Your money mistakes
Written by Wayne Rothe •
It’s not necessarily a crisis if you make mistakes with your money. Everyone makes money mistakes. If you can avoid too many big money mistakes, learn from your pratfalls and have enough time to recover, you should be fine.
Gail Vaz-Oxlade has written 13 books and is the host of the popular television program, Till Death Do Us Part. From her books, here are three of big money mistakes.
Spending more than you make
You’ve seen those bumper stickers: I owe, I owe, so off to work I go. They always give me a chuckle. Unfortunately, there is a lot of truth to the message. Too many people have too much month left at the end of your money. Over spending may be the greatest destroyer of people’s finances.
Let’s face it, lenders are in business to encourage you to borrow– sometimes more than you should. It can take years or decades to recover from over spending problems. Arguments over money are the No. 1 destroyer of marriages. The debt apple rarely falls far from the tree so if you’re a debt hog, your children are kind of doomed.
If you’re living high on credit, stop. I know it’s easier said than done. Abusing debt is a habit, and habits are hard to break but you have to find a way. Check my August article: http://retirehappy.ca/are-you-up-for-the-spending-challenge/ for an idea on how to get your spending under control.
Debt, says Vaz-Oxlade, is an emergency waiting to happen. If there is something you want, set aside money each month until you have the funds. If you carry credit-card balances, cut those cards up, freeze them in a container of water, or do whatever it takes to remove the temptation.
Not saving enough
If you’re young, time is on your side; don’t waste it. Starting to save young is huge.
If you start saving in your 20s, you may be able to get away with saving only six per cent of your income for the duration of your working life, says Vaz-Oxlade. In your 30s, you’ll need to stash 10 per cent. Wait until your 40s and it will cost you about 18 per cent of your earnings to reach the same target.
Vaz-Oxlade recommends that one of the easiest ways to save is with monthly contributions, which are best done through a pre-authorized chequing plan. “It’s much easier to find $100 a month than it is to find $1,200 all at once,” she says in the book It’s Your Money. “Pay yourself first. Open up a periodic investment plan and slide away $500 a month. Don’t wait…do it.”
Not enough or the wrong kind of insurance
For the best price, it’s best to buy insurance at a young age. However, I recommend that you not buy it before you need it, which goes against the advice of a lot of insurance salesmen. Wait too long and your premiums not only can rise substantially, but can may develop health issues and may not even be insurable.
Vaz-Oxlade recommends that people consider term insurance instead of lousy bank mortgage life insurance, which is designed to protect the bank more than it does you. “With traditional mortgage life insurance, while the premium remains the same for the term of the insurance, the benefit goes down as the mortgage balance decreases,” she writes. “As well, since mortgage life insurance is always paid to the mortgagor (usually the bank), you give up control of how the money will be used….If you want to be in control, skip the bank’s plan and buy your own decreasing term insurance.”
This is a delicate balancing act. It can be wise to buy insurance early for better rates, but a deal is only a good deal if you need the product. A good, client-centred insurance advisor can help you determine the best kind of insurance, the proper amount and when you need to buy. If the advisor tries to push whole-life insurance in your 20s or 30s, I’d question who the advisor is looking out for.
If you are plagued with money mistakes, I firmly believe that making a few simple – but important – changes in your finances can have turn things around. If you use Gail Vaz-Oxlade’s simple advice to make meaningful change, you’ll be far better off financially than you were before. Book it.