Top 5 Financial MIstakes To Avoid
December 14, 2022 | Posted by: Keith Leighton
5 Financial Mistakes to Avoid
2022 has been nothing but bad news financially for most Canadians. Everything we buy costs more, and interest rates are making our mortgages and other loans a lot more expensive. it is time to tread carefully and avoid any financial mistakes. Here are the top 5 missteps you want to avoid:
1. Not understanding your loan agreements.
It is shocking to see how many people fail to understand the terms and conditions before entering into potentially life-changing contracts like a mortgage or student loan. Don’t assume your student loan will have a low interest rate and make sure to investigate the amount of your monthly payment post-graduation, and how many years you will be paying.
Mortgages can be complicated, but that’s no excuse and a good mortgage broker will take the time to answer all of your questions. Trigger rates in mortgage agreements have recently been in the news with rising interest rates and are a good example of people not full understanding what they signed.
2. Not having any system to track your expenses.
“I don’t know where my money goes” is a common refrain as prices continue to rise. However, given the number of mobile applications, web programs and other online tools available to simplify this task. Regardless of how much income you have coming in, monitoring and controlling expenses is critical step as plenty of high-earning-now-bankrupt people have proven!
3. Investing before paying off debt.
The question of whether it’s better to invest any “extra” cash or pay down debt needs a re-think given recent economic changes. In 2021, mortgages and lines of credit could be had for around 2% and most stock indexes reported double-digit gains. Paying down those debts with money you could have invested in the markets was not the best option.
A year later, borrowing rates have doubled in many cases (mortgages for example) and financial markets are wobbly at best, with many deep into the red year to date. These aren’t the only factors to consider, and you need to do the math for your situation, but the case for paying down debt is getting stronger by the day.
In case you are wondering, credit card debt is another deal altogether! In almost every case you would be much better off by throwing all you have at the unpaid balance before investing any of that money.
4. Not saving and investing.
As higher prices and interest rates suck up more of our disposable cash, something has to give, and putting a little bit of money away each month may be on the chopping block. If you need the money for essentials like food or rent, then you have no choice but be honest with yourself on what is essential! Once you break the saving habit it’s hard to get it back and saving is not really a discretionary expense. Catching up on savings might be possible when things get better, but that could be years and the earlier you start, the more your savings are going to grow.
5. Spending too much on a car.
You should be aiming for 15% of your take-home pay for total car costs including the loan payment, insurance and gas. New and used cars have been in short supply in 2022 and prices are through the roof. Hanging on to your current ride may be the best option financially.
At the end of the day, financial knowledge is the best defense for avoiding mistakes. If you have any questions please call a DLC Ideal Mortgage Professional today.
