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7 Money Traps That Keep You Broke

December 7, 2025

So you’ve decided to take control of your finances. Amazing. But the road to wealth is paved with good intentions—and some very expensive potholes. Here are the most common pitfalls beginners fall into, and exactly how to avoid them.

1. The "I'll Budget Later" Trap

It’s easy to swipe now and worry later. But if you don't tell your money where to go, you'll wonder where it went.

The Fix: The 50/30/20 Rule Keep it simple. Split your after-tax income into three buckets:

  • 50% Needs: Rent, groceries, utilities. The basics to survive.
  • 30% Wants: Dining out, Netflix, hobbies. The stuff that makes life fun.
  • 20% Savings/Debt: Investing, emergency fund, paying off loans. This is paying your future self.

2. Ignoring "Free Money" Accounts

Tax is likely your biggest expense in life. Ignoring accounts that shield you from tax is like volunteering to pay a cover charge at your own house party.

The Fix:

  • TFSA (Tax-Free Savings Account): Growth is tax-free. Withdrawals are tax-free. Use it.
  • RRSP (Registered Retirement Savings Plan): Lowers your taxable income now, tax-deferred growth later.

3. The "Cash Drag" Mistake

This is a classic. You open a TFSA. You move $5,000 into it. And then... you leave it as cash.

  • The Problem: A TFSA is a container, not an investment. Cash in a TFSA earns basically nothing (inflation actually eats it alive).
  • The Fix: Buy assets inside the account. Stocks, ETFs, or Mutual Funds. Your money needs to work, not sleep.

4. Chasing Hype & Timing the Market

"My cousin's barber said CryptoZoo is going to the moon!" 🚀 Trying to pick the next winning stock or timing the "bottom" of the market is a fool's errand. Even professionals fail at this consistently.

The Fix: Time in the market > Timing the market. Buy boring, broad-market index funds and hold them forever. Boring is profitable.

5. Putting All Your Eggs in One Basket

Betting your life savings on a single tech stock is not investing; it's gambling. If that company tanks, you tank.

The Fix: Diversify. Own thousands of companies across different sectors and countries. The easiest way? An All-in-One ETF. It buys the whole world for you in a single click.

6. The High-Fee Highway Robbery

You walk into a bank. A nice advisor in a suit offers you a mutual fund. It sounds great, but it has a 2.5% MER (Management Expense Ratio).

  • The Impact: That 2.5% doesn't sound like much, but over 30 years, it can eat up to 40% of your total potential wealth.

The Fix: Self-directed investing or Robo-advisors. Aim for fees under 0.5%.

7. The Hidden Currency Tax

Buying US stocks (like Apple or Tesla) in a Canadian account? You might be getting hit with a 1.5% - 2.5% conversion fee every time you buy and sell.

The Fix:

  • Buy Canadian-listed versions of US funds (hedged or unhedged).
  • Use a broker with low FX fees if you must trade US stocks directly.
  • Norbert's Gambit (look it up!) for large conversions.

Investing isn't about being a genius. It's about not being foolish. Avoid these traps, and you're already ahead of 90% of the population.