Financial Mistakes Canadians Make and How to Come Back From Them

One of the biggest financial mistakes Canadians make is to not have a financial plan. If you have a financial plan, you can avoid many common money mistakes. A financial advisor can help you create a plan that suits your circumstances but the trick is to review and revise your plan often to account for changes in your lifestyle.

Before you book your appointment, here are 20 financial terms most Canadians don't know (but should).

Most financial experts agree that it’s a huge mistake to live beyond your means. Of course there are things you can’t do without but one of the things you need to stop doing now if you want to retire in Canada is to stop spending more than you can afford to. Can’t make rent? Look for more affordable housing. Can’t pay off your credit card debts? Stop using those cards and incurring even more debt. Stop trying to keep up with the Jones: they may very well be deeply in debt too.

MyMoneyCoach says that one of the biggest mistakes almost everyone makes is to not have any savings. Savings will help weather emergencies and will make your retirement just that little bit easier. Of course, putting aside money every month for the future is easier said than done if you’re living hand to mouth. However, it’s not impossible. There are several small changes you can make to help you save $1,000 a month.

According to MyMoneyCoach, a very common financial mistake is to not pay attention to your finances. You need to keep track of how much money comes in — from your salary, your investments, side gigs and the like — and how much of this you spend. This will help you to draw up and stick to a budget so that you don’t spend more than you can afford to.

A good place to start is to go over your bank and credit card statements every month (and try to use the best credit cards in Canada). Then get a free budgeting app to help you keep track of your spending.

Another common financial mistake is to wait until your paycheque comes in, pay your debts, buy what you want to buy and only then set aside some savings from what you have left over. But really, you need to pay yourself first.

Work out how much you’ll have left over once you’ve paid the bills and the necessities. Then decide on an amount you can afford to set aside each month and set up an automatic transfer for this amount into a savings account or one of the best mutual funds in Canada. If it’s done automatically, you won’t be tempted to spend that money on other things instead and you’ll quickly build up some savings.

MyMoneyCoach says that many people assume that they can just spend the same amount they’re paying for rent on a mortgage payment instead. However, to afford a home, you need to think about more than just the mortgage. You also need to take into account things like taxes and the upkeep of your home.

If you’re considering buying a home, add about 40% to your current rental payment to get an idea of what a similar home will cost if you own it. If that’s more than you can afford but you still want to invest in property, consider something cheaper.

RELATED: How to get the best mortgage rate in Ontario.

If you only pay off the minimum on your credit card every month, it will take you longer to pay off what you owe and meanwhile more interest gets added to your outstanding balance so you end up paying even more. Global News suggests that if you have multiple credit cards, you start by paying off the one with the highest interest rate first. Canadian finance experts have several handy tips for reducing your credit card debt. Heed their advice.

Credit cards can come in very handy. However, as MyMoneyCoach points out, people who pay for things using their credit cards usually pay between 12% and 18% more than they would have if they were paying cash (unless they pay off those charges before the billing date). Being able to pay with plastic can also lure you into impulse buys.

The solution is to use your credit cards only when it makes more financial sense to do so, such as when the best travel credit cards in Canada throw in free travel insurance for that trip you’re about to take. As for the rest of your purchases, stick to cash payments only.

When you’re living hand-to-mouth, it’s those curveballs that life throws at you that can land you in deep financial trouble. An accident or illness may make it impossible for you to work and earn your regular income, for instance. Or your home gets flooded during a storm and you have the unexpected expense of needing to fix the damage. Shop around to find the best insurance policy for your lifestyle. Then budget for the premiums every month.

Paying your taxes is a pain but the Canadian tax system also offers all kinds of tax shelters and benefits, such as RRSPs and the tax free savings account – or TFSA – that let you grow your nest egg tax free.

Not taking advantage of these is essentially free money you’re missing out on and it’s a huge financial mistake to make. Discuss with a financial advisor which benefits you’re eligible for and how you can make your taxes work for you.