Top 5 Money Mistakes

Sometimes it seems like the financial part of our lives is the most challenging area in which to succeed.

There’s always something that moves us backward instead of ahead toward a bright financial future. Maybe it’s some unexpected medical expenses. Perhaps the car needs major repairs.

Even when we’re happy, healthy, and have a great car, we might suddenly find ourselves in between jobs! Isn’t that the way it always seems to turn out?

According to financial experts, most of us tend to make several major financial mistakes that hold us back.

Let’s explore 5 common mistakes and learn helpful tips on how to avoid them.

Mistake #1: Having No Financial Plan for the Future or the Present

When it comes to financial planning, many people have no plan. Maybe it’s something we just don’t think about. We tend to have very general dreams or ideas like, “One day I’d like to pay for my kid’s college education. One day I’d like to retire.”

But without taking the time to set a timeline for these goals, it’s very hard to accomplish anything.

Typically, when individuals initially meet with a financial planner, one of the first things they’ll do is put together a long list to answer the questions, “What does your financial future look like? What are your financial goals for the next year, 5 years, 10 years, and 20 years?”

When you actually write down that information and start look at it, it helps you do these 5 important steps:

Identify financial areas which you need to research. Financial planning isn’t something to take lightly. Figure out your spending patterns, savings plan, and investment goals.
Set specific financial goals for the future. Once you’ve done your research, it’s time to set some financial goals to get you focused and ready to move ahead.
Begin putting money aside in order to reach your goals. Once you have your financial plan in place, take action and start saving.
Motivate yourself to stay the course. Once you see “the big picture” of your financial future, you’ll probably feel a little overwhelmed at first. But more importantly, you should start to feel excited and motivated to reach your goals.
Get out of consumer debt, if you have any. By the time some individuals go to see a financial advisor, it’s because they’ve already gotten themselves into debt and are seeking advice on how to get out.

Consider these 3 time frames for your savings and investing goals:

Short-term goals. Your short-term goals are the financial issues you want to address between now and the next 3 years. This is the time to:
❖ Purchase a vehicle and obtain insurance coverage for all areas that apply (car, home, health, and life).
❖ Establish good credit by paying off your student loans, being on time with your current bill payments, and not getting into debt.
❖ Create a plan for savings, investments, and retirement, as well as an emergency fund.
Intermediate goals. Your intermediate goals are those you plan to address in 3 to 10 years. During this time, you might want to:
❖ Set aside money if you plan to get an advanced degree.
❖ Plan for wedding expenses and a down payment on a home.
❖ Prepare for the expenses associated with the birth or adoption of a child.
❖ Assign someone as your power of attorney and draw up a will.
❖ Increase the amount of money you’re saving and investing, if at all possible.
Long-term goals. Your long-term goals involve your financial outlook in 10 years all the way until retirement. Options like these might be in your long-term goals:
❖ Start a fund, such as an RESP, to provide for the college education of your children.
❖ Continue paying into your retirement accounts and make housing and other plans for your retirement years.
❖ Plan to support aging parents and make considerations for long-term health care for them as well as for yourself and your spouse.
❖ Meet with your financial advisor to discuss finances 3 to 6 months before you retire.
Once a year is a good checkpoint to ensure things are on track with your financial plan. It’s like seeing your doctor once a year for a checkup. If you do this, it can prevent major issues from coming up.

Mistake #2: Living Outside Your Means

Here in North America, we live in a culture of spenders. Unfortunately, we are much less a culture of savers. Are you spending 100 percent of your income each year as well as splurging on credit card purchases? If so, you’re not alone.

However, if you are spending beyond your means, you are probably having quite a bit of trouble putting money aside or sticking to any sort of financial plan.

Financial goals are based on saving money. If you’re not able to save at least part of your income each month, it’s hard to get anywhere.

It’s hard to fix an issue until you can identify what the issue is. Therefore, start keeping track of your spending and how it relates to your income. If you’re lacking a monthly budget, that’s something you should put together as soon as possible.

If you’re having a difficult time figuring out your spending patterns, here’s an idea. Take one of your credit cards, if you have one, and charge all of your spending for the month on that one card.

When you get your account statement at the end of the month, go line by line and look at what you’re buying. See if there’s anything you didn’t realize you were spending, such as $100 a month on weekend entertainment.

Once you have an idea of what you spend per month, you can start to identify some cost-cutting measures to live within or below your mean. In order to save money, you actually need to live below your means.

Mistake #3: Not Having an Emergency Fund

Or a back-up fund or a F**k You fund, whatever you want to call it. This theme has always been near and dear to me. In 10 years of blogging, my view on this matter hasn’t changed.

It would be nice if life always worked out as planned, but it seldom does. Shit does -and will- happen. An emergency fund is there so you have enough money to get you through this unexpected event and back into financial shape.

Here are a few “thinking points”:

❖ Saving for an emergency fund takes a bit of time, but it’s one of the first financial goals you should work on.
❖ The question of whether your emergency fund should be 3 or 6 months’ worth of expenses is a personal choice. It depends on the stability of your income as well as the risk you want to take and your personal situation. If you’re married or partnered, you may not need to save 6 months of expenses. Same if you don’t have children.

It can certainly be dauting to save $ 10 000.00 -if that’s what you need-. Start small. You may only be able to save $ 50 or $ 100 a month, and that’s OK. The goal is to start. Focus on the first $ 1 000. As you see your emergency fund grow, you’ll get motivated to try and save more. If you receive a tax refund, or a bonus from work, save a chunk or all of it.

Mistake # 4: Not Paying Yourself First

When I receive my paycheck, the first thing I do is transfer money to my savings or investment accounts, before I pay for anything else.

Most people tend to keep the mentality of living paycheck-to-paycheck, even when they no longer have to. Overspending and incurring debt have long been normalized.

Saving and investing aren’t, unfortunately. If you don’t pay yourself first, any spare money you may have will be spent, guaranteed.

It’s also never too late to start saving and investing. Educate yourself. Nowadays, it’s easy to open a brokerage account and trade on the stock-exchange.

Take advantage of any free money that may come your way, in the form of a work pension plan, matching RRSP contributions or government contributions to RESP.

Also take advantage of any tax break such as tax-exempt accounts like the TFSA or RRSP. Don’t forget to claim any tax credits that are available to you when filing your tax return. There is no need to pay more taxes than necessary.

Paying yourself first is the best thing you can do for yourself.

Mistake # 5: Having Too Much or Not Enough Insurance

Many of us aren’t happy about having to buy insurance coverage. There’s nothing fun about spending money on something you hope you’ll never have to use.

However, almost nobody can afford to be without insurance if something catastrophic does happen. If you ever actually have an incident where you use your insurance, you’ll find it more than makes up for the cost.

You can think of insurance as being similar to an emergency fund, but it’s specified for a certain type of emergency. If you lack adequate insurance, it can seriously upset your financial well-being.

Health insurance. Health insurance is probably the most important type of insurance you can have. Health care costs are expensive, particularly the ones not covered by provincial health plans.
❖ If you don’t already have insurance, check with your employer. Most companies offer individual and family health insurance to their employees at fairly affordable prices. Your employer may even cover a portion, if not all the premiums.
❖ If you’re self-employed , you must seek health insurance on your own.
Homeowners/tenants insurance. The idea of having to replace your home and/or your belongings is an expensive and scary thought. It’s vital to protect your home and valuables inside against theft and damage. Homeowners/tenants insurance is essential in safeguarding you and your home.
Auto insurance. Auto insurance protects car owners in many ways. In all provinces and territories, auto insurance is a required by law. Still, many drivers still get behind the wheel without it, which is very risky on many levels.
Your car is another of your more pricey possessions. If it gets damaged, you want to be able to repair or replace it.
Life insurance. Life insurance really protects those financially dependent on you.
❖ If you’re the breadwinner and your spouse, children, or parents would be facing a financial hardship if you passed away, then life insurance is a priority.
❖ Life insurance helps provides a cushion to offset any lost income the deceased no longer earns, as well as paying for the fees associated with a funeral.
❖ Many life insurance policies cover pretty large amounts. It’s not uncommon to purchase $500,000 or $1 million worth of coverage.
❖ Check with your employer to see if life insurance benefits are offered. If your employer doesn’t offer it, there are hundreds of insurance companies that provide life insurance policies. Research to find a reputable provider.
❖ If you are single, childless, and nobody depends on your income, then life insurance may not be necessary for you.

There are other types of insurance you may need to consider such as long-term disability or critical illness. That being said, you also want to avoid buying too much insurance. There are insurances you probably don’t need. Having too much insurance means you’re overpaying on premiums. Money you don’t have for something else.

Final Word

Your financial future is a very important consideration. Money can’t buy happiness, but it does buy you the necessities to live a comfortable life.

Financial mistakes can hold you back from living the life you deserve. What above-mentioned mistakes have you made? Did you make other ones?