It's no secret the best way to learn is through our mistakes – our own or others'. When it comes to your finances, It's certainly preferable to avoid making as many mistakes as possible. But let's be honest – we're human and we all make mistakes, especially when it comes to our finances.
A national survey conducted by Leger (that included more than 1000 Canadians) on behalf of the Financial Planning Standards Council (FPSC) found that 42 per cent of Canadians identify money as their number one stressor. The impact includes losing sleep, harming relationships by arguing and lying to family and friends, and regretting past financial decisions.
Without healthy financial habits, it's easy to make mistakes. However, knowing the bad behavior you're prone to make is the first step.
I didn't start saving for retirement early enough
This is the most common financial regret I hear from investors. Most investors wish they had started saving and investing more earlier because they now know they've missed out on years (hundreds of thousands of dollars, or more in some cases) of compounded growth.
Lack of self-control
Pollara conducted a survey of more than 1000 adults and revealed that 38 per cent of respondents had developed poor spending habits, and subpar saving habits, that directly affected their finances. Many expressed regret and shame at their penchant to overspend, make impulse purchases, rack up credit card debt, or take out unnecessary loans. 34 per cent of respondents wish they had used more self-control, and 20 per cent regret making purchases that prevented them from paying off debts or contributing towards their savings.
Living beyond my means
In the same study by Pollara, 37 per cent of those surveyed said their regret was from spending beyond their means. Oddly enough, 88 per cent of participants said they'd like to improve their financial situation, but 31 per cent said they weren't willing to give up things they enjoy to do so.
Trying to keep up with the Joneses
This financial regret goes hand in hand with living beyond your means. Our need to measure financial success against that of our peers encourages us to spend money that we may not have, on material things that we probably don't need. It almost always ends in buyer's remorse
Trying to beat the market
Have you ever heard the saying, “it's time in the market, not timing the market”? If you hadn't, now you have, and it's important for any investor to remember. The market is, and will most likely always present higher risks for the short-term investor. The long-term investor sees the benefits of time in the market, and keeping focus during the downturns (because they are bound to happen).
Not having a financial plan earlier in life
I can't tell you how often I see this – adults with responsibilities and dependents, without a financial plan. It's fairly common for adults to not know the difference between a TFSA and an RRSP, or what an RESP is for. I've worked with many investors – that have families – who've never even considered an RESP because they hadn't heard of it (and level of education has nothing to do with it). That “live for today” attitude can leave you worrying about tomorrow.
Not changing my financial plan as my life changed
Are your goals the same as they were five years ago? Last year? Six months ago? If not, have you reviewed your financial plan recently and made the necessary changes? If you answered no, don't worry – you're not alone! Reviewing your financial plan and updating it as your life changes is incredibly important. Knowing your goals (a new house, a comfortable retirement, an education fund…etc.) and having a current plan to achieve them will help you stay on track.
Ignoring my financial health
Maybe you hate accounting and are overwhelmed by the thought of bookkeeping. Or perhaps you simply “don't have the time” to sit down and crunch the numbers. Whatever the reason, ignoring your financial health can end up being very costly. Credit.com estimates the average person pays more than $279,000 in interest over their lifetime. I'm going to take a wild guess here and say most of you would probably prefer to keep that money. Knowing everything from how much is in your emergency fund, to your credit score, is important to your financial future.
Identify with any of the above?
We can work on improving our financial habits but we can't go back in time and fix mistakes. Building a budget, paying yourself first, investing as early as possible, and getting the financial help you need are the best things you can do to ensure a comfortable future. It's time to make a plan!
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