3 common mistakes with money – Debt

Errors occur frequently. There was the time famous softdrinks launched new product, when chat company merged with big time company. Although you can not make so many errors in judgment, you can make huge mistakes with your money. Here are three of the most common:

Do not know where your money is going

Do not know where your money is going

Although you probably know the exact value of paying your mortgage or rent, you probably do not know how much you spend on restaurants, gas, hobbies, or other needs and wants.

That’s why you must have a budget and allocate money to certain expenses each month. Be sure to track your expenses in a spreadsheet or application to see how you are spending your money. After a month or two, you might be surprised. If this is the case, you can start making adjustments and reducing some expenses.

You should also reserve a sum of money each month to create an emergency fund and save for retirement. The simplest way to do this is to create an automatic savings plan. Forcing yourself to save means you have to live on a smaller amount and you will not spend money you do not have.

Incorrect use of / not using a GFIC or CPB

cash

There are two major accounts that investors can use to increase tax-free growth. There is the new child on the block, the GFIC path and the old method, the CPB. But many people do not use these accounts correctly or use any of these accounts. According to Statistics Canada, only 22.9% of taxpayers contributed to an CPB in 2015 (the latest available data).

Some common CPB and GFIC errors included:

Do not contribute (CPBs and GFICs) – CPBs are structured to save for retirement while GFICs can be used to save for retirement or other financial goals. If you have high interest debt, it makes sense not to contribute to either account. But if you have money available, you should register in an CPB or GFIC.

Make an Excessive Contribution (CPB and GFIC) – The CPB contribution limit for the 2017 taxation year is the lesser of 18% of your previous year’s earned income or $ 26,010 plus unused space from previous years . Although you have a lifetime limit of $ 2,000, you will have to pay a penalty of 1% per month on the amount you paid for an excessive contribution. For GFICs, the contribution limit is $ 5,500 in 2017, plus unused GFIC contribution periods compared to previous years. The monthly 1% penalty on the amount you are overweight also applies to GFICs. To avoid paying a penalty, find out how much space you have before making a contribution to one of the accounts. Your assessment notice will tell you the CPB contribution you have. To see how much you contributed to the GFIC, contact the Canada Revenue Agency.

Waiting to make a contribution (CPB) – If you’re one of those people who wait until the last minute to make an CPB contribution, you are not alone. A 2015 CIBC survey found that half of Canadians intending to contribute to an CPB left it in the last two weeks before the deadline. Your money will have more time to grow if you make contributions on a regular basis, leaving you more money in retirement. Even though the CPB contribution period for the 2017 tax year is March 1, 2018, you can start adding money to your account now.

Cash Deductions (CPBs and GFICs) – When individuals make CPB contributions at the last minute, they usually hold cash or buy a cash fund because they have not had time to take cash. investment decisions. And even though a GFIC is a tax-free savings account, it should be considered a tax-free investment account since you can hold GICs, stocks, bonds, mutual funds and negotiated funds. on the Stock Exchange (ETF). Growth CPBs and GFICs are also attractive because of higher risk investments and the ability to hold investment income. If you withhold money and earn only 1% or 2% of the interest, the tax savings will be minimal.

Take an early withdrawal (CPB) – If you plan to withdraw from your CPB to pay off debt, buy a car or take a vacation, think again. When you take an early withdrawal from the CPB, you must pay a tax on the amount you withdraw. You do not collect the CPB contribution if you make a withdrawal and your money has less time to grow. However, if you take advantage of the Home Buyers’ Plan or the Lifelong Learning Plan, your money is not taxed unless you repay the amount you withdraw.

Pay high fees on financial products

money

If you are one of those people with a checking account that comes with a monthly fee of $ 30, you pay too much. You can get most of the same services and features with an online checking account offered by Best Financial or Melon. But best, there are no monthly fees.

Mutual funds are also known to have high costs. If you have an investment advisor, you sometimes have to pay a commission (called an expense or sales commission) when you buy or sell the funds. You must also pay an annual fee-the management expense ratio (GFIC) -which can be used in your returns. According to a 2015 Brightstar report, the average GFIC for Canadian equity funds was 2.35% or 2.35 cents for every dollar invested.

Instead, you can buy indexed funds – which are passively managed – from a number of financial institutions that charge lower GFICs. For example, TD Series e-Funds have GFICs as low as 0.33%. This equates to 0.33 cents of fees for every dollar you invest. Or you can buy ETFs, which generally have lower GFICs than the funds in the index. If you are not a fan of indexing and want your money to be managed by a professional, all offer lower cost funds than some of the leading fund companies. mutual funds and banks.