As part of my weekend reading recently, I found this article by Gail Vaz-Oxlade about 9 money mistakes. I thought I would take Gail’s quiz and here are my results.
- Carrying a balance on credit cards or on a line of credit.
We don’t carry a balance on our credit cards. We did however dip into our HELOC for a home renovation. That HELOC will be paid back in a few months.
- Letting expenses get out of control.
We review expenses every year to see what we’re paying (i.e., insurance, internet, cell phone, other). These things will go up over time but they do not exceed our income.
- Taking payday loans.
I have never taken one and don’t intend to.
- Having no emergency fund.
We have a small emergency fund but not six months in cash, what some financial experts deem is appropriate. For most working families that would likely mean at least $40k in cash. I arrived at that number based on average household expenditure so maybe it could be lower, closer to $25k to cover expenses for six months. Regardless I highly doubt most experts have $25k in cash-on-hand in case of an emergency.
- Buying a house that’s too expensive.
We probably did that 5 years ago, I dunno. I know if we stayed in the house we were in it would have been paid off this year actually; we upgraded instead. We love the home we’re in but it will take us another 5-7 years to slay the mortgage dragon.
- Paying only the minimum amount on debt.
As part of our financial plan for 2016, we’ll attempt to double-up our mortgage payments along with our investing goals. It’s an aggressive goal but I think we can do it. Over the last five years we’ve taken advantage of our mortgage pre-payment privileges (and low mortgage rates) to cut our mortgage almost in half.
- Using debt to repay debt.
We don’t use cash advances on credit cards to repay debt.
- Not saving for retirement.
We already know what Gail wrote in her article: “If you think social security will be enough for retirement, imagine what your life will be like if you retire with only $20,000 a year to live on.” Based on our current spending patterns $20,000 in income per year is not nearly enough to cover our expenses, this is why we save for our future every month. For one financial goal this is where we’re at.
- Not having a budget.
I disagree with Gail, not every living soul needs a formal budget. Gail wrote: “I don’t care who said you didn’t need a budget they were a) uninformed, b) hoping you’d pick up the tab c) lying to you.” The people that need a budget the most are folks that do not know if their income covers their expenses. In our house we tend to forecast expenses every other week. I suppose that’s a form of budgeting. I suspect people who are financially free might have some budget but it’s not formalized. These smart individuals have known all along income (including income used to pay yourself first) must be > expenses.
Based on my tally we avoided many of these mishaps above but definitely not all of them.
How many major money mistakes have you made?
#4 I’m definitely in the same boat as you, I a bit of an emergency fund, but the idea of having that much cash just sitting there, doesn’t seem like a good part of my overall financial plan. I’d rather take the risk of having to take out money on my HELOC at some point, rather than lose the potential gains on that much money indefinitely, just in case.
#2 I’m arguably guilty of at some times. It depends on how you define out of control. I think you have to balance how you live life. If you just squirrel away every penny for retirement, and don’t enjoy anything now, what is the point. Not everyone gets a long healthy retirement in the end.
No mistakes at all!Maybe the budget but we only bought stuff what we needed and saved .In our fifties we started spending more but still only what we needed and a bit extra.Sofar our pensions and RRSP,s are sufficient.
Great work Harry. Pensions + RRSPs and that covers all expenses – without CPP or OAS, you are likely “set”.
Funny when you first read this you think, “That is not me, I never do that” but then you look closer and you remember that you did in fact do these things. As I have said (and paraphrasing Vince Lombardi), it is not whether you fall down, it is whether you get back up (and learn from your mistakes).
I’ve fallen down a few times. Thanks for sharing.
1) We don’t carry balances on credit cards. We do use the HELOC for opportunities and seldom carry the debt beyond a month or two at most.
2) Expenses can gang up on you but the day to day stuff is kept under control.
3) Wouldn’t know how to do this.
4) We always have some cash or short term GICs laying around but I’ve never had a formal emerg fund.
5) Not too sure what “too expensive” encompasses but for the most part we’ve had success in buying to fit our life. We did go a bit overboard when we renovated our old farm house (purchased in ’79 for 25K) we moved into in ’94 but bringing it up to code probably saved us $$ in the long run.
6) Don’t carry debt. When we had the mortgage, overtime went into the RRSPs first up to the limit, and then onto the mortgage.
7) Never done this.
8) Started RRSPs at 19, never stopped til this year. TFSAs are maxed each year as well. Having DB pensions kinda makes this a bit overboard but I would do exactly the same thing if I had to do it over again.
9) Our budget is more like a guideline and runs out to five years. We don’t knock ourselves out over this.
All in all we’ve done well. Most of these “rules” are just good sense. Luck helps a lot.
Not too surprised by your results Lloyd. You seem to have your financial act together. #8) is very important I think. We continue to try and max out all registered accounts. We have a ways to go for my wife’s but that’s coming along this year and next year we hope.
Most of these nine items are common sense for sure but we both know common sense isn’t that common 🙂 Thanks for contributing.
I’ve replaced the term “common sense” with “good sense” as the common sense is usually pretty lousy. I like your posts as it makes me reflect. I now acknowledge that a lot of our success is due to good luck rather than astute planning on my part. My father told me RRSPs were good for me so I used them. He found this farm property and convinced me to purchase it even though I had no plan to utilize it. Heck, even my bad habit of procrastinating has worked out well in some cases.
Interesting how much you attribute luck to your success. I suspect luck has been involved (as with most successes) but some skill, knowledge and potentially the right attitudes as well have helped.
Well maybe luck and opportunity together? I’m generally lazy with my financial planning. I tend to invest and then leave it alone. I started young, have traded very little and just kept adding to the portfolios over the 35 years. Not because I was smart but because I was lazy. I’ve often looked at some of the investments and said to myself I should sell now that I’ve made X amount capital gain but then I just don’t because I can’t be bothered to find something else to invest in. Over time, the DRIPs just kept adding up and combined with the dividend increases its worked out well. I am not an astute investor by any means. I’m kinda like that with my farming hobby as well. It just seems to work out for me.
Your lazy approach to reinvesting dividends is the path I’m no Lloyd.
I feel I’m better off just to buy and hold and hold. I’ve seen this strategy work for me over the last 5+ years. Is this because of the DRIPs? The bull market? Being lazy? All three. Maybe.
Just because you don’t trade or watch your investments every day doesn’t mean you are not astute.