The English dictionary describes a pitfall as “a hidden or unsuspected danger or difficulty.” Alternatively, it also defines a pitfall as “a covered pit used as a trap.” When it comes to finance, I can make the case that both definitions hold true.
Avoiding financial pitfalls in general really comes down to managing discretionary spending. Now more than ever, we live in a world where it is easier to spend money that you may or may not have, at the click of a button. We have been afforded online shopping, dine out options, grocery delivery services and more. Navigating through what is necessary and what is needed is up to us as the consumer.
Here are 4 Financial Decisions to AVOID: Keeping you from making costly mistakes
1. Buying a New Car:
The moment you drive that new car off the lot it has gone down significantly in value. According to the Canadian Black Book, “During the first year, the average depreciation for new cars is around 30 to 40 per cent.” Most Canadians tend to finance vehicles which can eat into a significant amount of their free cash flow each month. These payments are typically attached to low interest rates but have long payback terms. Additionally, increasingly more vehicles need premium fuel which could also pose as a significant monthly expense.
2. Spending Too much on a House:
It is important to live within your means, even when it comes to your residence. Homes have typically gone up in value in the greater Vancouver area, however, you must be mindful of how much you are willing to spend each month to afford a house. Too many Canadians are living month to month with a house rich and cash poor mentality hampered by a large mortgage payment. A larger house also tends to have larger utility bills, property tax, and overall greater repairs and maintenance costs.
3. Using Home Equity as Fun Money
It is easy to justify pulling money out of your home to do a kitchen renovation or go on a vacation. Interest rates are low, and your house has gone up in value significantly over time. However, keep in mind how refinancing your house might impact your overall long term financial plan. Short term thinking could prolong retirement plans down the road.
4. Not Having a Financial Advisor or Plan
Having a comprehensive Financial Plan helps ensure you are making cost saving decisions. I recommend engaging a Financial Advisor to meet with you to put together a comprehensive financial plan. They will ensure you are prioritizing your objectives, needs and your short term and long-term goals. To keep you accountable to these cost saving decisions, they will meet with you regularly to ensure you are on track, start investing early, stick to the plan and monitor and adjust along the way. According to a national Ipsos poll, households with a Financial Advisor have nearly three times more investable assets than those without. It’s a relationship that can make all the difference in helping you achieve financial wellness.
Connect Wealth is an independent financial planning firm that offers holistic advice to clients based on their current goals and future aspirations. We use well-established workflows and cutting edge technology to maximize planning efficiencies while simplifying the process for clients. Learn how you can maximize your financial opportunities at www.connectwealth.ca
Financial Difference Makers…
How can I build wealth? How can I save enough for retirement?
As a financial planner I hear these types of questions on a regular basis. People in general want to know, what is the secret to success?
I find that I like to look at clients that we have that are already in retirement to see the traits that have led to their financial success. We can learn a lot from our history, and I find it interesting to hear about people’s lives. Read more
Charitable gifting is about to change. As you may know, currently you can donate cash and receive preferential tax treatment. For every dollar you donate over $200 you would get a tax deduction of $0.437. In 2006, the benefits of donating stocks in-kind became substantial because if you donate the stock in-kind to a charity the capital gains of that stock become non-taxable to you but you still receive the full charitable tax deduction.
Projected to come into effect in 2017, the donation of Real Estate profits and profits from the sale of private companies will receive the same tax benefit that are currently available to public shares. This change could be a game changer for tax planning, strategic gifting and estate planning.
So how does this work? Read more
If you’ve ever gone through the process of researching a new car, you’ve likely considered your options: should I buy or should I lease? Although there are many working parts to both scenarios, it really comes down to personal preference and current situation. Recently I went through this same decision process last fall when we were looking for our next car. How did we make our choice? Let’s first take a deeper look into the main differences between buying versus leasing. Read more
The Benefits of Generosity