Sometimes progress is as much about knowing what NOT to do, as it is about figuring out what to do. The path to growing wealth takes some basic building blocks, but it also requires avoiding certain mistakes along the way. You may not think a lot about it, but small missteps can have big, negative impacts on one’s wealth accumulation over time.
As we flip the page to December, we often turn our attention to shopping, holiday parties, gift giving and family gatherings. It may seem like just yesterday you were planning your 4th of July, or your week long summer vacation. Sure enough though, Thanksgiving has passed, electric bills are skyrocketing from all the lights and Christmas carols are playing 24/7 on the radio.
When it comes to planning one’s retirement, everything is relative. To say someone is retiring “early,” requires some sort of explanation or baseline for what “early” is. In the world of finance, some sort of consequence or penalty for accessing financial resources too soon often defines “early”:
Pop quiz: How much cash should you be holding?
- A) 3-6 months of your monthly expenses
- B) 1-2 years of your expected withdrawals from savings
- C) Cash is king -You should be 100% allocated to cash
If you hold too little, you risk needing to rely on credit or having to liquidate investments. Having to liquidate investments could be costly, either in fees and expenses, or in “realized loss” if the investment happens to be depressed based on the market. If you liquidate, you remove opportunity for it to potentially recoup those losses.