For most Canadians, it can be a struggle to save and invest money at the end of each month. If you’re on a salary, then there’s only one thing you can do to increase the amount of money you have at the end of the month: spend less.
Modifying spending habits can be challenging, to say the least. The good news is that with some financial savvy and a little discipline, you can reduce your monthly expenses, save more and reach your financial goals more quickly.
Let’s take a look at five of the worst ways you can spend your money.
1. Buying a New Car
That new car experience comes at a heavy cost; the moment you drive a new car off the lot, its value drops by an average of 11 percent. By the time it’s a year old, its value is 25 percent lower, and by three years old, almost 50 percent lower.
Instead, consider buying a used car just a few years old — you could easily save 40 percent or more on the purchase price of a new one. By spending within your means and choosing pre-owned cars, you can get far more value for your money.
2. Credit Card Debt
Unless you pay off your credit card in full each month, your borrowing is subject to high interest rates, which over time can cost you thousands of dollars. According to the Canadian Bankers Association, 42 percent of Canadians fail to pay off their credit card each month, ending up paying punitive interest rates of between 20–23%.
While it can be tempting to treat yourself to a big purchase on your credit card and then pay back over time, the interest payments mean you’re paying a premium on top of the purchase price for the privilege. If you do have credit card debt, pay it back as soon as possible to minimize the interest you have to pay.
3. Impulse Purchases
If you love your tech, you’ll probably know the latest, greatest and most expensive iPhone yet is available to order — the iPhone X. But at what price? At approximately $1,300 in Canada (and $1,000 in the US), upgrading to the latest model is almost prohibitively expensive. Do you need to upgrade your current phone?
While it’s exciting to make an impulse purchase, such as a new phone, television or gaming console, keeping up with the latest gadgets is an expensive habit that few can afford. Budget well and treat yourself occasionally, but resist the temptation to over-indulge when it comes to frivolous spending on “stuff” that isn’t going to deliver long-term return on your expense.
4. Underused Subscriptions
Remember that contract you signed with the local gym in January? When did you last take advantage of it? If you’re like most people, you probably had excellent intentions, but once the initial excitement of your New Year’s resolutions wore off, fitting visits to the gym into a daily routine proved “challenging”.
You might not be a member of a gym, but the chances are you’ve got several subscriptions that aren’t delivering value. For you, it might be a magazine or an app. The subscription model is expensive because you forget you’re spending the money — it just disappears automatically. Review your subscriptions and you might be surprised by how much you save annually by eliminating the ones that you don’t actually use.
5. Overpaying on Utility Bills
There’s no getting away from monthly bills, but are you leaving money on the table? Your water, internet or electricity provider might have been a good deal five years ago, but how do they fare against competitors today?
It’s highly likely that you are throwing money away through misplaced brand loyalty when you could be purchasing the same service elsewhere for less. Review all your bills once a year and switch to cheaper providers where you can. This one practice could save you hundreds of dollars every year.
In the immortal words of Donna Summers, you work hard for your money. So when it comes to making smart financial decisions, it’s always a good idea to follow the age old proverb, “A dollar saved is a dollar earned”.