Don’t Make These Financial Miscalculations

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Has everything in your life turned out the way you thought it would?  Of course not!  That’s why it’s important to continually revisit some long-standing assumptions on everything from your career and what you want out of life to your financial assumptions.  I’ve made the mistake of being overly rosy in my projections in the past and I wanted to share some mistakes I made in my personal financial assumptions so you don’t fall prey to the same miscalculations:

 

  • Salary Increases Aren’t What They Used to Be – I don’t know if this applies to all careers, but in my field, I was getting much larger raises when I was younger compared to current annual raises.  The economy may have something to do with it as well, but younger workers tend to be more mobile and jump jobs more easily, so it’s natural for companies to try harder to retain them with higher raises.  I used to assume I’d always get large raises and promotions but later in my career, promotions are harder and raises are smaller.  You may want to set those lower expectations if you’re banking on a much larger salary in the future.
  • Investment Returns Probably Won’t Be What They Used to Be – The markets seem to have had much wilder swings and after the crash in 2008 – 2009 they rebounded quite a bit.  With all the debt struggles in the northern hemisphere countries, government debt issues are likely to curtail economic growth in future years, thus depressing stock returns.  Couple that with the fact that markets had already had a nice return from a few years back and you can see why it may not be reasonable to assume stocks or bonds will perform as well as they did in the past.
  • When I Make More Money, I’ll Save More Later in Life – I used to look at my routine fixed costs like a mortgage and auto payment and think that since they were the same monthly set cost while my pay was increasing, that would allow for more money in my budget each year in the future.  What really ended up happening is that newer costs came into our lives.  Everything from kids to new hobbies and inflation end up eating into future raises.  It’s probably best to just assume that your current budget is roughly what it will look like in the future, so if you’re not saving enough you’ll probably need to cut a spending category or earn more money on the side.
  • My Job is Safe – I grew up in a house where my father worked for the same company his entire career.  He made it 40 years and that was quite common of other families.  These days, people often end up with several employers over a career and sometimes it’s not by choice.  Layoffs have become quite common in the current economy, so it’s important to both network and keep your skills current, but to also have a plan in the event of layoff.  If the worst happened, could you continue to pay your mortgage and other commitments?  There are emergency measures available ranging from borrowing from friends and family to payday loans, but the key is to think about what your plan is so you can act quickly if necessary.

 

About 

Darwin is an engineer and MBA who takes an “evolutionary” approach to finance, writing about adapting to evolving financial management, tax, investing and savings opportunities. Making more money and saving more money is an adaptive process — join the evolution! He blogs at Darwin’s Money www.darwinsmoney.com and ETF Base www.etfbase.com

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