The road to you-know-where is paved with good intentions. Our financial paths are no different. We all mean well – but financial mistakes, sadly, can have long-lasting impact. They can mean the difference, years later, when buying a house, retiring comfortably or helping a child through graduate school.
When it comes to money mistakes, it’s best to try to fend them off in advance. here are some common mistakes that can lead to serious financial problems for Canadians:
Mistake 1: Frittering It Away
The “latte factor” is a huge issue, particularly for those of us with busy days, running around and wanting to treat ourselves after with a nice treat; post-work drinks with friends, a big glossy magazine for Sunday morning, or a cab ride home on a cold night. Those small bills add up over time, particularly when certain small indulgences become a regular habit.
Mistake 2: Not Planning For Problems
Got an emergency fund? How about insurance? Sadly, bad things do happen and the loss of a job, injury or illness or another factor could see you (or your spouse if you have one) unable to make money for a few weeks, months or even years. Preparing for the worst can meant weathering these tough times without racking up serious debt, getting into trouble with collection agencies or, worst of all, losing your home.
Mistake 3: Not Tracking Your Spending
How much do you spend on groceries every month? Transportation? When you have no idea what’s going out the door, you can’t be sure your spending is under control. Ideally, you should have a detailed budget keeping track of everything from entertainment to clothes. At the very least, track some of your most variable expenses, such as food, to be sure your spending matches what you can truly afford.
Mistake 4: Paying Off Debt With Savings
While high interest debt can cost an arm and a leg, it’s still a problem to pay down that debt with savings from a GIC or RRSP. That’s because your savings protect your future and while you may hope to pay back those savings right away, in truth once you’re out of debt, the pressure is off, and you likely will not. It’s better to keep your savings safe and adjust your spending to pay down your debts.
Mistake 5: Getting In Over Your Head In Housing
Buying a house you can’t truly afford or renting an apartment that’s beyond your monthly budget is the kind of financial error that hits you month after month after month. It’s difficult to make a change to get away from that daunting expense and paying down debt, saving and dealing with bills will be tough each month. The only way to get out of the debt spiral is to adjust your expectations in terms of size or location and get into a home you can truly afford.