Everyone makes a few financial mistakes in their life. Maybe you took investment advice from your favourite barista and lost a bundle on a “hot” new stock. Or you said, “No thank you” to your employer’s pension plan, which matched your own contributions 100%, and now you’re retiring pensionless. Perhaps you have your potential wealth in a savings account waiting for the ideal time to jump into the stock market.
Here are three costly financial mistakes you should avoid:
1. Buying too much home
According to MoneySense magazine, the average age of first-time homebuyers is 36. At this age I guess it would seem preferable to dispense with the little “starter” home with the most basic, inexpensive finishes and go right to the awesome “dream” home.
Related: My biggest home buying regret
Often this results in buying a house well beyond current budgetary means. Being what we used to call “house poor” has a tremendous impact on your finances. You might be able to carry a low interest rate mortgage payment, but if you don’t have any money for other things your lifestyle will be quite meager, you’ll be less likely to be able to save, and there’s a good chance you’ll go into credit card debt.
2. Raiding your RRSP
Yes, you can take advantage of your retirement savings to purchase a home, or to further your education with the programs available. Chances are if you’re young there will still be enough time to replenish the account and take advantage of future compounding.
The problem lies when you take out a few thousand dollars here and there from your retirement savings to fund your lifestyle – home renos, trips, repaying continuous debt, and paying for things you think are emergencies at the time.
Not only will you take an immediate tax hit and lose contribution room, you lose the future growth of your retirement next egg.
3. Putting your children’s needs ahead of your retirement
All parents want the best for their children, but be careful about putting their needs ahead of your own retirement. If you are putting the majority of your disposable income towards giving your children the best life has to offer, you won’t be able to save enough for yourself, perhaps resulting in working longer than you want to or living on reduced means.
Don’t put your own future financial security at risk.