If only we were taught about personal finances in school, right? Sadly, there are tons of money mistakes people make without even realizing it. Whether you’re just starting to learn how to manage your money in your 20’s or a seasoned investor, be sure to steer clear of these 5 money mistakes you might be making.
Money Mistake #1: paying monthly fees for your chequing account
If you’re still paying a monthly fee for a chequing account, you obviously haven’t heard the good news: you do not have to pay a monthly fee for a chequing account anymore! Online banks are your new best friend.
New online banks, like Tangerine and Simplii, are popping up beside the big banks and offering perks you just can’t turn down. By perks I mean no monthly fees, unlimited transactions and Interac e-Transfers®, the list goes on and on. So please, stop paying those hefty monthly fees, it’s really not necessary these days.
Money Mistake #2: saving rather than investing in government-sponsored accounts
The tax-free savings account (TFSA) and the registered retirement savings plan (RRSP) are investment vehicles that were put in place to help Canadians grow their investments tax-free. In order to build wealth longterm, it’s important to purchase investments in these government-sponsored accounts instead of simply holding onto cash. Psst! Just use a high interest savings account for that. Money held in a savings account is trying its best to keep up with inflation while money held in investments are working harder for you and are actually building you wealth. Rich people become rich because they invest, not the other way around.
Saving rather than investing in government-sponsored accounts is truly one of the money detrimental money mistakes a lot of Canadians are making today. It is totally possible to retire as a millionaire if you contribute the maximum amount to your tax-free savings account every single year over your working career. P.S. that’s only $500 a month as of right now… So what are you waiting for? Get investing already!
Learn more at What Is The Tax-Free Savings Account (TFSA)? and What Is The Registered Retirement Savings Plan (RRSP)?
Money Mistake #3: not building your credit score
Building a good credit score right from the beginning is really important for your financial future because it gives you more options. Having a credit score over 700/750+ shows lenders that you are trustworthy with money and you’ll most likely be able to pay back the money they are lending you. The higher the score, the greater the opportunity to have the best rates on car or mortgage loans and potentially save hundreds of thousands of dollars over your lifetime in interest payments.
Even if you think there is absolutely no way you will ever be buying a home or needing any kind of financing for that matter, it’s always good to have options. Plus, it’s not uncommon for landlords to request credit checks for their tenants. So even if you’re a renter for life, your credit score still matters.
Using credit cards and paying them off in full every single month is the easiest way to build a great credit score without going into debt. You do not need to go into debt to build a strong credit score.
Learn more at The Ultimate Guide To Credit Cards and 5 Things That Affect Your Credit Score
Money Mistake #4: not having an emergency fund
Not having an emergency fund is one of, if not the most crucial money mistake a lot of people make. Before paying off debt or even starting to invest in the stock market, you should aim to save about 3 months of expenses in a high interest savings account. An emergency fund simply lays down a rock solid foundation for your personal finances and makes the roller coaster of life a bit more manageable. We all know life is not going to go exactly as planned (hello, just look back at 2020!) but we never know when or what is going to come our way. Being prepared for the worst or even feeling more comfortable financially to take a risk, whatever that may be, is truly life-changing.
Money Mistake #5: not using a high interest savings account
Staying with a traditional savings account rather than switching to a high interest savings account is definitely one of the top money mistakes anyone can make. It always ceases to amaze me how many people have not yet heard about high interest savings accounts! Regular savings accounts offer 0.05% interest, while high interest savings accounts are offering up to 1.25%. That’s literally 25 times more money right into your pocket. On top of that, they offer accounts with no monthly fees, no money holds and unlimited transactions and Interac e-Transfers®.
I’ll say it again if I have to: online banks are your best friend! Just be sure to look out for the purple CDIC logo on your banks website and you can sign up knowing that your money is safe and secure.
Gone are the days where we should be keeping thousands and thousands of dollars in our chequing accounts. Try keeping only what you need for that month in your chequing account plus a few hundred dollars for a buffer and transfer the rest into savings. Not only will it help you to spend less frivolously, but your high interest savings account interest payment at the end of the month will be even better!
Disclaimer: I am not a certified financial planner or investment advisor. The ideas posted on this website are my own opinions on how I manage my personal finances. The content is specifically for educational and informational purposes and is not considered professional financial advice. This post may contain affiliate links but I would never share any service or product that I would not personally use myself.
Dear Alix,
The one mistake l was doing was not paying attention to banking fees. It is easily fixed as you said, only 5 minutes to resolve! Great reminder to pay more attention to how fees add up.
Nadya Zacharczuk