We all make mistakes, even your parents. And some mistakes are more costly than others.
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“Growing up, I watched my parents make big financial mistakes,” said Rhett Stubbendeck, founder of Leverage Planning. “They lost a lot of money and wiped out a significant portion of their savings.”
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Very little emergency savings
Everyone needs an emergency fund. Exactly how much depends on the stability of your expenses and the stability and security of your income.
If you set aside too little for emergencies, they will derail your finances when they inevitably occur.
Posh UK’s Andy Ellis saw it first-hand with his parents. “The main lesson I have learned from my parents and their financial mistakes is to always have savings, even if it is little, to fall back on when things get difficult.
“My parents weren’t bad with money, but they lived life to the fullest and didn’t think about saving or contingency plans,” he said. “They didn’t think that things could go terribly wrong and we enjoyed a comfortable life. They worked for themselves and they worked hard and what they earned they used to improve our lives and give us the things they didn’t have.
“But when my father got sick, everything changed,” Ellis said. “My mother and father worked the same amount of work in the business they owned, but they had barely turned 30 and suddenly my father was going to be bedridden for the rest of his life, with no hope of getting better. He turned everything upside down for us and ruined my family financially for a long time.
“They had no savings or backup plans and everything fell apart pretty quickly,” he said.
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Money loans to family members
Too many people fail to save enough for retirement. They spend up to the limit and live paycheck to paycheck.
But it’s not always like this. Some people simply give away too much money.
“Don’t get me wrong, my parents were wonderful people,” says Nojan Rahimi, mortgage broker and director of Blutin Finance. “However, one mistake they made was being too generous in trusting other people.
“They lent a lot of money to my relatives, they were always there for those in need and supported everyone financially, so they often had no money for themselves,” Rahimi said. “While I think it’s great to be altruistic, you also have to take into account your own needs and wants, because spending on others completely threw the budget out the window and we had to face a lot of difficulties because of this.”
Bad investments
Even when you save enough from each paycheck, you can lose it all in bad investments.
Rahimi’s parents also came into conflict with this. “When we were young, I remember my father invested a lot of money in a business that his distant cousin suggested to me.
“While it is a good idea to invest… the mistake my father made was that he did not do any research or homework on the business and blindly trusted his cousin,” Rahimi said. “The business was not very successful and we lost a huge amount of money. This could have been avoided if they had done some research earlier and known that the product was not targeted at a target audience.”
Of course, investing in nothing can be as expensive as making mediocre investments. “After the business debacle, my parents became so risk-averse that they didn’t even invest in anything, they were too afraid of losing the little money they had. I think, in general, boomers are risk-averse and don’t try different investment avenues that could have produced great returns,” Rahimi said.
“This is one of the reasons I became a financial expert. I wish there had been a financial advisor who could have advised my father on how to spend his money.”
Inadequate insurance
Ellis attributes part of his parents’ financial problems to their lack of insurance.
“There was no life or disability insurance to fall back on when my father became ill. While my mother (who is an incredible woman and a credit to mothers around the world) was able to restore stability and general comfort to the family, it took a long time for her to get it back,” she said.
Stubbendeck witnessed the same calamity in his own family as a child. “Another mistake was not having enough insurance coverage. When my father had a serious health crisis, medical bills quickly piled up. Without adequate health and life insurance, the financial burden was very heavy for our family. This taught me the importance of comprehensive insurance,” he said.
Lack of an estate plan
If you don’t create an estate plan, you’ll leave your children with a mess they’ll have to clean up on their own.
Renee Fry, CEO of Genteo, explains the extent of the problem: “If your parents did not write a will or otherwise plan their estate, there is a good chance that you have lost a significant part of your inheritance in legal and court fees.
“The amount you stand to lose depends on the size of your inheritance and the complexity of the estate, but you could lose anywhere from 3% to 8% of what could have been yours. Plus, you have to wait until after probate to access the assets, which can take months or even years,” Fry said. “The lesson learned should be to get your parents to do estate planning no matter what their net worth is, to save you time and money.”
If you want to build wealth for generations of children and descendants, plan in terms of decades, not months or years.
“Set aside at least six months’ worth of living expenses,” Stubbendeck said. “This cushion provides financial stability during difficult times.
“Protect yourself against unexpected events by having good health, life and disability insurance,” he said.
Follow that simple advice and you’ll be well on your way to avoiding the mistakes your parents made.
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This article originally appeared on GOBankingRates.com: 5 Mistakes Your Parents Made That Wasted Your Inheritance
