Costly money mistakes you’re making over and over — without even knowing it

Shining a light on the most common — and often unconscious — money mistakes is usually enough to motivate people to take action with their finances. These are the most pesky and costly ones, with a few tips to set you on the right track.

Assuming financial security will “just happen” for you on its own, so you don’t bother paying attention to your money.

It won’t. You need a written financial plan in place to make financial security happen.

I get that you’re busy, but your future is literally what’s at stake. If freedom and flexibility are what you crave for your life, you’ll need to shift into the driver’s seat and make a financial plan. By designing a financial plan with a professional, you’ll learn how to achieve better returns on your investments, and you’ll find peace of mind knowing you’re able to fund your future.

Each step you take in your plan should be valuable, and it should help you build net worth by increasing assets and reducing liabilities, and make your life better.

Not having an emergency fund

An emergency won’t happen to you, right? It will. It’s not an “if” kind of thing, it’s a “when” thing, and there’s plenty of research to back that up.

Building an emergency fund should be your top priority after paying your essential bills. The easiest way to make this a reality is to open a separate high-interest savings account with no fees, then start automatically transferring between three to five per cent of your take-home pay into that account on payday. Obviously, if you can afford to set aside more, do it. It takes time to build up three to six months’ worth of essential costs in emergency savings, but once you hit that goal, you’re set. If you use the money for a legit emergency, don’t feel bad. That’s what it’s there for — but replenish it.

Having no clue where your money is going

This is a fast track to overspending and debt. Start looking at your transactions daily and observe where your money is going. Treat your observations as an opportunity to be more mindful about your spending habits. Only when you look can you make a plan to reduce costs so that you don’t spend more than you earn. Examples would be buying groceries from discount retailers only, moving your banking to a low-to-no-fee financial institution, planning your routes better so you don’t waste gas, reducing takeout purchases, cancelling streaming services, or bundling your insurance products.

Then, make a budget … and not one that’s just in your head. You’ll need to follow a template or an app to truly keep on top of your money.

Here’s a fun fact about budgeting; having nothing left over at the end of the month, and all your money assigned to perform specific and strategic “tasks,” such as retirement savings, emergency fund, groceries and rent, is the most efficient way to ensure you build financial security. Think about your budget as a tool to support your financial plan. When you have money left over in your budget, it tends to disappear into outer space.

Going all-in on your debts because someone told you to do it that way

Loan payments, credit card, or line of credit interest; it’s all automatically flowing through your account without a strategy. If you have debts scattered all over the place, and all you seem to be doing is paying them endlessly (which also means you’re suffering from high interest), you’re a prime candidate for a debt consolidation, which lowers the interest you’re paying and the total amount of payments.

With this strategy you’ll free up a bit of cash flow, and can start saving and investing at the same time, albeit with a smaller amount than what you’re paying toward debt. The biggest benefit your money receives in the compounding process is more time to grow. So, the earlier you start to invest it, the greater opportunity for growth. And from a money-mindset perspective, watching your savings grow is a huge motivator to never take on bad debt again (bad debt is the kind used for consumer purchases).

Listen, unless someone taught you all this money management stuff — how much to put toward savings, debt, how to invest or manage these crazy-high grocery costs — it’s likely you’ve made a good amount of money mistakes in the past. But they don’t need to persist. Take control. You’re the boss of your money now.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.