• I made a ton of money mistakes in my twenties and tried to clean things up.
  • I finally sat down with a financial planner, and he pointed out five mistakes I still make.
  • I have too much money in savings, low tax diversification, too many individual stocks, and more.

Just before turning 30, I decided to take my finances seriously. I had spent most of my 20s making all sorts of financial mistakes (from not saving for retirement to racking up credit card debt). I was looking forward to entering a new decade of my life with my finances in a strategic place so that I could achieve big goals I had for my future, such as retiring early and buying property.

I didn’t know what to do first, so I did everything I could to cut my expenses and start investing. Since I’ve never worked one-on-one with a finance professional, I always wondered if I was making any egregious mistakes. Turns out I was.

I sat down with Adam Scherer, Financial Planner and President of Greenbeat Financial, to go through every inch of my financial portfolio to not only identify the mistakes I’m making, but to come up with a game plan to start fixing them. .

1. I have too much money in a savings account

The first mistake I knew Scherer was going to raise is a mistake I knowingly made for years. More than half of my financial portfolio is made up of cash that stays in my savings account. I make this mistake because I don’t know what else to do with this money and I’m afraid of losing it.

Scherer said it’s good to have cash on hand as an emergency fund and a good rule of thumb is that a couple should have between six and nine months of fixed and variable expenses in their account. cash.

So how can I fix this error?

Scherer says that, first, it’s important to assess my tolerance for risk, and then to know when I’d like to access that money in the future (whether it’s for my retirement in 20 years or to buy a house in five). years). Once I know the answers to these two questions, I can consider putting that money in the retirement market (through index funds or mutual funds) or investing in real estate (à la either directly by buying real estate or through a REIT, which allows you to invest in real estate without buying it yourself).

2. My balance of risks may be wrong

A few years ago, after many friends advised me to do so, I opened an investment wallet on a platform that automatically manages your money for you. All you have to do is set your risk tolerance and they do the rest. Without thinking too much, I did what my friends did and set this tolerance at 90% stocks and 10% bonds, which makes this allocation very risky.

Scherer says that because I’m a bit risk averse right now and unsure of my financial goals, it might make more sense to cut that from 90/10 to 80% stocks and 20 % bonds.

“If the idea right now that your money is 90% in risky assets and only 10% in something safe makes you uncomfortable, you can adjust that to be in a more comfortable place while you seek professional advice,” Scherer says.

3. I have too many random individual actions

I confessed to Scherer that, during the pandemic, I invested some money in many individual stocks without much research or thought. What Scherer noticed is that most of these stocks fell in one sector (technology, media and telecommunications) and having a portfolio heavily weighted in one sector can be risky and not strategic.

Scherer recommends diversifying into different sectors, as these sectors are more in tandem at different times.

So what are my options? Scherer said I could sell my current individual stocks and use that money to invest in stocks from different sectors, or I could take it a step further and buy sector-focused ETFs to have a fully diversified portfolio.

I wondered if that meant I had to make sure I invested equal amounts in each sector.

“It depends on the rate of return you’re looking to generate, where we are in the buzz cycle, where we’re heading, and other factors,” Scherer said.

4. I need more tax diversification

According to Scherer, one thing my portfolio lacked was tax diversification. He explained that there are three tax brackets: taxable assets (like money in a taxable brokerage account); tax-deferred (where money is taxed down the line, like my SEP IRA); and tax-free (where the money isn’t taxed, like a Roth IRA).

The challenges that Scherer said I would have with a Roth IRA are that I potentially make too much money to contribute to a Roth IRA, and I’m married and filing separately from my spouse, so I don’t qualify for the upper limit of the Roth IRA. However, he mentioned a workaround.

“You can always execute a backdoor Roth IRA strategy to get more investments into your ‘tax-free’ investment bucket,” Scherer said. “To do this, you must open a traditional IRA account and a Roth IRA account, then make ‘non-deductible traditional IRA contributions’ and convert the funds to a Roth IRA.”

5. My husband and I don’t protect ourselves financially.

One thing I mentioned to Scherer at the end of our meeting was that I recently got married. Even though my partner and I keep most of our finances separate and don’t file tax returns together, I wondered if there was anything my partner and I should do with our finances now that we’re married.

Scherer said yes.

“One thing you can do is make each other beneficial on your different accounts,” Scherer said. “If the contract for an asset (like your retirement account, savings account, investment portfolio) has a beneficiary, you can avoid the lengthy process of having your assets probated in court. Instead of This will automatically transfer your assets to that person, saving you time and money.”

Another thing Scherer mentioned was that now that we’re married, we should consider getting life insurance.

“If you both have a life insurance policy in place, it can ensure that the other person is able to pay certain debts and maintain the quality of life they are used to if their partner dies,” Scherer said.