Episode 14 | Financial Train Wrecks & How to Avoid Them
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Shallon Weis, CFP, AIF:Welcome to Your Wealth Journey, the podcast where we guide you through the complexities of managing your wealth with expert advice and real life stories. I'm Shallon Weis, and today, we have an insightful episode lined up. At Bradford Financial Center, we've seen it all, the good, the bad, and the ugly in the financial world. And today's episode is all about financial train wrecks and how you can avoid them. And joining me today is Bradford CEO and financial advisor, Jim Tausz.
Shallon Weis, CFP, AIF:Hello, Jim.
Jim Tausz, CFP, AIF:Hello, Shallon. I'd like to remind our listeners to be sure to stay tuned till the end of our five in five segment. Here we'll share five financial red flags to watch for, and it's gonna be worth listening to, believe me.
Shallon Weis, CFP, AIF:So let's jump right in with a good definition of a financial train wreck, so you know if you're needed one or in the middle of one.
Jim Tausz, CFP, AIF:Great place to start, Shallon. What would you say constitutes a financial train wreck?
Shallon Weis, CFP, AIF:Well, we're usually a first stop for folks who realize they might be in trouble and need our help to sort through it all and create a managed plan. That said, we're all too aware of these having seen many along my career. Frankly, a financial train wreck can be any major financial mistake that leads to significant monetary loss or a long term financial instability. This could range from not diversifying investments, overspending, and poor tax planning to not having an emergency fund.
Jim Tausz, CFP, AIF:Yes, and these mistakes can have a very devastating impact on individuals or businesses' financial health. It's not a pretty picture to say the least. I've seen folks who have come to us where they've lost their savings and it's gone heavily in debt, to say the least, and so the debt is because of poor financial decisions, situation put can put you in to fail. These can be borrowing from your future, and you pay for the non necessity items or cosigning loans for someone who defaults. Really, any transactions where you don't have the proper contacts or the legal agreements in place can have you at financial risk.
Jim Tausz, CFP, AIF:Speaking of risk, lack diversification can also set some up for these financial wrecks as well. Shallon, can you share some of the stories about clients who have neglected to diversify their investments? Because there's a lot of those stories out there, and let's take a few that make a difference.
Shallon Weis, CFP, AIF:Sure. I had a client who invested all their savings into a single stock, believing it was a guaranteed success. Unfortunately, the company faced a downturn and the stock value plummeted, and they lost a substantial portion of their savings.
Jim Tausz, CFP, AIF:I had a similar experience, Shallon, with a client failed to plan for unexpected medical expenses as well. They didn't have sufficient insurance or emergency funds, either one. And a medical crisis hit, and they had to drain their retirement savings to cover the costs. It just totally wasn't a pretty picture.
Shallon Weis, CFP, AIF:I think through these case studies we learned that diversification is crucial. Never put all your eggs in one basket.
Jim Tausz, CFP, AIF:And always have an emergency fund. The adequate insurance to cover unexpected expenses is important as well. Let's talk about how our listeners can avoid these financial pitfalls, Shallon. Shallon, what are some of the preventive strategies that you can share with folks out there?
Shallon Weis, CFP, AIF:Disability.
Jim Tausz, CFP, AIF:Also, setting realistic financial goals and regularly reviewing your financial plan with a professional can help you stay on track. Stay informed about the market and economic trends that are happening now and about to happen in the future. Also, educated decisions. And to assimilate the situation better and further, let's just quickly revisit how to avoid these pitfalls. Number one, diversify your investments.
Jim Tausz, CFP, AIF:Number two, maintain an maintain an emergency fund. Number three, regularly review and adjust your financial plan as time permits.
Shallon Weis, CFP, AIF:I'd also like to include these strategies, Jim. First, plan for the unexpected with proper insurance. And second, set and review realistic financial goals. And third, stay informed and make educated financial decisions and lean on experts who can help you avoid these in the first place. Right, Jim?
Jim Tausz, CFP, AIF:Oh, exactly, Shallon.
Announcer:In our last five minutes, we'll bring listeners a roundup of five smart ideas they can apply to their own wealth journeys. So let's get started with this episode's five and five.
Shallon Weis, CFP, AIF:Now it's time for our five and five segment where we share five financial red flags to watch for. The first one is living paycheck to paycheck, even with a decent income. First up, you're making a good salary, but there's nothing left by the end of the month. That's a red flag. Usually means your spending is creeping up in step with your income.
Shallon Weis, CFP, AIF:A classic case of lifestyle inflation.
Jim Tausz, CFP, AIF:Exactly, Shallon. Not it's just not about how much you earn. It's about how much you keep. Matter of fact, that's more important than anything. If a small emergency would be thrown off your way, you will be able to completely take care of the situation as it happens.
Jim Tausz, CFP, AIF:That's a sign something needs to shift in your spending habits or savings strategy in order to protect yourself against these possible things coming down the road.
Shallon Weis, CFP, AIF:Second is avoiding your credit card statements.
Jim Tausz, CFP, AIF:Number two, if you're avoiding opening your credit card bill or only paying the minimum, it's time to really pay attention, and I'm really paying attention. Ignoring debt doesn't make it go away, It just makes it worse.
Shallon Weis, CFP, AIF:And interest compounds fast. That kind of behavior can quietly turn into a mountain of debt. Financial awareness starts with facing the numbers, even if they're uncomfortable. And the third red flag is no emergency fund, and this is a big one. If you don't have at least three to six months' worth of expenses saved, one job loss or a surprise bill can throw your whole plan off.
Jim Tausz, CFP, AIF:And this is just not matter of something uninspecting happening either. It's when because it happens to all of us many times throughout life. That emergency fund we were talking about, it gives you options. You need options. It keeps you from going into debt and pulling from long term investments when life throws you that curveball can be quite an exasperating experience.
Jim Tausz, CFP, AIF:Here's a red flag that surprises people. Not knowing your net worth. And there's a lot of folks out there that are in that situation. If you have no idea what you own versus what you owe, it's awful hard to know where it really stands financially. You need to know where you're at, and one way to do that is look at your financial quite often.
Shallon Weis, CFP, AIF:And number five, going through big life changes, like getting married, divorced, starting a family, changing jobs, and not adjusting your financial plan. So net worth isn't just for the ultra wealthy. It's a basic health check for your finances. Track it least once a year, and it helps you spot trends, progress, and problem areas. And number five, going through big life changes, like getting married, divorced, starting a family, changing jobs, and not adjusting your financial plan.
Jim Tausz, CFP, AIF:Listen, your plan shouldn't be a one and done thing. Never should be that. Life changes. It changes many times. Gold shifts.
Jim Tausz, CFP, AIF:You also have financials that should be involved with those goals and whatever is going on. Failing to adjust that can lead to missed opportunities, unexpected shortfalls, and later, even worse than that, probably bankruptcy.
Shallon Weis, CFP, AIF:So those are your five red flags. If any of them sound familiar, don't panic, but don't ignore them either. Awareness is the first step toward action.
Jim Tausz, CFP, AIF:If you're not sure where to start, talk to someone. Whether it's us or to another financial professional, professionals can help you through these troubling times and troubling waters as you face them. A small change now can make a big difference later in your life at the time and later on down the road.
Shallon Weis, CFP, AIF:So that wraps up our five and five, and stay tuned. We've got more great conversations coming up on your wealth journey. So let's recap the key takeaways. Diversify your investments, maintain an emergency fund, and stay informed. And if you need personalized financial advice, don't hesitate to reach out to Bradford Financial Center.
Shallon Weis, CFP, AIF:It's been great sharing these insights, and remember that proper planning can prevent financial disasters.
Jim Tausz, CFP, AIF:Absolutely everything you said is exactly the way it is. Stay proactive and keep your financial goals in focus. Always keep them in front of you so that you know what to do. Remember, your financial journey is our priority here, and we're here to help you navigate it successfully because that's our job and we know how to do it. Till next time, take care and plan wisely.
Announcer:Thank you for tuning in to your wealth journey podcast powered by Bradford Financial Center. Be sure to tune in to our next episode where we'll continue to explore the smart financial strategies you need to know. Securities are offered through United Planners Financial Services, member FINRA, member SIPC. Advisory services are offered through Bradford Financial Center, a registered investment adviser. Insurance services are offered through Bradford Insurance.
Announcer:Tax and accounting services are offered through Bradford Tax and Accounting Network. Bradford Financial Center, Bradford Insurance, and Bradford Tax and Accounting Network are not affiliated with United Planners. Neither Bradford Financial Center nor United Planners provide tax or legal advice. This podcast is for general information and educational purposes only and is not intended to be specific advice for any individual. Consult your financial professional regarding your personal situation.
Announcer:All investing involves risk, and there's no guarantee that any strategy be successful.
