Financial Mistakes and How To Avoid Them

Talking about money matters is difficult for most people and can lead to making poor financial decisions that can have serious impacts down the line.  Financial issues can occur at any stage of your life — they may even be a regular occurrence. Although everyone is not an expert with money management, the trick is to always be proactive and learn from your past experiences.

More than a few small mistakes made over the course of your life can add up to big trouble. You may not even realize that certain things you do are hurting your financial well-being. Here are the worst mistakes you can make when it comes to your finances:

1. Not having an emergency fund

  • Even if you have ample savings and a good income, life has a way of throwing you unexpected curveballs. An emergency fund can allow you to cover these expenses without going into debt. Emergency funds often consist of three to six months’ worth of living expenses, though this will vary depending on your situation and financial goals.

2. Ignoring your credit score

  • Your credit score is important in determining what kind of interest rates you’ll be offered on loans and whether you’ll be approved at all. Don’t ignore it or assume it’s good enough; check your credit reports often and work to keep yours as high as possible by paying off debt, making on-time payments, and keeping your accounts open.

3. Opening a lot of new accounts at once

  • There’s nothing inherently wrong with applying for a brand new credit card, personal loan, or car loan. However, it’s important to know that every time you apply for a new account, it’s going to show up on your credit report, and each inquiry may negatively affect your score.

4. Not having enough retirement savings

  • Retirement savings should be a top priority for people,  The sooner you start, the more you will have when you retire.  Join your plan at work if your employer offers a retirement plan or set up regular contributions to your own RRSP if they do not. Reviewing your annual income tax notice of assessment will give you information as to what contributions you are eligible to make.

5. Not keeping your loans in good standing

  • It’s important to keep all of your loans in good standing in order to maintain a good credit score and avoid fees and penalties. Even if you’ve fallen behind on some payments, it’s better to call your lenders and explain the situation rather than ignore their calls or letters.

The biggest mistake people make financially is spending what they earn, instead of saving and investing a portion of their income. If you can overcome this hurdle, you will be well on your way to a much brighter financial future. There will always be hard choices to be made, but if you are disciplined in your spending, you will make progress towards financial freedom sooner.