3 Budget Mistakes Almost Everyone Makes

Leave these budget mistakes in 2022 and enter 2023 with more cash on hand and a better way of spending.

| More on:
worry concern

Image source: Getty Images

It’s a great time for Canadians to start going over their budgets and look forward to a new year. After all, that’s when many of us like to start off our resolutions for a new year. But why do that in the new year, when you’re going through holiday spending right now?

Instead, get ahead of the game and start creating that budget that could save you a ton of cash — especially after a year of poor stock performance, rising interest rates, and hammering inflation costs.

But before you go ahead and dive in, make sure you’re not making these budget mistakes that practically everyone makes at one time or another.

Mistake #1: Spending money you don’t have

Loans can be great. They’re what you need when it comes to making those major purchases in your life such as a home or paying for university. These are enormous costs that can take years to pay off but are part of life.

However, there are other loans that really aren’t necessary. And that’s where many tend to make the mistake of adding into their budget the need to pay down loans. That might be credit cards loans or even car payment loans! I have news for you: if you need to make car payments, you can’t afford a car.

In the case of this example, it’s probably a far better idea to sell your car and buy a far cheaper, used version. Pay for it with cash and get rid of those payments all together. That alone will leave a ton of space in your budget moving forward.

Mistake #2: Leaving out emergencies

Let’s say you get paid bi-weekly. Before you get paid, you buy the necessary items on your list, and then once you’re paid, you pay down that credit limit. Do you see the problem I’ve identified here?

Right now, you’re buying items before you’ve been paid. This is no way to live and is therefore living beyond your means. Canadians should only purchase items if they have enough cash on hand to pay for those items. What happens if an emergency cost such as a fender bender comes your way? Now you don’t have a way to pay down those bills you’ve wracked up.

So, make sure you’re creating a budget that will be able to fit with your spending habits. Furthermore, ensure that you’re leaving enough behind for an emergency fund.

Mistake #3: Leaving out investments!

Let’s say you calculate every single penny away and think, “There, I’m set!” You’re making perhaps the biggest mistake of all by not planning for the future. Whether it’s investing in your Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP), or both, every month, you should dedicate cash to put aside.

What’s more, you should make sure you’re making solid investments that will see you through decades of growth and income. A solid example would be investing in Canadian Imperial Bank of Commerce (TSX:CM). You could use the company’s incredible dividend yield at 5.17% to invest back into CIBC stock and grow your portfolio even larger.

You can then watch your investments climb higher and higher, especially in the next year in the case of CIBC stock. Shares trade down 14% year to date and at 8.76 times earnings. So, you can lock in a great rate and look forward to passive income that lasts a lifetime and will be there waiting for when you reach your financial goals.

Bottom line

Use this time before the new year to get ahead. Invest in companies like CIBC stock that will bring in even more income for the new year. Don’t take on loans you cannot afford. And make sure you’re putting aside an emergency fund for worst-case scenarios. If you do, you’ll certainly be going into 2023 stronger than ever.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »