"10 money mistakes people make in a recession"/ "6 invisible ways you're losing money and how to stop"

Dec. 19, 2022 "10 money mistakes people make in a recession": Today I found this article by Shane Murphy on the Financial Post:

This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Canadians are used to tough winters. But the freezing temperatures and seemingly endless snow is the least of our worries.

It’s the economic storm that’s the cause for concern, that some economists anticipate will lead to a recession in 2023.

Inflation is still sitting at 6.9 per cent, despite the Bank of Canada raising interest rates seven times in a row this year. The result is the key interest rate sitting at 4.25 per cent — the highest it has been since January 2008.

And it doesn’t look like rates will be going down any time soon. In December, Bank of Canada governor Tiff Macklem said that raising rates too little is a ‘greater risk’ than raising them too much, a move that some economists say could trigger a recession.

During uncertain times, it can be easy to make rash decisions that only make things worse. As you prepare for a potential recession, here are 10 financial mistakes to avoid.

1. Pulling out of the market without a plan

If watching your investments go into the negative makes you nervous, you are not alone. But what you do as a result is what’s most important.

During a market downturn, investors often sell off their equities without a solid plan for when and how they’re going to buy back in.

If you find the idea of managing a portfolio during a recession to be too stressful, you might want to use an automated investing service — sometimes called a robo-advisor — to manage your investments for you.

Robo-advisors like Wealthsimple will make all the tough decisions, like what to buy and when to sell, and automatically update your portfolio as the market changes. 

All you have to do is tell them how tolerant (or intolerant) you are to risk.

2. Not upskilling while you have a chance

Recessions are scary for a reason. Companies often lay off workers, put a freeze on hiring, or both.

While it can be tempting to put your head down and try and hold onto your current job, the best thing you can do is up your chances of career advancement.

Even if your career is recession-proof, you never know what the world could throw at you – like a pandemic. There’s no downside to building new skills, so they are ready when you need them the most.

You don’t need to spend a lot of time or money going back to school. Online courses allow you to learn directly from industry experts and develop new skills that will make you more marketable to in-demand businesses.

And for creative types, check out an online community that offers classes on such topics as design, illustration and photography or video.

Then put your newly learned expertise to good use by freelancing. Consider signing up with a platform that allows you to offer your services to those with needs that match your skills.

3. Not having an emergency fund

If you haven’t saved enough money for a rainy day, you might be in for trouble. Now is the time to start saving for life’s unexpected moments — before they happen.

Most financial experts recommend maintaining an emergency fund that will cover at least six months of your basic expenses — things like rent, bills and groceries.

Even if you have a secure job, there are other emergencies that might derail your finances, like illness, a car accident or even the loss of a loved one.

If you still have a steady stream of income coming in, it’s wise to set a portion of it aside for emergencies each month in a high-interest savings account.

Some high-yield accounts earn as much as 2.5 per cent interest on every dollar you save, which means you’ll have more money available when the time comes to tap into your emergency fund.

4. Not tapping into your savings when you need to

If you are a pretty diligent saver, it can be hard to break the glass in case of emergency. That’s because you’ve likely spent years squirrelling away your hard-earned money, and it can be painful to use your parachute.

But that’s what it is there for.

The definition of emergency doesn’t necessarily have to be what you had in mind. You might have it earmarked to only use in case of a job loss, but it is totally fine to use if your pet needs surgery, your car dies or your furnace needs replacing.

It is often better to use your emergency fund in a pinch if it means you can avoid taking on new debt.

5. Ignoring your credit score

When money’s tight, you might be tempted to just put your head down and not check your credit score until things return to normal.

But ignoring your score can come back to bite you when you need it most. A bad score can mean a high interest rate on credit cards, loans and even a mortgage. This can be a path towards more debt, which can make your score lower.

To make matters worse, a low credit score can make it harder to rent an apartment, or even get certain jobs, like those in the financial sector.

To keep an eye on your score, you may want to sign up for a free credit-monitoring service, like Borrowell.

You can personally check your credit score as often as you’d like, and there are tools to help you improve it. It only takes three minutes to sign up and it won’t cost you a dime, so there’s really no excuse not to monitor your score.

6. Not preparing for the unexpected

Trying to make ends meet during a recession is extremely stressful, and the financial uncertainty can take all your energy. But failing to prepare for the unexpected could leave your family in jeopardy if something happens to you.

To make sure your loved ones are protected no matter what, you should probably have a solid life insurance policy in place —  even if you’re young and healthy.

Free sites like PolicyMe will let you compare quotes from multiple reputable insurers, like BMO and Manulife, making it easy for you to find the best coverage for the best price.

Best of all, you won’t need to haggle with an insurance agent or fill out mountains of paperwork. PolicyMe will take care of your application for you, free of hassle and free of charge.

Shopping around first can save you hundreds of dollars a year on life insurance and give you one less thing to worry about during this difficult time.

7. Sticking with all those subscriptions

Streaming services were a godsend for those of us stuck at home during the pandemic, but the price of maintaining multiple subscriptions can quickly pile up. And chances are you aren’t making the most of them anyway.

While deleting your Disney+ won’t give you the financial freedom to retire tomorrow, there’s no use paying for subscriptions you barely use just because you’ve set them to automatically renew each month.

Take stock of your viewing habits and cut out any streaming service that you don’t use at least once a week.

If you cancel a subscription and find that you miss it, you can always sign up again when your financial situation is a bit more stable. You might even be able to take advantage of a trial offer and get a month or two for free.

8. Raiding your retirement fund

When money is tight, it is tempting to want to borrow from your RRSP. But that cash today can have some major consequences, at tax time and again at retirement.

Whatever you withdraw from your RRSP will be taxed as income, so you’ll lose a sizable chunk of your savings right off the bat. You’ll also permanently lose your contribution room, reducing the amount you can save and invest in the future.

Remember, no matter what’s happening today, you still need to plan for tomorrow.

If you need cash quick and you don’t have an emergency fund, a better option might be a personal loan. Free services like Loans Canada can help you find the best quote and best repayment term available for your situation.

9. Getting overly sentimental about your home

If you’ve lost your job, are facing a higher mortgage rate and are struggling to make payments, it could be time to move.

People faced with the prospect of downsizing during a recession will often try to tough it out because of the sentimental value their home holds. Moving’s no fun, either.

But overextending yourself to stay in your current home could decimate your savings, and you may still wind up in foreclosure if you’re unable to keep up with your monthly bills.

A site called Properly can show you how much you’d be able to make by selling your current place. It’s currently only available in Toronto, Ottawa and Calgary, but if you live in one of those cities it’s worth checking out — even if you’re just curious.

If you want, Properly can also provide a guaranteed backup offer for the sale of your home. That will allow you to move ahead immediately and buy a new place that’s a better fit for your financial situation, confident in the knowledge that you’ve always got at least one buyer lined up.

10. Taking on new debt

When money is tight, it can be easy to turn to credit cards and lines of credit to float you till payday. But that behaviour can come back to haunt you if you can’t make a payment due to a job loss.

Likewise, consider your overall expenses before signing a new car lease, or signing a loan or mortgage with a family member. 

If your financial situation changed, can you afford to keep up with these large payments? 

It might make sense now, but make sure you have a plan if a recession changes your financial situation.

This article was created by Wise Publishing. Wise is devoted to providing information that helps readers navigate the complex landscape of personal finance. Wise only partners with brands it trusts and believes may be helpful to the reader. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

10 Recession Mistakes People Make With Their Money | Financial Post

Dec. 22, 2022 "6 invisible ways you're losing money and how to stop": Today I found this article by Serah Louis on the Financial Post:

This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

You know your mortgage payments, how much your utilities are and which gas station has the lowest prices. That means your budget is working, right?

In reality, do you know everywhere your money’s going? It is hard to make sure you have every dollar accounted for. Each account, service and product you use has its own fees and rates, and companies are putting out new offers all the time.

Every few months, it pays to dig into your automatic payments and see whether you’re losing more than you should. 

There could be hundreds or even thousands available to pay off debt faster, top up that emergency fund or even speed up retirement.

Not sure where to start looking? Here are six invisible ways you could be wasting money and how to fix them.

1. Extra investing fees

Investing is essential to building wealth. Even if the markets have been up and down recently, the old adage is true — time in the market beats timing the market.

Once you have a solid emergency fund established, you shouldn’t let your extra cash stagnate in your chequing account, where you’ll earn little interest. But depending on your broker or investing platform of choice, a range of forgettable fees could be ripping into your profits.

Even discount brokerage firms will charge anywhere from $5 to $30 in commission when you buy or sell, and at full-service firms that number can easily hit $100. 

That’s in addition to any management fees you need to pay just to maintain your account with them.

Think about how much value you are getting for the fees you are paying. If you aren’t seeing it, consider going with a less expensive option.

Wealthsimple’s robo advisor service, Wealthsimple Invest, comes with a mere 0.5 per cent management fee, and its discount brokerage service, Wealthsimple Trade, charges zero commission.

2. Inflated insurance rates

It’s easy to set and forget all of your insurance policies, but you should never forget how much money is leaving your bank account every month.

But inflation might be coming for your insurance payments.

The Financial Services Regulatory Authority of Ontario recently approved increases for 31 private insurance companies, which means your premium is about to go up. The costs of both new and used cars have gone up, along with the parts needed to repair them, adding to insurance costs overall.

Luckily, those in British Columbia aren’t expecting an increase on basic insurance rates this year.

If you have private insurance, it might be time to see if you are being offered the best coverage for the best price. Rates change fast, and any loyalty discounts you might be getting by sticking around could pale in comparison to the savings you find elsewhere.

Some experts suggest seeking out better rates every six months. That includes car insurance, home insurance and life insurance premiums. If you haven’t already invested in life insurance, remember that term policies — which only last as long as you need them — make protecting your family much more affordable.

3. Low-interest bank accounts

Saving accounts at big banks usually pay little interest, while digital banks, which don’t have the overhead of physical locations and the staff that comes with it, can offer more.

EQ Bank is currently offering 2.5 per cent to all of its customers — 250 times as much as some competitors — and you won’t pay any monthly fees, either. This is a great place to stash your emergency fund, vacation savings or even a house down payment. That way it will safely grow your savings, till you are ready to use them.

4. Unconscious overspending

You probably put a lot of thought and time into a big purchase like a new couch, a play structure for the kids or replacing your aging car. But chances are you don’t keep track of every coffee, chocolate bar or bottle of washer fluid you buy.

Every tap of your credit card or subscription that auto-renews goes uncounted. To make sure these small expenses don’t add up, you may want to consider an automatic budget tracker.

In addition to keeping an eye on your purchases, it is always a good idea to watch your credit score too. You can do this easily by signing up for a free credit-monitoring service. It takes just three minutes to see where you stand. If your score is lower than you’d like, you’ll also get personalized tips and tools to help you bump it up.

5. High mortgage interest

No one actually likes their mortgage, so don’t act like you’re attached to it. If you can switch to a better loan, do it.

Mortgage rates have been creeping up this year, and if you have a variable rate mortgage, you’ve definitely noticed. If you are thinking about locking down your mortgage or are renewing soon, you’ll need to do your research to find a deal.

A great place to start is with a free online comparison service, where you can compare the best offers from dozens of lenders at once.

If your credit score is solid, and you don’t have too much debt, you should qualify for the lowest rates available. Not sure where your credit score stands? It takes just a few minutes to check it, so you can breathe easy, or make plans to improve it.

6. Shopping without getting rewarded

The cost of everything nowadays is up, whether you are buying tires or lettuce. If you aren’t getting rewarded for everyday purchases you are leaving money on the table.

One obvious way to wrack up that cash back is by buying everything on a rewards credit card. 

But you can earn extra cash back automatically by connecting your debit or credit card to RBC’s Ampli app. Purchases at places like Petro-Canada, Lowes and Doordash all count towards cash back.

Likewise, you can earn free gift cards when you shop online through a service called Swagbucks. Plus, you can earn even more by answering surveys or watching videos, if you have the time.

This article was created by Wise Publishing. Wise is devoted to providing information that helps readers navigate the complex landscape of personal finance. Wise only partners with brands it trusts and believes may be helpful to the reader. This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Six invisible ways you're losing money | Financial Post