It could be 10 but I would look like I’m trying. In a context that is quite challenging for our finances, let’s recall five behaviors that make things worse.
1- Don’t pay yourself first
In the world of personal finance, “pay yourself first” is without question the top priority. What does that mean in practice? That with every payment we divert a portion of it to a savings account, safe as if that money didn’t exist. Then we’ll do the rest.
Why? The reverse technique of saving last with what’s left doesn’t usually work. We tend to spend all of our disposable income, even when our salaries are increasing.
2- Follow the rhythm set by others
I hesitated for the title of this item. I thought of “dating people richer than us” or “choose a neighborhood beyond your means”. Another option: “Follow the adventures of small influencers (our relatives) on social networks”.
It comes down to the same thing, other people’s lives always seem more interesting than ours: they’ve just changed cars, they’re ecstatic about the latest hot restaurant, they’re bugging us about their renovations or their vacation in Greece. Seeing how they go doesn’t necessarily lead us to emulate them, but it does encourage us to set the tone in our consumption decisions.
Hang out with humble people, your finances will be better off.
3- Don’t invest
This statement may seem inappropriate when we have just finished one of the worst semesters in the entire history of the stock market. Since 1926 (as of December 31 last year), the American stock market has thrived despite the 1929 depression, the 2nd tech bubble, the September 11, 2001 attacks, the 2008-2009 financial crisis, the COVID-19 pandemic. The best time to travel is when the news is at its most depressing.
Those who start investing early will more quickly reach the point where their returns will contribute more to their wealth growth than their savings. In other words, the money makes itself… fun!
4- Paying too much tax and ignoring tax breaks
The Registered Retirement Savings Plan (RRSP) and Registered Tax-Free Account (TFSA) offer powerful tax benefits. In the long term, the effect is significant. Even with a contribution limit of $6,000 per year, the TFSA can work wonders just between the age of majority and retirement. Assuming the limit stays the same (unlikely), a person who maximizes their TFSA between the ages of 18 and 65 with investments that earn them 5% per year would accumulate nearly $1.1 million, inclusive more than $800,000 in non-refundable earnings. Did I say “pleasant”?
The Registered Education Savings Plan (RESP) entitles you to grants equal to 30% of contributions in addition to a tax benefit similar to an RRSP. The Registered Disability Savings Plan (RDSP) works on the same principle. The government grants are designed to ensure the financial security of people with disabilities and can reach up to $90,000 over the life of the plan.
Ignoring these tools is like leaving money on the table.
5- Not organizing, planning and scheduling your affairs
It is the backbone of everything that comes before it.
Being organized doesn’t require you to keep an exact budget, but you do need to know where your resources are going. The less time you want to spend on it, the more you need to centralize your operations: you don’t spread your accounts and use a single credit card.
Planning ahead avoids getting caught by surprise and finding yourself in situations where you have to pay more because you do it at the last minute. Planning helps resist impulsive spending. It applies to everything from groceries to vacations to renovations.
CPG: the sequel
After publishing a column on GICs, readers pointed out to me that one of the recommended institutions (Oaken Financial) offers an English-only platform, which is a huge mistake indeed. Meanwhile, LBC Numérique (Laurentian Bank) has increased the rate of its GICs to 4%. Others have pointed out to me the existence of a company in Vancouver, People Trust, which offers annual GICs at 4.10% and a website in French. It had escaped my radar.