By Kelley Keehn, FPSC Consumer Advocate
Are you your own worst enemy when it comes to your money? You could be sabotaging your finances without even knowing it. Here are some things to watch out for and discuss with your financial planner.
1. KEEPING UP WITH THE JONESES.
Comparing yourself financially to your friends or neighbours―or social media network—can be dangerous for your bottom line. Today, with easy credit and low interest rates, almost anyone can look wealthy and those good savers may be hard to spot. The “Joneses” phenomenon is a real thing, according to a study co-authored by a University of Alberta professor, who found that a neighbour’s big lottery win boosts the odds that you’ll wind up in the poorhouse as you try to match their new lifestyle. For each $1,000 that your neighbour wins, your chance of going bankrupt rises by 2.4 percent.
2. NOT NEGOTIATING YOUR SALARY (ESPECIALLY FOR WOMEN).
Even if you earn just the average income over your lifetime, you’re still going to have millions of dollars flow through your hands. This one simple misstep could cost you dearly, since you start out earning less and may receive raises based on a percentage of that lower wage. A little boldness at the negotiating table is even more critical for women, since men are eight times more likely to negotiate their salary. Does it really make a difference? Experts estimate that women who don’t negotiate leave over a million dollars on the table during their working lifetime.
3. USING YOUR HOME EQUITY AS AN ATM.
If you were lucky enough to buy your home some years back, you likely have some serious cash built up in your home in the form of equity. And you may be very tempted to tap into it to renovate your kitchen or check off a few items on your bucket list. It’s clear that incentives like low interest rates help drive our spending habits because today Canadians owe around 167 percent of what they bring in. That’s $1.67 for every dollar of disposable income. In the 1980s, that number was 66 cents! Even if interest rates are low and the cost to service the debt seems reasonable, you still must pay it back.
“Using the equity in your home without thoroughly thinking through the future consequences is risky,” says Jeanette Brox, a CERTIFIED FINANCIAL PLANNER® professional and Senior Financial Consultant with Investors Group in Toronto. “Are you prepared if interest rates rise? Are you covered if you became disabled and can’t make your mortgage payments?”
4. LIVING ON THE EDGE (WHEN IT COMES TO EMERGENCY SAVINGS).
Jeanette says we should have at least three to six months of expenses saved in case of job loss or other unforeseen emergencies. Yet, 50 percent of Canadians don’t have $200 in the event of an emergency and one in five Canadians that FPSC surveyed would run out of money in less than a week if they lost their primary source of income. “Everyone needs a financial safety net,” says Jeanette. “Expect the best, but plan for the worst.”
5. REPLACING YOUR RIDE TOO OFTEN.
Forget the latte factor―giving up your sacred coffee each day―what about the car factor? Big bucks can be lost when you get into a new car too often. Consider insurance costs, depreciation, and how your four-wheeled investment (versus repair costs for your current vehicle) fits into your overall financial situation, says Jeanette, and discuss the big picture with your planner.
While we’re talking about financial sabotage, if you’re going car shopping, make sure to do your comparisons online before you head out the door, and fill up with a good meal too. Making too many choices at the car dealership can cause decision fatigue, putting you at risk for choosing the default options offered by the salesperson (usually not in your favour). And that empty stomach can cause your blood sugar to crash, which also has been shown to put buyers at peril for making the wrong choice or giving up negotiations too easily.
“The ultimate sabotage just might be not having a plan in place for your finances,” Jeanette emphasizes. “A professional financial plan will help you keep a handle on those everyday behaviours that can make or break your financial well-being―today and tomorrow.”
To find a CFP® professional in your area to help get all aspects of your financial situation working together, use our Find Your Planner tool.
For more on how fine-tuning your everyday behaviours can help you take control of your finances, read Your 30-day anti-budget: An exercise in awareness, Keeping your money safe from yourself: How to curb your impulse spending and How to deal with four awkward money moments.