3 financial mistakes that even smart people make - ForumDaily
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3 financial mistakes that even smart people make

Certified financial planner Jill Schlesinger said that even very smart people make impressive monetary mistakes, writes USA Today.

Фото: Depositphotos

In her practice, there was a client who repeatedly refused to buy disability insurance, and later he developed multiple sclerosis.

CBS News business analyst and author of the book “Foolish deeds that smart people commit with their money,” Schlesinger also calls errors waiting for the “right moment” to invest and omitting a big jump in the stock market.

“We are emotional creatures, not just rational ones. So even smart people can be blocked by their emotions—fear and greed—and their cognitive biases,” she says.

In economics, there is a whole field that studies how people make financial decisions, including bad ones. Behavioral economics is trying to determine where our brains and emotions make us do wrong, and also looks for options on what we can do with it.

Healthy pessimism

Schlesinger notes that most people do not want to think that something can go wrong. Excessive self-confidence and excessive optimism and the conviction that the recent past will remain so in the future, lead to the fact that many can not properly protect themselves.

For example, a client who did not buy disability insurance, because he thought that he would not need it, because he was so healthy.

The antidote to such thinking is to stop trying to calculate the odds of something going wrong. Instead, focus on how much you or your loved ones can lose if the worst happens. If you do not understand that you will not be able to relive this loss easily, then buy insurance, write a will, etc.

Delay

A common selling tactic is to try to create a sense of urgency so that people act faster. But we tend to make mistakes when we hurry. If you feel pressured to buy a product, sign something, or invest in something, take a step back.

Schlesinger recommends asking five questions before making an investment decision, but these questions can be applied to other financial decisions:

  • How much is it?
  • What are the alternatives?
  • How easy is it to withdraw money and what fees or penalties will I pay?
  • What tax implications await me?
  • What is the worst scenario I can face?

Seek and listen to expert advice

Most financial advisors are not required to put your interests above their own. They can sell you investments that cost more and work worse than alternatives, simply because they can make more money out of it.

The absence of the so-called fiduciary duty has convinced many people that they are better able to cope with their financial affairs independently. Schlesinger says the do-it-yourself approach may actually be appropriate if you know the basics: paying off credit card debts, saving for retirement, creating a fund for emergencies.

She considers it sensible to seek an expert if you are faced with a difficult or unusual situation. If the IRS checks you, you need a tax expert. If a creditor accuses you, then you need a lawyer. If you are going to inherit a large amount, with which you have not yet dealt, then you should consult with a person who is engaged in financial planning and who is ready to sign a document where he undertakes to put your interests above his own.

The more money you have, the more likely you are to face difficult situations that require experience that you do not have. The consequences of an error can be more serious, so it is better to contact the specialists in finance on time.

One of the most difficult areas in finance are planning and retirement income strategies, including questions about when to start receiving social security and how to use pension funds. Contacting a specialist on these issues can save you from costly mistakes.

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