6 Deadly Financial Mistakes Canadians Make
Most working Canadians have a middle-class income range. This income class includes teachers, firefighters, plumbers, engineers, nurses, construction managers, and chefs – workers from across the professional spectrum. They provide and consume the bulk of services that keep society afloat, driving economic growth and investment with every purchase.
The middle class also has great challenges. Wages have been stagnant and the cost of housing and everyday goods puts a squeeze on the average budget, leaving 6 out of 10 Canadians living paycheque-to-paycheque with most accumulating debt.
In part, this has to do with everyday life and the growing demands of our set of unique challenges. However, we need to “control the controllable” and be smart and strategic to get ahead.
1. Spend within your means
Most people keep a balance at month’s end on their credit cards and lines of credit – some out of necessity, but some by choice because they want to keep up with the Joneses or fill an emotional void. If you are trying to get ahead financially, ask yourself what your plan is to get rid of that debt. It should not be something that is with you to carry over a balance. It’s time to assess your lifestyle and how you are using your home equity and the market to your advantage if you own a home.
Holding the debt is a costly mistake – most debts outside a mortgage charge interest ranging from more than 5% to 19%. Credit is an important part of life and you need it. The biggest life hack is to pay it in full every month with an auto setup payment – this one strategy saves costs, debt, and stress.
2. An emergency fund is a must
Ask yourself this, what would happen right now if your car broke down, your house needed a new roof, or you lost your job? Most Canadians would have to go to credit cards or lines of credit.
You need 6 months of expenses put aside, period. If you don’t have this you will begin a cycle of debt. There are ways to do this automatic withdrawal into an account from your paycheque or when your mortgage renewal is up.
3. Giving your retirement a raise and start in high school
Consider how long wages have felt stagnant while the cost of everything goes up. When you are young and your wages go up, increase your retirement contribution. Get compound interest working for you. Time is your friend. By saving a percentage automatically by paying yourself first, your investment grows your options.
There are tax-free savings accounts and RRSP’s that will begin the foundation of your financial future. It should start from the moment you get your first job, then when you fast forward through your 20s to 50s, your investment doesn’t have to be as large. Life will throw you enough challenges at that time to deal with, and you already have time and compound interest working for you, and you are in front of it, not chasing to catch up.
4. Relying on RRSP’s, OAS and CPP
Contributing to tax-advantaged products is one component of investing, but there are restrictions. Also, future government income plans are always going to be changing. Having a proactive mortgage and finance plan will allow you to get your assets working for you, so you can have multiple streams of income. Being self-sufficient is empowering, then if and when the other options are still available and advantageous, they are a bonus and you are in control based on your proactive abilities.
5. Spending too much on depreciating assets
The average Canadian spends $570 a month on a new car payment. This can go up to as much as $1,400 per month- that’s just for the car, not insurance, gas, or maintenance. The problem is that it’s a depreciating asset. To put it into perspective, that range in payment takes away qualification for a whopping $150,000 to $400,000 in mortgage amount qualification.
For someone in the middle class who intends to buy a home, which is an appreciating asset, the car payment should be the absolute lowest priority and should be avoided whenever possible. Think of the power you could have saving that kind of money or having it in an income-generating asset.
6. Having a will and keeping it current
Your will should include your up-to-date investments, insurance policies, real estate and family gems. With life happening so quickly, it’s easy to let a few years fly by, but then things can get messy. You don’t want your hard-earned money in the hands of anyone but for whom it’s intended.
If you want to learn more, a recently published study by Point2 Homes investigates whether various Canadian professions earn enough to live comfortably with a mortgage.
Angela Calla, AMP, is host of The Mortgage Show on Saturdays at 7 pm on CKNW, one of Canada’s Top Mortgage Professionals, a Woman of Influence and a CMP ‘Young Gun’. She has been helping Canadians avoid costly mistakes with mortgages and taking the fear out of financing for over 13 years from her Port Coquitlam Office. She can be reached at 604-802-3983 or firstname.lastname@example.org