Financial Friday #89: 8 Common Financial Blunders... that are Easily Avoided!

Financial Literacy Month is in full swing and it's time for a quick, 3-minute workout to build you financial fitness and hopefully avoid some of the most common financial pitfalls we see over and over.

 
  1. Spending too much on a car. You should be aiming for 15% of your take-home pay for the car payment, insurance and gas. The monthly operating costs of a brand-new Hyundai Santa Fe (base-model $33,284 at 3.19%) would be minimum $800 month for 84 months, which means you would need to take home over $5K/month after tax ($90 to $100K in salary) to “afford” one. Slightly used cars are still very reliable and offer a lot more value.

     
  2. Investing before paying off debt. Be a little discerning with this one and make sure you pay off the right debts first! If your debt is a 3% mortgage, relax and go ahead and invest. Anything up around 7% or higher (credit cards are 3 times higher!) should be on your hit list before you start investing.

     
  3. Spending more than you have. It hurts to write something so obvious, but how can something so simple in theory be so difficult in practice? Too many wants is the root cause, but easy credit (not cheap, just easy!) and failure to track your spending and see just how big a hole you are digging every month facilitates this downward spiral.

     
  4. Putting off saving, investing and retirement planning. Maxing out your TFSA ($6000 year into and index ETF) from the time you are in your early twenties to when you retire at 65 could easily make you a millionaire. Never underestimate the power of compound interest when it is working for you!

     
  5. Not understanding your student loan agreement. Many people mistakenly assume their student loan will have a low interest rate or greatly underestimate what the monthly bill will be post-graduation. Student loan repayment will put a bigger dent in your lifestyle than most students ever imagine! Education has great value, just make sure you do the math, confirm that value, and know what to expect down the road.

     
  6. Not creating and using a workable, realistic budget. Have you ever failed at budgeting? Of course you have, everyone does! The problem is not budgeting itself, it’s your process for creating and sticking to your budget. Relying on guesswork for expenses, ignoring an emergency fund, not leaving any "wiggle room", too time-consuming  – these are all fatal flaws for a budget.

     
  7. Getting caught up in "lifestyle creep". The more you make, the more you spend — it is hard to argue with this one and that is the whole point of making more. However, if you were just getting by before (and not saving for retirement) and get a $500 a month raise – do you get a shiny new car or a TFSA?

     
  8. Failure to build credit and ignoring your credit score. If you have avoided the lure of easy credit and have little, if any debt – well done! If you have done that by completely eschewing credit altogether, that will come back to haunt you. Use a credit card and pay it off in full every month, or finance a car if the dealer has a great interest rate – but don’t avoid credit. You need to start building a credit score by using it responsibly, so when you do need to borrow money, it won’t cost you and arm and a leg.
 

Resources

 
What does a mortgage broker do for you?
It isn't all about rates, if you caught this week's webinar or check out this article, you can see they offer a range of valuable services. A good one is an invaluable resource to guide you through the home buying process and get you a great rate and the options you need.
 
Education savings - RESP year-end planning checklist
If you have kids and ANY spare change for their education fund this year, you need to open a Registered Education Savings Plan. It's free to open, you get free money in the form of a  20% grant, and you can get started with very little. This article will get you on your way, but don't wait because the deadline for this year's contribution is Dec. 31.
 
Dragons at WalMart!
Kevin O'Leary of Dragons' Den fame is apparently a big fan of Walmart. Check out what he buys there and his perspective on "value for money".
 
Inflation busting with Warren Buffett
Prices in Canada are now rising at almost 5% annually and the outlook for 2022 looks to be more of the same. Despite his billions, Warren Buffett is well-known for his down to earth, practical financial advice that anyone can use. These eight inflation-fighting tips are no exception.
 
Why everyone has money issues
From compulsive shopping to fear of investing — many of our financial choices are driven by the emotion from a previous experience or our childhood environment. Tips, tricks and methods for bettering your personal finances are great, but you may also need to overcome other, less rational feelings that are holding  back your financial life.