address underlying money problems.
“A lot of individuals carry a lot of guilt that they don’t manage [money] perfectly themselves,” Annette VanderLinde, chief client officer at Liberty Wealth Advisors, a Prime Capital Investment Advisors Company, tells CNBC Make It. “Sometimes that negative emotion can be a hurdle to just moving forward seeking out help.”
Safford adds that people often struggle to get help with their finances or take steps on their own because they “might not want to face the reality of their situation right now.”
But you don’t have to change your whole life in a day. It will take time to get good with money, and may take even longer to address problems that have built up over time, such as credit card debt or poor spending habits.
“There [are] so many different avenues now that you can find advice through and I would say to start in baby steps,” Safford says. “The whole financial wellness conversation is so overwhelming, there’s so many different pieces. Start by using an app to track your budget and then go from there.”
3. Not working with the right professional
You might not need to hire a professional planner right away, but a CFP, wealth advisor or other expert can help you figure out the best plan for your money — and help you steer clear of bad advice.
“If you’re not feeling confident and you’re feeling overwhelmed, that’s a perfect time to seek out the assistance of a planner,” VanderLinde says. “Retain their services and they’ll set you straight and put you on a path to success.”
But beware: You may spot a number of red flags when looking for the right financial professional. VanderLinde recommends asking at least the three following questions of your potential planner:
- Are you a fiduciary? A registered fiduciary is legally mandated to act in your best interest. So while someone may call themselves a financial advisor, if they’re not a fiduciary they may be more focused on getting you to buy products or make financial decisions that benefit the advisor rather than you, the client.
- What kind of fees do you charge? “That should be easily answered and not veiled with a lot of confusion or mystery,” VanderLinde says. Some advisors charge a percentage of the assets they manage for you while others charge a flat hourly or annual rate. Either may be better for your situation, but you’ll want to be clear about that up front.
- What’s your management style? Once you know they’re a reputable advisor, you’ll want to see if your money ideologies are a match. Ask the potential planner about their investment methodology and approach to see if it resonates with you, VanderLinde says.
And if you’ve had a negative experience with one planner, don’t let that stop you from trying to find someone else who can actually help you. Fernando Reyes, a CFP at EP Wealth Advisors based in Torrance, California, compares finding the right advisor to dating, and suggests you turn to your trusted peers to ask for recommendations.
While you can certainly “blind date” an advisor and determine from there if it’s a good match, “having somebody that you trust that already worked with [the advisor] and trusting that they’ve already vetted this person goes a long way,” he says.
4. Being disorganized
Technology has taken a lot of the legwork out of personal finance management, but that can make it even easier for you to lose track of of your money. Reyes uses the example of balancing a checkbook to illustrate the advantages and drawbacks of digital money management.
When people used checkbooks, “you had to physically account in a ledger for every single transaction,” Reyes says. But with digital money management, that’s done for you. “People don’t even look at their credit card bills or the bank statements to see what’s going on.”
It’s not just your daily spending, either. As you get older, there may be more accounts to keep track of.
Do a routine inventory to make sure you know where everything is and that you still have access. That goes for 401(k) accounts at former jobs, credit cards you don’t use frequently or other old savings and investment funds.
5. Procrastinating
Wherever you are in your financial journey, the next step isn’t going to take itself. It’s easy to say you’ll make a budget tomorrow or you’ll start saving for retirement when you make more money, but the more you put these things off, the worse your situation may get.
“When people are feeling overwhelmed, they don’t know what to do and then they continue to just not take action and it’s a bit of a vicious cycle,” VanderLinde says.
Part of the problem is wishful thinking, Reyes says. People will optimistically assume things will work out in the future, but that’s not always the case. You don’t need to have your whole life figured out tomorrow, but Reyes encourages his clients to set realistic goals for short, manageable increments.
“When we do financial planning, we’ll run you through a life expectancy,” which is usually to age 100, he says. “It’s hard to tell a 30-year-old to be planning for the next 70 years, so we start with planning for the next five years.”
Even before you make a five-year plan, you can take small steps to get better with money, including creating a budget or setting up automated savings contributions.
“Whenever you’re staring at the top of a mountain, that’s a lot more overwhelming than just starting at the bottom and starting small,” VanderLinde says.
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