When it comes to managing your personal finances, nobody’s perfect. And that’s OK! We’re all doing the best we can to keep our money where we need it. Despite making the most of these core concepts, it’s possible that you may be doing some things that put a damper on your ability to grow your wealth even without realizing it. In today’s blog, let’s look at three of the most common mistakes that might be affecting your personal finance plan.
1: Not Having a Plan
You know what they say: “fail to plan, plan to fail.” Many people feel content with simply taking whatever money is left from their pay after expenses, and putting it away in a savings account. While saving is a fundamentally good idea, it’s important to plan for every dollar.
Make financial review and planning part of your routine to avoid making our number one mistake. You may only need to set aside an hour or two a week, but it’s up to you how much detail to put into the planning process.
The next most important thing to do to make a good plan is is to set goals. Some of these can be short term or smaller in scale – like cutting back enough spending this week to afford a movie date on the weekend – while others should be longer term and more impactful, like planning out how long it would take you to eliminate all your credit card debt if you saved a certain amount each week. Having goals of different sizes to be able to consistently strive for will keep you motivated to stick to your plan.
There’s one last important part of any plan, and that’s the emergency backup. If your computer was to go up in a fireball tomorrow, would you have any of your precious data saved somewhere safe? I sure hope so… well, in terms of finances, less than 40 percent of people polled in a recent survey by Bankrate said that they would be able to cover for an unexpected financial emergency that added at least $1,000 to their expenses. Even the best plans are vulnerable to seemingly random or unpredictable changes that you cannot control: that’s why it’s important to plan for the demise of your plan!
2: Not Using the Right Tools
There are scores of amazing tools available to you that can be used to help your money grow, and it’s important not to make our next big mistake: forgetting about them!
Some of the most important of these tools are savings instruments like the Tax Free Savings Account (TFSA,) Registered Retirement Savings Plan (RRSP,) and Registered Education Savings Plan (RESP.) These are tools that allow you to put money into an account and watch it grow over time, with specific tax advantages when it is withdrawn later on (such as when it is time to retire, or to fund a child’s post secondary education.) Suffice to say, getting into the specific advantages, disadvantages and details of how these instruments work is best left for its own article.
According to the 2016 Census, only 65.2% of Canada’s 14 million households contributed to at least one of these three types of registered savings accounts in 2015. In a poll of of some 1,500 Canadians conducted by Angus Reid, 39% said that they saw “no point” in using these valuable tools. On the contrary, the sooner you start contributing to them, the better. Columnist for the Financial Post, Jamie Golombek, argues:
“RRSPs should still be the primary retirement savings for most Canadians, and in many cases, can be your best option.”
3: Letting Debt Pile Up
Debt is the mortal enemy of a good financial health strategy, and it’s all too easy to let it get in the way of your best intentions. The average Canadian now holds roughly $1.69 of debt for every dollar they earn, not including mortgage debt. Because of the continued accrual of interest on that debt (at rates that are continually increasing, nonetheless), debt is the item that takes the biggest chunk out of your ability to build up a more robust financial plan.
As you remove sources of debt and interest (like paying off outstanding bills and credit card balances, or at the very least moving those balances to lower-interest cards), the cumulative effect of saving a few percent here and a few percent there will really start to benefit your finances. This is what some experts call the “snowball method” of debt reduction: it takes time to start rolling, but once you get going, you will find that the gains you make get larger quickly.
Alternative lenders like Progressa were developed to help give your “snowball” a push in the right direction, starting you off with the resources you need to pay off as much debt as you can so as to lay the foundation for a better financial future.