the top 5 money mistakes canadians make and how to avoid them

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Money is a sensitive subject for many of us. No matter how much money people have, it can be a source of stress and anxiety. If you struggle to manage your money, it’s essential to take action sooner rather than later. Money mistakes can lead to financial instability, which can negatively affect other areas of your life. But with the proper knowledge, you can avoid these common pitfalls when dealing with money. Read on to learn more about Canadians’ top money mistakes and how to avoid them.

No Financial Plan

Financial planning is about more than just setting a goal for how much money you want in the bank in five years. The first and most important financial planning step is creating a financial plan. If you don’t have a financial plan, you cannot know how much money you should be saving each month or how much you should be investing. 

Knowing where your money goes is an essential first step in financial planning. It’s also about figuring out how you’re going to get there. You can start by creating a spending journal to find areas where you can cut back on spending. If you’re unsure where to start, you can talk to a financial advisor or use online tools to guide you through the process. 

After you have a better idea of your spending, you can create a budget, keep track of your savings, and start to make financial decisions that will enable you to reach your goals.

No Emergency Savings

What constitutes a financial emergency? Nearly 40% of Canadians say their bank accounts cannot deal with a financial emergency. This can be anything above your regular outgoings, and for any Canadians living paycheck to paycheck, this can be debilitating. Financial emergencies can mean different things to different people, from having to find money in the event of an unexcepted death and needing to pay for a funeral or casket from Memorials.com to having your car break down and being unable to get to work without a vehicle.

An emergency fund can hope you mitigate the costs of some of these issues by giving you a financial buffer when things go wrong. Start by putting a small but manageable amount into your monthly savings, and then watch it build over time until you need it.

Taking On Too Much Debt

While it’s great to have ambition, you also need to be smart about the amount of debt you take on. If you’re taking on too much debt, there’s a good chance you’ll have financial difficulties later on. This can severely affect your finances, mental health, and relationships. Some forms of debt are worse than others. 

For example, you should try to avoid using credit cards. Credit cards are easy to abuse, and they often end in financial trouble. Take a look at your earnings and what debt you have accumulated, and start planning to have it all paid off sooner rather than later. You can look into professional debt advice or take on many popular debt challenges to help you pay off your debts as fast as possible. This includes loans, credit card mortgages, and car finance.

Not Having Insurance

Having the correct type of insurance coverage can help protect your financial future. For example, health insurance can cover medical costs not covered by provincial health care plans, such as doctor’s visits or hospitalization. Disability insurance can help replace a portion of your income if you cannot work due to injury or illness. Car insurance can protect you from financial responsibility if you cause an accident. Not having insurance coverage can lead to missed savings goals, such as not being able to save as much for retirement due to high health care costs and missed investment opportunities. Many of these things are difficult or impossible to pay out-of-pocket, which can strain your finances. If you aren’t sure which insurance coverage you need, speak with a financial advisor.

Not Preparing For Retirement

Retirement planning is something that should start as soon as possible. While the right financial approach can help you reach your retirement goals, many people aren’t doing enough to prepare for retirement. According to one survey, more than half of Canadian workers are not saving enough for retirement, and less than half have a financial plan. Many people don’t start saving for retirement until they’re in their 40s or 50s, making reaching your retirement goals even more difficult. Retirement planning is not something that should be skipped or ignored. There are ways to catch up if you struggle to reach your retirement goals. Setting up an automatic retirement plan, such as an RRSP or a 401(k) plan, can help you save regularly for retirement.

Spending More Than You Earn

It’s difficult to avoid overspending. This is something that almost all people do at some point. Many people turn to credit to make up the difference between what they earn and what they spend. And for many people, it’s a slippery slope from occasionally taking out a loan or a credit card to relying on debt for everyday expenses. This can lead to financial problems, missed savings goals, and other money mistakes. The first step to avoiding overspending is to create a budget. A budget can help you visualize your income and expenses and make it easier to spot areas where you’re spending too much. Many budgeting apps can make the process more manageable if you’re having trouble creating a budget.

Conclusion

There are plenty of ways to make money, but not all are good ideas. Investing in yourself and your skills is the best way to make money. This will enable you to charge higher rates for your services or create products with higher value. If you struggle with money, take a step back and examine where you may be making mistakes. Once you become aware of your spending and saving habits, it’s easier to correct them. Once you’ve corrected these money mistakes, you’ll be better positioned to start making money the way you want.

** This was a contributed post.

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