This turned out to be a rather lengthy article, so I have split it up into more manageable chunks. This is part two of the chunks. Part One can be found at Do You Make These Money Mistakes? Pt 1
3. Not Having an Emergency Fund
Life has a funny way of throwing curveballs when you least expect them. Your car breaks down the same week your dental crown falls out, or you get laid off just before your roof starts leaking. Without an emergency fund, these situations turn from inconveniences into financial disasters.
According to a recent survey by the Canadian Payroll Association, 47% of Canadians would find it difficult to meet their financial obligations if their paycheque was delayed by even one week. That’s almost half of us living paycheque to paycheque, one emergency away from serious financial trouble.
Lisa’s Wake-Up Call: This single mom from Winnipeg was doing fine until her furnace died in January. The repair cost $2,800, which she didn’t have. She had to put it on her credit card and then struggled for months to pay it off while dealing with the high interest charges. “I learned that emergencies don’t care about your budget,” she says. “Now I always keep money set aside for the unexpected.”
The Domino Effect of No Emergency Fund
When you don’t have emergency savings, one problem creates a chain reaction. You put the unexpected expense on a credit card, which increases your monthly payments, which makes your budget tighter, which makes it harder to save, which means you’re even less prepared for the next emergency.
It’s a vicious cycle that traps people in debt. The emergency fund breaks this cycle by giving you a buffer between life’s surprises and your long-term financial plans.
How Much Should You Save?
Financial experts typically recommend 3-6 months of expenses in your emergency fund. But if you’re starting from zero, that number can feel overwhelming. Here’s the truth: any emergency fund is better than no emergency fund.
Start with these mini-goals:
Emergency Fund Milestones
- $500 – covers most minor emergencies like car repairs or medical expenses
- $1,000 – handles bigger surprises like appliance replacement or dental work
- $2,500 – gives you breathing room for job loss or major home repairs
- 3-6 months of expenses – provides full financial security
Building Your Emergency Fund (Even on a Tight Budget)
You don’t need to save hundreds of dollars at once. Small amounts add up faster than you think:
Ways to Find Extra Money for Emergencies
- Save your change in a jar (seriously, this can add up to $200+ per year)
- Put any “found money” like tax refunds or bonuses directly into emergency savings
- Use the government’s TFSA and RRSP savings programs
- Sell items you no longer use
- Save $25 per week (that’s less than two restaurant meals)
Your Next Step:
Open a separate savings account specifically for emergencies. Even if you can only put $25 in it right now, do it. Then set up an automatic transfer of $25-50 per paycheque. You won’t miss it, but you’ll be amazed how quickly it grows.
4. Ignoring Employer RRSP Matching
Imagine your boss offered to give you a 50% raise on part of your salary, but you had to fill out a simple form to get it. You’d run to HR immediately, right? Well, if your employer offers RRSP matching and you’re not taking advantage of it, you’re essentially saying “no thanks” to free money.
Employer RRSP matching is the closest thing to free money you’ll ever find. For every dollar you contribute to your company’s registered retirement savings plan (up to a certain limit), your employer adds their own money to your account. It’s an instant 25%, 50%, or even 100% return on your investment.
The Cost of Waiting: Let’s say your employer matches 50% of your RRSP contributions up to 6% of your salary. If you earn $50,000 and don’t participate, you’re giving up $1,500 per year in free money. Over a 30-year career, that’s $45,000 in matching contributions alone – not counting the compound growth of that money!
Why People Skip Free Money
It sounds crazy, but there are several reasons people don’t take advantage of employer matching:
Common Excuses (And Why They Don’t Hold Up)
- “I can’t afford to contribute right now” – But you can’t afford not to. This is free money that you’ll never get back if you don’t claim it
- “I’m too young to worry about retirement” – Actually, being young is your biggest advantage because of compound interest
- “The investment options are too confusing” – Most plans offer simple, diversified options that require no expertise
- “I might not stay at this job long” – The matching money is usually yours to keep, even if you leave
James’s Realization: This 28-year-old from Ottawa finally started contributing to his company’s RRSP after ignoring it for three years. “I thought I needed to contribute hundreds of dollars to make it worthwhile,” he explains. “But when I realized I could start with just $100 per month and get an instant $50 match, it was a no-brainer. That’s better than any investment return I could get anywhere else.”
How to Maximize Your Employer Benefits
Here’s a simple strategy to get the most from your employer’s RRSP matching:
The Smart Approach to RRSP Contributions
- Find out your company’s matching formula (ask HR or check your employee handbook)
- Contribute at least enough to get the full match – this should be your top priority
- If you can’t afford the full match right away, start with whatever you can and increase it with each raise
- Choose simple, low-cost index funds if your plan offers them
- Increase your contribution by 1% each year until you hit the matching maximum
Remember, RRSP contributions also reduce your taxable income, which means you’ll pay less income tax. It’s a double benefit – free money from your employer plus tax savings from the government.
Your Next Step:
Contact your HR department this week to find out about your company’s RRSP matching program. If you’re not currently participating, sign up to contribute at least enough to get the full match. If you are participating but not getting the full match, increase your contribution.
5. Making Emotional Financial Decisions
Money decisions and emotions make terrible roommates. When feelings drive your financial choices, you usually end up spending more than you planned and regretting it later. Yet we’ve all been there – buying something to cheer ourselves up, panic-selling investments during a market dip, or making impulse purchases that seem like great ideas at the time. Read “Overcoming the Emotional Challenges in Investing” What does it take to succeed in the stock market?
Emotional spending isn’t just about retail therapy, though that’s certainly part of it. It includes investing based on fear or greed, making major purchases when you’re stressed, or completely avoiding financial decisions because they make you anxious.
Maria’s Shopping Spiral: After a particularly stressful week at work, this Toronto marketing manager went online shopping to unwind. “I bought a $300 jacket, some books I’ll probably never read, and kitchen gadgets I didn’t need,” she recalls. “By the time the packages arrived, I realized I’d spent over $500 trying to make myself feel better. The worst part? I still felt stressed, but now I was also broke.” Read about Retail Therapy and how to combat it.
Common Emotional Money Traps
Recognizing these patterns is the first step toward breaking them:
Retail Therapy and Impulse Purchases
- Shopping when you’re sad, stressed, or bored
- Buying things to celebrate (even small wins)
- Making purchases to keep up with friends or social media
- Justifying wants as “needs” when emotions are high
FOMO Investing and Panic Selling
- Buying hot stocks or cryptocurrency because everyone else is
- Selling investments during market downturns out of fear
- Constantly checking investment balances and making frequent changes
- Following investment advice from social media or friends
Creating a Cooling-Off Period
The best defense against emotional money decisions is time. When you’re feeling emotional – whether it’s excitement, fear, sadness, or stress – your brain isn’t in the best state to make rational financial choices.
The 24-Hour Rule
For any non-essential purchase over $100, wait 24 hours before buying. For purchases over $500, wait a week. You’ll be surprised how many things you don’t actually want after the initial excitement wears off.
The Three-Question Test
Before making any significant financial decision, ask yourself:
- Am I buying this to solve a problem or fulfill a genuine need?
- Will I still want this in a month?
- Can I afford this without using credit or dipping into savings meant for something else?
If you can’t answer “yes” to all three questions, step away from the purchase.
Healthy Alternatives to Emotional Spending
Instead of shopping when you’re emotional, try these alternatives:
Free Mood Boosters
- Take a walk in nature or around your neighbourhood
- Call a friend or family member
- Do something creative like drawing, writing, or cooking
- Exercise or do yoga
- Listen to music or watch a favourite movie
Low-Cost Treats
- Buy a fancy coffee instead of an expensive gadget
- Get a library book instead of shopping for new clothes
- Try a new recipe with ingredients you already have
- Take a relaxing bath with products you already own
Your Next Step:
Identify your emotional spending triggers. Do you shop when you’re stressed? Bored? Celebrating? Once you know your patterns, create a specific plan for what you’ll do instead the next time you feel that urge to spend.
Part Three can be found at Do You Make These Money Mistakes? Pt 3
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Disclaimer for ManageYourMoney.ca
The information provided on ManageYourMoney.ca is intended for educational and informational purposes only. It should not be taken as financial advice. The opinions shared are those of the authors and are meant to encourage sensible financial habits and decision-making. We recommend that you do your own research or consult a certified financial advisor before making any financial or investment decisions. All investments come with risks, and there is no guarantee of success. Past performance is not a reliable indicator of future results. Always consider your personal financial situation and risk tolerance before pursuing any investment opportunities.
As always, I am not a qualified financial advisor. I just relate financial management to my own experience which may not resemble yours at all. Advice is frequently worth exactly what you paid for it. Most of mine came from expensive experiences.
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