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.

Related: The beginners guide on how NOT to start investing

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.

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9 Comments

  1. Andrew Clayden on August 12, 2015 at 6:54 am

    We definitely put our kid’s educational needs near or at the top of the list. RESP’s have been an excellent way to generate 30%+ rates of return in my province, thanks to government incentives and the power of investing over time. RRSP’S have not been quite so lucrative….. however yes, we have prioritized those as well. That said, if one day we are too old and feeble to work, and our savings are inadequate for our needs, there is a good chance our kids will help us out a bit thanks to the training and education we have had the foresight to save for. BTW, our first child is now earning roughly 150% of my wife’s and my incomes combined!

    • Boomer on August 12, 2015 at 9:21 am

      @Andrew Clayden: Well, i was not specifically thinking of RESPs here, but rather loading kids down with expensive activities, toys, clothes, electronics and, do you really need to take a 3-year-old to Disneyland for the great “experience” as my neighbour once did? If you can afford it, fine, but not at the expense of your own debt management and retirement needs.

      I’m not one to advise giving up “free” money when you can get it (RESP grant) but teens can be encouraged to save for part of their own education by working part-time and/or in the summer, and doing well in school so they can apply for scholarships.

      Additionally, even though my children earn more than I ever did, I would never presume to expect them to take care of me in my old age. I’m much too independent for that.

  2. JP on August 12, 2015 at 7:12 am

    We put our children’s needs first. However, like Andrew, we had hoped that they would help us out when we hit our retirement years. HA! Unfortunately, they are too busy living the high life. Now we are wanting to retire but don’t have nearly enough savings. We would love to get some advice on how to invest our money for the next ten years and be able to retire in our late sixties.

  3. Kurt on August 12, 2015 at 7:23 am

    My son is only 2, but I often tell him, “You’re going to have to learn to work hard and fend for yourself because dad isn’t working forever”. I don’t plan to work into my sixties and I love my son with everything I have, but there’s no way I’m giving up my life for him once he’s an adult (which STILL starts at 18 BTW… If you’re old enough to vote, drink, and die for your country, you don’t need to be living out of someone else’s pocket). News flash: Your kids won’t help you when you don’t have enough… They’ll just be frustrated that you didn’t plan for the future and they’ll give you a hug every time they get greeted by you at the doors of Walmart.

  4. Echo on August 12, 2015 at 7:45 am

    It’s not just about putting your kids education ahead of your own retirement. Sometimes I see parents putting their kids’ future ahead of their own present well-being.

    I had a client who insisted on contributing the maximum amount to his kids’ RESPs ($416.67/month to max out contributions for two kids). The kids were aged 5 and 2. It’s a noble pursuit, however the parents were swimming in debt; mortgaged to the max, debt consolidation loans, credit cards, two expensive car loans. Putting those RESP contributions on hold, even just for two years, would have helped eliminate all of their credit card debt and put a significant dent into their consolidation loan.

    You can catch up your RESP contributions later once your finances are in better shape. A $5,000 contribution when your child is 10, for example, will still get you two years worth of maximum grants.

  5. Christine on August 12, 2015 at 8:42 am

    Giving your kids a high priced lifestyle while they are growing up, and saving for their education, teaches them to expect that Mom and Dad are rich and they don’t have to worry about money, ever.
    If the parents then find themselves short when they want to retire, it is almost impossible to get the kids to understand that there is a real need. Good luck trying to get them to help out their parents, at a cost to themselves, no matter how much they earn.

  6. Julian on August 12, 2015 at 2:22 pm

    Andrew
    You are very lucky you have children that are going to help out when and if you need it. I hope to have the same support from my kids.
    However, I look at their spending habits today along with all the toys that they acquire from day to day.
    I have my doubts
    Looking at the replies to this post it appears to have a trend.
    Good Luck, or should I say good investing

  7. Rosemary on August 12, 2015 at 6:36 pm

    We have adult children (4) all living independently, however, one of them just doesn’t seem to have the wherewithal to manage and we are continuously “helping” so rent gets paid. The issue items to be the ability to keep a job due to mental health issues. Can anyone help with this question…we have paid up life insurance plan that we are able to pull funds from without affecting the basic life insurance amount. We are thinking of pulling money out and having that money set aside to be there when “help” is required (without the kids knowing). Can anyone advise?

  8. Gillian on August 14, 2015 at 8:37 pm

    My baby boomer parents are not financially ready to retire. Our family has struggled though self-employment, job losses and now, the health scares that come with aging. I used to be very concerned and, honestly, a bit angry that they have not prepared as much as they should have. As an adult now, I realize that my parents did better than many, staying out of debt and saving what they could but maybe not having the confidence to invest their money more aggressively. For all of the sacrifices they have made for my sister and I, we feel we are ready to help out in any way if the time comes.

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