People often ask me for tips on how to improve their finances and I’m always eager to help. But rather than focusing on mundane money saving tips or talking about where the stock market is headed, I prefer to share lessons on the kinds of products and services to avoid.

By steering clear of these personal finance traps you’ll be sure to have more money at your disposal to save, invest, and build wealth.

High fee mutual funds

If you’ve set up an automatic savings plan to invest in mutual funds through your bank or an investment firm like Edward Jones or Investors Group, chances are you’re paying too much in fees. That’s because Canadians pay some of the highest mutual fund fees in the world – a cost that’s typically between 2 and 3 percent for an equity mutual fund.

I made this mistake back when I first started investing, piling money into high fee mutual funds – one as high as 2.76 percent! To be fair, there weren’t many alternatives back then, and the high fees didn’t make that big of an impact on my relatively small portfolio.

But high mutual fund fees can do serious damage to your investment returns as your balance grows each year. Think of it this way: a 2.5 percent fee on a $10,000 balance only shaves $250 off your returns, but take 2.5 percent off of a $100,000 portfolio and you’re looking at a cost of $2,500 per year.

Do this instead: For do-it-yourselfers like me you’ll want to switch out of expensive mutual funds and get into index mutual funds or ETFs. Here’s a list of model portfolios to get you started.

If you’re unsure about investing on your own and prefer to take a hands-off approach, try investing with a robo-advisor. You’ll cut your investment fees in half or better, since most robo’s charge less than 1 percent to manage your investments online with a basket of low cost ETFs.

Mortgage life insurance

You’re about to close the deal on your first home and now your bank is recommending you take out a life insurance policy that will pay off your mortgage in the event that you or your spouse dies with a balance still owing on your home. It sounds like a good idea, and in most cases your bank can approve you on the spot. But mortgage life insurance is almost always a bad deal and should be refused when offered by your lender.

I fell for this when I bought my first home, again because I didn’t know any better and wasn’t sure if I should or even could decline the insurance. When it came time to renew my mortgage I got wise and declined this coverage.

There are several problems with mortgage life insurance. Premiums are expensive – a 36-year-old with a $350,000 mortgage would pay $73.50 per month or $882 per year. The lender is the beneficiary on the policy, not your spouse or other person of your choice. Perhaps the biggest problem is that your premiums stay the same as the balance on your mortgage decreases. That’s called a declining benefit and it’s a major reason why mortgage life insurance is a bad deal.

Do this instead: Buy a term life insurance policy and make sure the coverage is sufficient to pay off your mortgage and other liabilities, as well as replace your income for a period of time. A 36-year-old male non-smoker can get a $575,000 term life insurance policy for around the same cost per month as a $350,000 mortgage life insurance policy – and he gets to name the beneficiary.

5-year fixed rate mortgage

While not as big a deal as interest rates have fallen in recent years, historically Canadian homeowners have paid a big premium for the security of a five-year fixed rate mortgage.

Two-thirds of Canadians choose a five-year fixed rate and indeed that’s what I chose when I bought my first home. Later on I discovered Moshe Milevsky’s research on mortgage rates which showed that since 1950 homeowners were better off with a variable interest rate mortgage nine times out of 10.

Do this instead: Instead of paying a premium for the peace of mind of a five-year fixed rate mortgage, go against the grain and save money by opting for the cheapest of the 5-year variable rate mortgage or a short-term one-year fixed rate. Our current mortgage is a five-year variable that came with a big discount off of prime rate. When our mortgage comes up for renewal this summer I’ll negotiate for another big variable rate discount or else take the best short-term fixed rate.

Get rich seminars, MLM or Direct Sales companies

You’ve likely heard of businesses promising easy income working from home, or seminars offering the chance to make big money flipping houses or investing in real estate. Heck, you’ve probably heard of a friend of a friend who made a killing doing something like this.

Avoid seminars that offer a unique opportunity to invest like rich people. They’re a waste of time and likely just a sales pitch to get you to buy into a more expensive training course in the future.

Same with MLM or “direct sales” companies. It’s fine if you’re into body-wraps or tupperware and want to become a distributor so you can get free or discounted products. Just don’t expect to get rich selling It Works or Herbalife to your friends and neighbours.

“Seniors, immigrants, the financially unsophisticated including students as young as 14, are/have been victims of these massive, unconscionable MLM pyramid frauds.” – anti-corruption crusader David Thornton.

Do this instead: Anything else.

(Dis)honourable mentions

Other products that should be avoided include;

Market-linked GICs, which are hyped by the big banks as a way to get stock market exposure for your low interest rate GIC. But the purpose of a GIC is right there in the title – guaranteed income – and with a market-linked GIC you might only get your principal investment back if the market performs poorly. Meanwhile the upside is often limited by a complicated formula that delivers nowhere near what the stock market actually returned.

Stick with plain vanilla GICs for your fixed income needs. Related: Five-year GIC ladder vs. One-year rolling terms

Extended warranties are big profit centres in retail, especially when it comes to electronics and furniture. I’ve been offered a $250 extended warranty on a $700 television. Not a good deal! Consumer Reports says to skip the service plan for a number of reasons, namely that repairs may be covered by manufacturer’s warranty, products rarely break within a two-to-three year window, and most repairs simply aren’t that costly.

Your credit card may have you covered. Many cards automatically double or extend the manufacturer’s warranty by up to a year. Outside of that, there’s always your emergency fund.

Group RESPs or Scholarship Trusts are aggressively sold and marketed to new parents but these plans are often highly restrictive and come with hidden and higher fees than an individual or family RESP plan set up through your bank. With a group RESP, your money is pooled with contributions from other investors and invested on your behalf. You have to make regular contributions according to a fixed schedule, and opting out or terminating the plan early can cost you big dollars.

Open an RESP through your bank so that you can decide and control how much money to contribute and when, plus decide how to divide the funds amongst the beneficiaries.

When you become a couple you become a team, and both of your actions and expectations will define your future life together. Your choices today will shape your tomorrows. Keeping in mind your financial priorities, it’s time to create a plan for your spending and saving.

The first and most important step to achieving financial success is to make a budget. Simply put, a budget allows you to tell your money where to go, instead of wondering where it went.

Money often equates to power, but who makes what is irrelevant. The size of your paycheque does not determine your role in the family finances.

Consider these common situations:

• Adrienne is a stay-at-home mom raising three preschool children. She is married to Nick, a successful architect. Nick pays the bills and makes all the family’s financial decisions. Adrienne has no idea how much Nick earns. She pays for the household needs from their joint account or credit cards, as required. There’s always enough, and that’s all she cares about.

• Brett looks at his spending habits as his own business as long as he’s using his own money.

“Why should I be accountable for how I spend my own hard-earned money. I should be able to do whatever I want with it.”

Although Brett had never missed contributing his portion of the regular household expenses, he dodged any money related conversations with wife Olivia. Olivia never said anything about Brett’s spending.

• Connor works as a graphic artist for a small start-up company. His wife Paige, a pharmaceutical sales rep, earns considerably more income. They combine both their salaries into joint chequing and savings accounts. One day, Connor spent an enjoyable summer day treating some of his old school friends to a day of golf and drinks afterward. When he returned home, Paige was furious. “How dare you spend my money on your loser friends!” Connor felt guilty about his spending, but he also resented his spouse for making such a big issue of it.

Now consider what can happen in the future if these couples don’t start planning their finances together:

• Nick was in an accident. His condition is not critical, but he will have to spend many painful weeks rehabilitating. In the meantime, their house and car insurance came due. Nick normally shops around, compares coverage and negotiates the best price before renewing. However, Olivia, not knowing how to proceed, just paid the offered higher premium. She didn’t know which account the credit cards were paid from, and, because she didn’t know Nick’s budgeting system, the joint chequing account she normally used became overdrawn for the first time.

• Olivia and Brett were living in a small apartment and had jointly been saving for a down payment on a house. They now felt it was time to buy. During an appointment with a mortgage lender it became clear that Brett had often gone over the limit on his credit cards and sometimes was late making his payments. His debts and poor credit history were going to be an issue and Olivia was angry that Brett had jeopardized their chances of owning a home. They may still be able to obtain a mortgage, but they lost the chance of getting a preferred interest rate. Brett realized that Olivia was planning for their future while he was frittering away his income on himself. He finally agreed to have the dreaded money conversation and work together with Olivia on a budget.

• Connor and Paige ultimately ended their relationship. It was not merely caused by the inequality in their incomes, but by their attitudes about it. If they had worked together to discuss their dreams and how they would jointly achieve them the anger, resentment and bitterness could have been avoided.

A budget is a tool to track income and expenses, set boundaries, and support your financial goals. When you discuss your goals together you’ll both bring a different perspective to the table and you’ll be able to make better decisions. As a team, sticking to an agreed-upon budget allows you to spend less time worrying about money and more time on your relationship.

Respecting each other as equal partners with an equal say in money management is an important part of contributing to your goals.

Do you need to combine everything?

There are different ways of handling money – experiment to see what works for you. Find a way to blend finances comfortably without feeling like big brother is watching every financial move you make.

Should you merge everything you have and earn into one joint account, or should you maintain individual accounts and just open a joint one for household expenses? It’s not unusual for couples to keep individual credit cards, spending allowances, or accounts. Separate is not bad – as long as you co-ordinate.

What matters is not whether you have one account – or three. What matters is that you’re creating a budget or spending plan by communicating and making decisions together.

So long as you work together to achieve your goals as a team, your accounting structure is a non-issue. The benefits of combining accounts, loans, and assets are: fewer accounts to monitor, easy sharing, transparency and reduced banking fees. But sometimes when couples pool money, it creates the perception they’re flush with cash, which can trigger overspending.

Final thoughts

Many couples don’t do a formal budget. But when you are starting out together a budget provides structure, establishes direction, and creates accountability while avoiding finger-pointing and accusations. Creating a shared budget can help ensure you’re working towards the same goals which brings you closer as a couple.

It’s essential for the success of your overall financial future and the foundation for sound decision making.

Use technology to your advantage and try budgeting apps, software, and online worksheets – some you pay for, but many are free – to help you create your own budget. Or build your own personalized spreadsheet.

Once you know where you stand and where you want to go you can take the proper steps to get there.

Also read:

• Financial planning for couples: Planning your new financial life together

It’s no secret that the roadmap to financial success starts with paying off debt, sticking to a budget, and saving for retirement. But there are other – not quite as sexy – financial priorities that often get overlooked when creating a financial plan.

Indeed, I’m talking about the thrilling topic of building an emergency fund, creating a will, and buying adequate life insurance.

Many of us fail to address these critical elements of our finances because we don’t consider them to be immediate priorities. I was in the same boat just a few years ago. Before I turned 30 and my wife and I had our first child, we were living paycheque-to-paycheque with no emergency fund, no will, and no life insurance policy.

I had read all the financial rules of thumb. Experts recommended setting aside 3-6 months expenses in a high interest savings account or tax free savings account.

Well, who could afford that? I decided that if an emergency came up, I’d just dip into my line of credit. Besides, I had a secure job and we lived a pretty frugal lifestyle. What could possibly go wrong?

Meanwhile, less than half of Canadians have a will and a large proportion die without ever making one. But getting a lawyer to draft a will for us would cost between $400 and $800.

Heck, we were only 30 – there would be plenty of time to look after this down the road. Why should I spend the equivalent of our monthly grocery budget on something I wouldn’t need for a long time?

I also had no idea how much life insurance was necessary for someone my age. So, like many 30-somethings, I buried my head in the sand and completely avoided the topic of life insurance.

When I changed careers a few months later, I sat through the employee benefit orientation and found out we had a mandatory group life insurance policy. That was perfect, I thought! I could check life insurance off my to-do list.

So what changed? Well, for one, I started taking control of my finances. I developed a comprehensive financial plan and realized that I could no longer ignore these three important areas of my finances.

We were in the middle of a recession when we decided that my wife – who had just been diagnosed with Multiple Sclerosis – should stay home full time to look after our kids. With plenty of financial risk in our lives, protecting my family from job loss or a major health-related event was paramount.

I realized that it took time and money to look after these things. We made a goal to take care of these three areas of our finances and then did the research to find out how much it would cost.

We wanted to build a $5,000 emergency fund so we began to set aside $200 per month, with a goal to have a fully funded emergency savings account in just over two years. We kept the line of credit open, as a fallback, but thankfully didn’t have to use it.

Then we met with a lawyer to draft our will and personal directive (living will). Your will should be updated and filed with your financial plan, but if you don’t have one in place you should hire a lawyer to draw one up for you. The process cost $800, and took about a month to complete.

The easiest area to take care of was our life insurance policy. I had a $250,000 group policy through my employer, which cost $14.50 per month. I found out that I could purchase additional life insurance in units of $10,000, up to a maximum of $500,000 in extra coverage. And at 58 cents per unit of coverage, topping up my existing policy to $750,000 would only cost me an extra $29 per month.

Final thoughts

No one likes to think about his or her own mortality, especially when you have your entire life ahead of you. And besides, who likes paying for something that you’ll only need when disaster strikes?

Emergency funds, wills, and life insurance are so easily avoided because we have the mentality that ‘it won’t happen to me’.

It’s amazing how much your perceptions change as you get older and start raising a family. Suddenly, there’s a huge feeling of responsibility to get these financial priorities taken care of. I’m glad we did because the peace of mind is priceless.