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At DO Wealth, we understand that managing your finances can be overwhelming, but avoiding some common money mistakes can make a significant difference in your financial future. Whether you’re a client of ours or just exploring ways to improve your financial well-being, here’s a breakdown of some common pitfalls we see new clients, friends, family and more fall into—and how to avoid them.
1. Credit Card Debt: A Costly Trap
One of the biggest challenges many people face is managing credit card debt. According to recent data, more than half of Canadian adults (55%) currently have credit card debt, up from 43% last year. Moreover, 31% of Canadians carry a balance on their credit cards month-to-month, paying interest rates that often hover between 19.99% and 25.99%. Carrying a balance leads to high interest payments, which can snowball into significant debt.
How to Avoid It: At DO Wealth, we recommend paying off your full balance each month to avoid paying interest. If you already have credit card debt, prioritize paying off high-interest cards first, or consider consolidating your debt into a lower-interest loan to save money on interest over time.
2. Not Building an Emergency Fund
Without an emergency fund, many Canadians are left vulnerable to financial shocks. Nearly 34% have less than $500 saved for unexpected expenses. When an unexpected cost arises, such as a car repair or medical bill, people often resort to high-interest credit to cover the shortfall, pushing them further into debt.
How to Avoid It: We recommend building an emergency fund that can cover at least three to six months of living expenses. Start by setting aside a small portion of your income each month. Automating these savings is one of the easiest ways to ensure you stick to this goal.
3. Overspending Without a Budget
One of the most common mistakes we see is a lack of budgeting. In fact, only 30% of Canadians report that they are currently able to save money, while a significant 66% say they don't have enough funds left after paying their monthly expenses to contribute to their savings. Without a clear budget, it’s easy to overspend on things like takeout, entertainment, and subscription services, leaving little room for saving.
How to Avoid It: Creating a realistic budget is key. We recommend using the 50/30/20 rule, where 50% of your income goes to needs (like rent and groceries), 30% to wants (like dining out), and 20% to savings and debt repayment. Use a budgeting app to help track your spending, making sure you stay within your limits.
4. Not Saving Enough for Retirement
Saving for retirement is often delayed or ignored. As of 2024 nearly 50% of Canadians aged 55-64 have less than $100,000 saved. This is far below the amount needed to maintain a comfortable lifestyle in retirement, leaving many dependent on government benefits or working longer than expected.
How to Avoid It: The earlier you start saving, the better. Take advantage of tax-advantaged accounts like RRSPs (Registered Retirement Savings Plans) or TFSAs (Tax-Free Savings Accounts). At DO Wealth, we advise maximizing employer retirement contributions if available—it’s essentially free money toward your future.
5. Not Having a Financial Plan
One of the most significant mistakes is failing to have a comprehensive financial plan. Without a roadmap for your finances, it’s easy to drift off course, overspend, or under-save for key life goals. A new report found that individuals with a formal financial plan were shown to accumulate two to four times more wealth by the time they reach retirement compared to those who do not have a plan in place.
How to Avoid It: Work with a certified financial planner to create a plan tailored to your needs and goals. Regularly review this plan, especially when life changes occur, such as marriage, the birth of a child, or a job change.
6. Not Maximizing Tax Shelters
Tax shelters, such as RRSPs (Registered Retirement Savings Plans) and TFSAs (Tax-Free Savings Accounts), offer Canadians an efficient way to grow their wealth while minimizing taxes. However, many don’t take full advantage of these opportunities. For example, contributing to an RRSP not only helps you save for retirement but can also provide immediate tax benefits.
How to Avoid It: Ensure you contribute to tax-advantaged accounts like RRSPs and TFSAs. Maximize your contributions to take advantage of tax-deferred or tax-free growth, and consult a financial advisor to ensure you’re using the best strategies for your situation.
7. Neglecting Insurance Needs
Another common mistake is not having the right type or amount of insurance. Life, health, and disability insurance are essential to protect yourself and your family from financial ruin in case of illness, injury, or death. However, many Canadians either skip insurance altogether or don’t have enough coverage.
How to Avoid It: Work with an independent insurance broker to ensure you have the right coverage for your needs. Life and disability insurance are particularly important if you have dependents or debts, and they provide a safety net for your family if the unexpected happens. For more information, check out our article on Insurance.
8. Ignoring Estate Planning
Estate planning is often overlooked, but without it, your assets could face high probate fees and legal costs, reducing the amount passed on to your heirs. According to a 2023 Angus Reid poll, 51% of Canadians over the age of 55 do not have a will in place.
How to Avoid It: Develop an estate plan that includes a will, power of attorney, and, if necessary, trusts. This ensures your assets are distributed according to your wishes and minimizes taxes and fees. An estate plan also provides peace of mind, knowing your family is taken care of. Read our essential guide to estate planning for more insights on this topic.
10. Taking on Too Much Debt
Canadians have one of the highest household debt levels in the world. A 2023 report by Statistics Canada showed that for every dollar of disposable income, the average Canadian owes $1.84. High-interest debts like credit cards and personal loans can quickly escalate, making it hard to keep up with payments.
How to Avoid It: Avoid taking on debt for depreciating assets (like cars) or non-essential purchases. If you have multiple debts, prioritize paying down the highest-interest loans first. Debt consolidation or refinancing at a lower interest rate could be beneficial if debt has become unmanageable.
Final Thoughts
Avoiding these common financial mistakes is essential for long-term financial success. Whether it’s creating a comprehensive financial plan, ensuring adequate insurance coverage, or planning for retirement and estate needs, DO Wealth is here to help you make informed decisions. We are always here for you to reach out to and begin building or optimizing a strategy tailored to your unique goals and circumstances.
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