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Financial Friday #155: The 2 Worst Words in Personal Finance!
YOLO & Procrastination not doing you any Financial Favours!
YOLO has a contender for the most expensive word title, and that contender is procrastination. We are huge believers in education, fact finding, and analysis before making any important financial decisions, but at some point, you have to take action. Whether it’s opening an online brokerage account, meeting with a financial coach, or simply inputting your monthly household expenditures into a spreadsheet, you need to get moving.
If you need a little inspiration right now, here are five personal finance issues that highlight how procrastination is going to cost you big!
Attacking your debt problem If you have credit card debt, car loans, or a line of credit that you are in no hurry to eliminate, you need to look at how much it is costing you. Credit card debt has always topped the list and even the so-called “low interest” credit cards are around 10% (most charge double that rate). Paying the minimum 3% will get you nowhere fast — at the usual credit card rate of 20%, a $1000 balance will take 11 years to eliminate and cost you another $1000 in interest.
A home equity line of credit that used to be a source of cheap funds for renovations, trips, cars, etc. will now cost you almost three times as much in interest as it did just a couple of years ago. Once you add up exactly how much money you are wasting on interest every year and how many years (not months) it will take to pay back, your laissez-fair attitude to eliminating debt will likely change.
Starting your retirement planning Too little, too late is the story for many Canadians when it comes to funding their retirement. CPP and OAS aren’t enough to save you. Did you know you have to pay into CPP for 39 years to claim the maximum amount and that the average monthly payment is currently $811?
The good news is you don’t need to map out a comprehensive plan to get started. For now, if you don’t know what to do first, open a TFSA and focus on putting in as much as you can each year. Your annual contribution limit is $6500 but it carries over from year to year and you may find you have a lot of unused contribution room. Make sure to invest your TFSA money and don’t let it sit in cash (see “getting started with investing below).
Analyzing expenses and budgeting Next month is not the time to start figuring out where your money goes every month and where you could/should/need to cut back on spending. The time to get started is today, and it has never been easier with hundreds of online applications and spreadsheet software, or you can go old school with pen, paper and calculator. Enriched Academy has a number of easy-to-use proprietary tools in our programs to help you crunch the numbers.
Getting started with investing For many of us, it’s hard to get over the risk-aversion and fear of loss that goes with putting our hard-earned dollars into the markets. You need to be comfortable with your decision to invest and knowledgeable of strategies to mitigate the risk, but you also have to realize that holding cash at the interest rates we have seen over the last several years is not going create much of a retirement fund.
Getting a late start is also going to seriously reduce the effect of compound returns. Investing $500 monthly at 5% starting at age 25 versus age 35 will cost you an extra $60K, but it will add over $325K to your retirement fund by age 65.
The Toronto Stock Exchange (TSX index) was hovering around 5000 in August of 1996 and is just over 20,000 today. Had you invested $300/month for that 25-year period and achieved average market returns, you would have upwards of $500K today. There are lots of low-cost, low-maintenance and relatively simple ways to manage your own investing these days. Check out this blog from Enriched Academy financial coach financial Matt Dewy to learn more about getting started.
Creating an emergency cash reserve and a will If the pandemic taught us anything, it was to prepare for the worst. Your income could unexpectedly and very easily disappear for a number of reasons, so you need to have enough cash on hand to tide you over for a few months. As for a will, they are lots of options (including online) these days and there isn't any valid excuse for not having one, especially compared to the mess it leaves behind for your loved ones if you die without one.
Our goal is to educate and inspire you to take control of your financial life. We do our best to prepare you and get you moving, but it’s up to you to ensure procrastination and YOLO are not holding you back from reaching your financial goals!
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Are we get RRIFed off? A lot of Canadians pile up money for retirement in an RRSP, but the buck stops at age 71 when your RRSP converts to a RRIF and you have to start taking money out (and paying tax!) on those withdrawals. A great read if you want to learn about RRIFs and why reform to the system may be in the works.
45 Best ETFs in Canada – April 2023 Exchange-Traded Funds (ETFs) are popular for their low fees, liquidity and the huge variety of funds available. We don't pick funds or stocks, but this guide might help if you are trying to narrow your choices from the almost 1300 ETFs currently available in Canada.