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It is important to avoid the seven wealth management pitfalls in order to achieve financial security.

Seven Wealth Management Pitfalls To Avoid

1. Failing to protect your assets.

It's not going to help you build up wealth if you let it slip through your fingers. Do you have a safety net in case any unexpected catastrophes stop you from reaching your long-term goals?

Do you have enough life insurance? If you died tomorrow, would your partner or loved ones have money to pay some of the biggest expenses, like college or a mortgage balance? Would they be able to stay in your house and still afford to pay the bills? This coverage is especially important when you have young children, a nonworking partner, or a large mortgage.

Another potential destroyer is the escalating cost of medical care in your later years. Have you considered long-term care insurance, particularly if you're over age 50? Not everyone needs it if they can self-insure because they've built up a lot of money, and the very poor will not be able to afford it. For everyone else, it is worth taking a look at these policies.

2. Failing to manage cash flow.

It is so easy to let expenses creep up as you make more money. If you are not careful, these expenses can kill your chances of making the most of your money. The first rule of any good financial plan is to pay yourself first.

Minimizing taxes is also important. Check your exemptions at work, and take advantage of opportunities to invest pre-tax money from your paychecks into retirement plans. You avoid paying income taxes on the money that goes directly into the plans, and you have an automatic way to build money for your future.

Purchase group disability coverage through work. Take advantage of the opportunity to protect your income stream if you cannot work. It is far more probable that you'll have a disability claim than life insurance claim, and yet many people forget to insure this income stream, which is like the goose that lays the golden eggs.

3. Letting debt get out of control.

How much debt is too much? Look at your shorter-term debts first-things like credit card balances, car loans, student loans, etc. If your short-term loans add up to more than your liquid assets (money that you can tap into quickly with no penalty) you probably have too much short-term debt. If you find yourself in this situation, you should at least examine the interest rates and try to consolidate your debt at a lower interest rate. If at all possible, try to keep mortgage debt below 75% of the value of the property. Just paying extra on your mortgage will help cut the overall interest payments over the life of the loan.

4. Not paying attention

One of the biggest pitfalls in your financial security is simply lack of attention. Life gets in the way, and finances can take a back seat to more immediately pressing matters. But if you take that approach, you may find the years fly by, and you will have lost time you cannot make up. Successful wealth accumulation takes a time commitment. Consider that time an "investment" in your future success.

5. Misjudging your risk tolerance

When the market is rising, it's easy to think you can handle risk. But after seeing your investment money drop in value, you may have to reconsider how much risk, or volatility, is acceptable (the sleep-at-night factor.) You may think long term, but you feel and react short-term. It's not so much investment performance, as investor performance.

If your current mix of stocks, bonds and cash (your asset allocation) makes you uncomfortable, consider repositioning your portfolio into a more conservative mix, with more in bonds/cash. It's not so much what you make in the good years, but what you keep in the negative years. Making up lost money is a lot more difficult that keeping a more even keel. Consider using asset allocation funds that automatically rebalance and show less volatility so you are less likely to panic and pull out of the markets at the wrong time.

6. Taking money out at retirement in the wrong way

One of the biggest fears of retirees is running out of money. Poor market only heighten the fear. You need to spend time carefully thinking about what you'll have coming in during your retirement years as well as how much you expect to spend.

Your planning will need to be revised as time passes. A healthy dose of common sense also goes a long way. Even when the markets are gloomy, you can still control your own expenses. This can mean voluntarily tightening your belt by spending less as well as looking "under the hood" at your investments to be sure they have low costs.

7. Failing to talk to, and educate, your heirs

You may need to get out of your comfort zone, and talk to your children about the money and asset's you've accumulated. And of course, be sure your estate and related healthcare documents are updated. That is probably one the most neglected areas.

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