During a recent morning commute to work, I was struck by the number of people distracted while driving. On my 18-km drive into work, I noticed more than a few drivers failing to pay attention to fellow drivers, people blatantly not following the rules of the road, and fidgeting with their smartphones. I suspect this happens in many more cities than Ottawa. Regarding my last point, surely people universally accept the notion that texting while driving is dangerous but many drivers do it anyway.
Careless driving got me thinking about other habits in our lives, especially things on the financial front, what we knowingly do that is potentially disastrous to our financial well-being.
Taking on too much mortgage debt
Taking on a fat mortgage is risky. What happens if you lose your job or some of your human capital is compromised? Are you self-employed and heavily reliant on your self-employment income to pay for expenses? Having a mortgage you can afford* and can consistently pay down just makes sense.
Personal note: we are currently trying to kill our fat 6-figure mortgage in another 8 years.
Over extending yourself can put you into a mess of constraints. Financial independence comes with growing assets not growing liabilities. Can’t pay off your credit cards every month? This might be a sign you have too much debt.
Personal note: we try to avoid running any balance on our credit cards and we avoid using lines of credit as much as possible.
Lack of investment diversification
Did you take a stock tip and put lots of money into the “next big thing”? Think real estate prices will climb by leaps and bounds forever? Only invested in Canadian stocks? These are signs you might not be looking at the bigger picture. Consider taking a hard look at your investment portfolio to ensure you are diversified enough to match your risk tolerance. Get financial help from a qualified fee-only professional to make some changes as needed.
Personal note: using a basket of 30+ dividend paying stocks and broad market ETFs from Canada, the U.S. and the world, I’m becoming more diversified than before.
Life is full of risk but it’s not a sin to make some calculated gambles now and then. Repeatedly doing something over and over that’s dangerous and expecting no consequences in return however is just plain foolish.