It's time for a quick, 5-minute workout to build financial fitness and hopefully avoid some of the most common financial blunders we see repeatedly.
1. Spending too much on a car. You should be aiming for 15% of your take-home pay for the car payment, insurance and gas. The operating costs for a brand-new 2023 Hyundai Santa Fe (base-model $44,406+tax at 6.49% for 84 months) would be pushing $1200 ($700 payment + gas + insurance) which means you would need to take home $8K/month to “afford” one. Slightly used cars are still very reliable and offer a lot more value.
2. Investing before paying off debt. Be a little discerning with this one and make sure you pay off the right debts first! If your debt is a 4% to 5% mortgage, go ahead and invest any extra funds. Anything up around 7% or higher (credit cards are often 3 times higher!) should be on your hit list before you start investing. Stock returns have been pretty lackluster the past year, but annual returns for the TSX over the last 50 year averaged almost 8%.
3. Spending more than you have. It hurts to write something so obvious, but how can something so simple in theory be so difficult in practice? Too many wants is the root cause, but easy credit (not cheap, just easy!) and failure to track your spending and see just how big a hole you are digging every month facilitates this downward spiral.
4. Putting off saving, investing and retirement planning. Maxing out and investing your TFSA ($6500 year into and index ETF) from the time you are in your early twenties to when you retire at 65 will easily make you a millionaire. Never underestimate the power of compound interest when it is working for you!