Are You Making These 6 Big Money Mistakes? Here’s How to Avoid Them
By Scott Hannah
Q: I’m in my early 30’s and have recently ended a relationship after 9 years. My partner and I made some money mistakes as we managed our finances together, so I don’t want to fall into the same trap now that I need to figure things out on my own. I do earn enough to live a comfortable lifestyle; what can you suggest? ~ Cory
A: Ending a relationship can leave you on uncertain financial footing, so taking the time to sort yourself out and getting your financial house in order is worth the effort. Before I share some of the biggest money mistakes people make and how you can avoid them, I would encourage you to jot down what you learned about managing money during your relationship. Chances are you’ll want to continue with some of the good habits you developed, while letting go of the rest.
Here are 6 big money mistakes and what you can do to avoid them:
Letting Someone Else Manage Your Finances for You
It can be tempting to trust a friend, relative or professional to take care of your money for you, but it will be you who suffers the consequences if your money isn’t looked after well. Don’t blindly trust someone else to look out for your future just because you’re too busy or aren’t sure what to do. Take an interest in financial matters, read blogs, ask questions, take a course, and educate yourself so that you can make informed decisions.
Dragging Out Dealing with Debt
The longer it takes you to pay off a loan or credit card, the more it costs you. Not only will you pay more interest, but you need to factor in the opportunity costs as well. While your money is tied up making payments for what you bought in the past, you have less to spend in the present and on your future.
Related: Tips to Pay Off Debt Fast
Living Without a Budget
If you don’t have a realistic household budget, you have no idea if you’re spending your money in a way that will get you ahead. Think of a budget as a set of directions, like a map on a GPS – once you tell your GPS where you want to go, it will guide you to your destination. That’s how a budget works; set your goals and it will help you make spending choices to get you there.
Related: Interactive, Intelligent Budget Spreadsheet That Helps You Create a Budget that Works
Waiting to Start Saving Until You Have the Money
Rather than thinking of savings as money that you sock away and never (get to) spend, think of savings as money to spend later. Then find ways to make setting the money aside easier, e.g. automatic transfers on payday so that you don’t even see the money in your bank account or putting it into accounts that aren’t attached to your debit card.
Make Saving Easier Every little bit counts, so don’t delay starting to save until you have “extra” money – that will never happen. Start today with $20 and find creative ways to add to it, like a 30-day savings challenge. Then look for ways to avoid impulse spending and to keep your money safe from yourself so that it’s there when you need it for emergencies, vacations or a down-payment.
Taking Your Retirement Savings Out Early
It is so much harder to save than it is to spend so cashing out RRSPs to pay off debts or to pay for a lifestyle you can’t really afford should be a last resort. You will not only be robbing yourself of the magic of compound interest and money for retirement, there are tax implications when you add this money back to your income.
A better idea would be to maximize your contributions as best you can, then use your tax return to pay off debt or jump-start a savings account. If you’re still running in the red, revise your budget and look for ways to increase your income before you cash out a Registered Retirement Savings Plan. If you’re really stuck and not sure what to do, one of our professional Credit Counsellors would be happy to help.
Buying the Biggest and the Best
This applies to all of your large purchases, like your house and your car. Buy what you need with some of what you want, not everything you want to finance. Just because you qualify for a huge mortgage or loan, doesn’t mean that you should want to make those big payments each month. Leave yourself breathing room so that you aren’t a slave to your payments and can still afford them should your income be jeopardized.
The Bottom Line on Avoiding Big Money Mistakes
If these last few years have taught us anything, it’s that the economy is more unpredictable than it’s ever been. So rather than worrying about what you can’t control, focus on what you can do – manage your personal finances with an ounce of frugality rather than frivolously. Yes, we only live once, so spend time living, not worrying about money problems.
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