by Jen Sapel | 16 July 2020
I hate to be the one to break it to you, even if you work with a financial professional, you could still be falling for one of the 4 biggest pitfalls in personal finance.
1: Goals-based planning:
I’ve got a few issues with goals-based planning, but I’ll stick to one that we all do:
I want to lose _________ pounds by date. Similarly, I want to have ______ months expenses in a savings account by date, or ____________amount by the time my child is 18 years old.
These examples are common financial goals. We make one or two steps towards these goals, and bam! We get bored or interrupted and find ourselves looking back over the last 3 years having made little or no progress.
Make your focus instead on the habit or behavior, not the result (the goal).
Even tweaking your goal to be a “great saver” helps. Great savers automate their savings strategy so that every month or every paycheck, an amount gets stashed away. When you emphasize (and reward) that behavior or habit, eventually you will hit your savings goal.
2. Tracking rate of return as your measure of success
Rate of return on your investments is an important number and should be tracked; however, if your
financial livelihood depends on market performance, you’re putting yourself in a very vulnerable
position. Allow me to bore you with numbers for a second.
Let’s pretend that 2 people gross $100,000/year. Person A invests 5% of their income while person B chooses to invest 20% of their income. Person B chooses to invest 20% of their
income.

Person A loves to invest, tracks the market daily and is counting on a 12% average annual ROR on their
investment portfolio. If they succeed, they will have $1,351,463 accumulated over a 30 year period.
Person B however decides to assume a more conservative 6% annual rate of return of person A (a much
more realistic number after taxes and fees). You can see here that person B comes out ahead if their
assumptions hold true.
Here’s the kicker though, the reality is (remember Mike Tyson) the most likely rate of return will actually
be somewhere between those two numbers (6 and 12%). If that’s the case, person A has
under-performed their expectations and person B exceeded theirs.
The moral of the story is that there are many potential metrics to gauge your overall financial health.
You can see in this example, rate of savings is more critical than rate of return. In general, my favorite
single benchmark for financial health is net worth (everything you own minus everything you owe)
3. Tactics without strategy:
Almost every household makes tactical financial decisions at least annually, without regard for an overall
financial strategy. Examples of tactical financial decisions are: investing in a 529 college savings plan,
choosing a mortgage, buying auto/home insurance and many, many more.
This year we had a case where re-evaluating our client’s auto/home policies saved them over $1,000 annually. They did this by adopting a larger financial strategy to retain small risks and increase coverage for larger risks. What that meant for their insurance is an increase in coverage and deductibles, which ended up driving down their premium. That $1,000 annual save invested over 20 years @ 6% will add another $40,000 to their net worth.
When you coordinate all your financial decisions under one strategy, they can add up to millions
of additional wealth on your balance sheet overtime.
4. Disability Income Insurance:
Disability income insurance is the most overlooked area of personal finance. In the financial world, the
ability for us to work and earn an income is called Human Capital. To use an analogy, if, in your garage
or closet at home you had a machine that printed your monthly income like clockwork, what would you
do to protect that machine? Would you lock your doors? Would you buy a firesafe to store it in?
Would you buy insurance to replace it if it were lost or stolen
Now look in the mirror, you are the money-making machine in your house. If you are sick or injured and
unable to work, how will you pay your bills? Your medical insurance will pay for your medical care, but
how will you buy groceries or pay the mortgage? Disability income insurance replaces your income in
that event.
If you are employed at a large company with great benefits, chances are you have some
amount of long-term disability income insurance. Talk with your HR professional to be sure; many
places need you to fill out additional paperwork in order to obtain the coverage. If you are self-
employed, a highly compensated professional or highly specialized (like a physician), you should also
consider additional disability income insurance on top of anything your employer provides.
If you are self-employed, a highly compensated professional or highly specialized (like a physician), you should also consider additional disability income insurance on top of anything your employer provides.
To summarize, an overall strategy can help you avoid these pitfalls. Be in the best financial position possible or any life or economic circumstance with these 4 steps:
1) Install or maintain a financial safety net for life’s biggest financial risks, to include (but not limited to)
disability, death, divorce, unemployment, or lawsuit.
2) Save/invest 15-20% of your annual before tax income.
3) Reduce taxes and debt.
4) Spend the rest without shame or guilt.

Track your success via your net worth and get friends or professionals to support you along the way!
You can do it
Related Reads:
8 Reasons You Need Disability Insurance
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Jenifer, founder of Utor Wealth, is a Chartered Financial Consultant on a mission to changing American’s relationship with money. You can find her practice and podcast here.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 3585 MAPLE STREET SUITE 140, VENTURA, CA 93003, 909-399-1100. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Utor Wealth is not an affiliate or subsidiary of PAS or Guardian. 2019-90632 Exp. 12/21
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.