Blog

By: Shawn Todd CFP

We’ve all heard terrible financial advice at one point or another.

It might have been in the locker room at hockey, around the coffee machine at work, or even from a friend.

“Your most expensive advice is the free advice you receive from your financially struggling friends and relatives.” – Robert Kiyosaki

“Max out your credit cards to build credit.” This advice suggests that fully utilizing your credit limit will enhance your credit score. In reality, high credit card balances can lead to significant debt and negatively impact your credit rating. Terrible quote. Can really start someone off on a terrible foot.

“You don’t need a budget.” Some claim that budgeting is unnecessary. However, without a budget, it’s challenging to track spending and achieve financial goals, often leading to overspending and financial instability. I see this so many times. 80% of people just don’t take the time to write this out.

“Renting is throwing money away.” This advice implies that homeownership is always superior. However, owning a home comes with significant costs like maintenance and property taxes. Depending on individual circumstances, renting can sometimes be the more financially sound decision. A strong belief by many. Last time I did the math – I believe you are fine renting for about 7 1/2 yrs before seeing a crossover on benefit / cost. So no need to rush. Ownership over long term can help with wealth building in most cases though.

“You should buy as much house as possible.” Encouraging individuals to purchase the most expensive home they qualify for can lead to financial strain, especially if unforeseen expenses arise. This is terrible. I had a friend tell me this in my 20’s and all this mantra did was produce stress to buy a big house. This carries no great value to it,

“You don’t need insurance if you’re young and healthy.” Neglecting insurance due to youth and good health overlooks unforeseen events. Accidents and illnesses can occur at any age, and lacking insurance can result in substantial financial burdens. Again terrible advice. Many insurance disbelievers [and there are groups of financial advisers of the same thinking] that minimize needs for insurance, particularly for younger people. Getting approved mid 40’s and 50’s with high cholesterol and heart conditions can be difficult. Having the proper coverage starting young isn’t a bad idea at all.

“Always go for the cheapest option.” Opting for the least expensive choice isn’t always cost-effective in the long run. Investing in quality can lead to better durability and value over time. I see this a lot with investment discussions. I won’t argue the merits of trying to find affordable and cheaper investment options – that’s reasonable. Some believe that cost is the most important part of this conversation on any topic – and this isn’t always true. No matter if you are discussing investment options, insurance, the fee for advice from an accountant, lawyer, or financial planner…or a nice dress shirt. Or flowers for your spouse. And definitely do not take the cheapest rock-climbing course, or scuba diving course. You can see where this is going. If I have an option between a hand made, professionally inspected custom parachute for $500, and a machine made parachute [that everyone else is doing] for $99 that all of the articles assure me do the same thing, sometimes its worth just looking a little deeper at the more expensive parachute. Sometimes.

“You don’t need to save for retirement yet.” Delaying retirement savings can significantly impact your financial future. Starting early allows for compound interest to work in your favor, building a more substantial nest egg. This can really be costly. Delaying too long will back you into a corner that will cost you tens if not hundreds of thousands of dollars more.

“Follow your passion, and the money will follow.” While pursuing passions is fulfilling, it doesn’t always guarantee financial stability. It’s essential to balance passion with practical financial planning. I’m a big follow your dreams guy. I think this speaks to balance. Just opening the door, walking outside and declaring to the world you biggest dream, isn’t going to do it. Passion is important. Paying bills & saving – also important.

“Co-sign a loan to help a friend or family member.” Co-signing makes you legally responsible for the debt if the primary borrower defaults, potentially damaging your credit and financial standing. Scott Terrio – will lose it if I don’t mention this here. This has a small space in the terrible advice section here for a reason. So many make this choice without understanding what this really means. It’s not just a favour.

“You can’t get rich working a 9-to-5 job.” This mindset undermines the potential of disciplined saving and investing. Many individuals have achieved financial success through traditional employment by managing their finances wisely. So wrong. I see lots of manual, very traditional 9-5 job employees have significantly more wealth [monetary, family and life] with their situations. Working endless days does not equal financial freedom. Decision making does.

“Always follow your instincts when making financial decisions.” While intuition can be valuable, relying solely on gut feelings without research or professional advice can result in poor financial choices. We are wrong too often to rely on this. Sometimes the gut check is a big saviour. Sometimes it also will devastate you. This is where all those buying into weed stocks should please leave a comment below.

“You should get a credit card as early as possible to build credit.” While establishing credit is important, obtaining a credit card without understanding responsible usage can lead to debt accumulation and financial mismanagement. Credit is important. Living under debt =not important. Please be cautious.

“Investing is only for the wealthy.” This misconception prevents many from taking advantage of investment opportunities. Starting with small amounts can lead to significant growth over time through compound interest. Growing up, the only people I saw who invested were the ‘wealthy’. I feel this is where good planning, and good advice fits it. There are so many who should be investing, to build their own wealth. It’s often a missed strategy for so many.

“You should always aim to retire with $1 million in the bank.” Setting an arbitrary retirement savings goal without considering individual lifestyle, inflation, and future needs can be misleading. Personalized planning is essential. What will help someone else’s situation, may not help yours. This might work if you have no debt, and a decent lifestyle. If you are a spender, and carry debt, and want to retire earlier – this advice won’t be helpful.

“Borrowing from your retirement fund is a good way to handle short-term financial needs.” Tapping into retirement savings can jeopardize your future financial security and incur penalties, making it a risky short-term solution. Ripping out long term money to pay off the hot tub, vacation, or house reno you just did is terrible decision making, and bad advice all around. That $10,000 you removed from your RRSP at age 30 to do one of the above – will only get you $7,000 in your pocket, and would have potentially grown to $76,122 by age 60. That was costly.

I’d never shy away from listening to advice around the coffee shop. Great friends, great people – they all want you to hear what they have done. Listen, learn, act wisely.

My thoughts on this today –

Financial experts reveal the advice that they personally make sure to track their spend in their own lives.  There are many ways to achieve this.  Here are their top six:

1. Have one main investment account and another for short- to mid-term needs

Most people who have at least one long-term [investment] account should consider opening another account for mid-term goals. Mid-term goals might involve buying a house or paying for a child’s education.

Match your portfolio spending to the specific goals and time horizon.

2. Don’t be too restrictive with your budget

Trying to change your spending habits too quickly can result in burnout.  Make room for expenses that matter to you. If an activity with a friend is a priority, keep this in your budget. Find other ways to cut down on spending; like canceling unused subscriptions.

3. Automate saving money

You should automate everything you can about saving so that you don’t have to make a conscious decision to do it.   Money in a checking account can be tempting and easy to spend.  Make regular transfers to a high-yield accounts that can help you save for an emergency.

If applicable, automatically transfer your money to a retirement account. If you work for a company that offers a shared RRSP plan, it’s ideal to sign up for the full employer match. Not taking advantage is like leaving hundred-dollar bills on the ground.

4. Spend more to save more

Focus on quality and spend more if it means it will last.  For big-ticket items take advantage of sales events and/or buying seasonal items at the end of the season. Participate in free loyalty programs and search for online coupons before making a purchase.

5. Look out for the small purchases on your credit card statements

When reviewing your credit card statements, it’s easy to just focus on the bigger charges. But it’s key to also review the smaller line items.

These purchases are easy to overlook. Check your statements monthly, and if you see something you don’t recognize (even a few-dollar charge), report it to your credit card company immediately.

 6. “One-size-fits-all” approaches doesn’t work

Personal finances should be based on your values.  Once you understand that other people’s priorities are not the same as yours, you will be able to make the most sense of the right savings methodology for you.

The question becomes: What is important to you may differ from your neighbours and friends.

Bottom Line

There are a lot of rules of thumb out there when it comes to money, but don’t feel pressure to follow them all.  The best thing you can build into your personal financial plan is the flexibility to make changes as needed.

Planning the management of your estate after you pass away requires careful consideration and preparation.  There is much more to the process than deciding who gets the fine china, and your grandmother’s silverware!

Well executed estate planning leaves little room for dispute when it comes to distributing monetary and physical assets, but also re-establishes adherence to wishes regarding charities, bursaries and trusts.

What you need to know

It is imperative that any will include the sound advice of a lawyer specializing in this area.  We may want to rely on those we have trusted in the past, but if your lawyer isn’t listed as a specialist, rely on them for a recommendation to a trusted colleague with the appropriate experience.

Inexperienced attorneys may not provide the appropriate after-tax guidance, or the proper advice to select an executor, both of which could make your legacy desires difficult, or even impossible to fulfill.

If you have some special needs, like the following, experience becomes even more important.

Charitable Trusts

Setting up a charitable trust allows the trustee to decide where their money is going and how they will be remembered.

Establishing your legacy may include making a contribution to an area of your community that was significant in your life. Areas may include sports, the arts, the hospital, the zoo, or your alma mater.

You may ask yourself:

• What causes are important to me?
• How will my money (and this charity) further benefit society?

Your Last Will and Testament

Drawing up a will is an important resource regardless of the life-stage, amount of assets, likelihood of death, or number of heirs.  If you own anything of value that you would like to pass on to another, it is always better to decide yourself, versus running the risk of having an outsider make decisions on your behalf.

It is also important to note that your will is a living, breathing document, which means you can’t just set it and forget it.

Updating your will every few years to reflect your changing financial and familial situations allows you to remain in control of your assets and determine how they will be distributed. The conditions that could cause you to re-set your will are:

• Getting married, or divorced
• Becoming a widow(er) – This is an often-overlooked event since the strain of loss distracts the surviving spouse, and, unfortunately, elderly couples often pass away quickly after one another.
• Birth of a child or children
• Marriage or divorce of an adult child
• Birth of grandchildren
• Passing away of siblings

Often the beneficiaries of investment accounts, especially “registered” accounts like RRSPs and RRIFs should be specifically named in the Will and with the custodian of the accounts.

Let’s review the basics.

To begin this process, you must first determine your net worth. To do so use this equation:

Total Assets – Total Liabilities = Total Net Worth

Assets include land, buildings, and things that you own outright.

Liabilities encompass debts, mortgages, and anything that you owe.

Steps to Creating Your Last Will and Testament

1. Hire a lawyer— Be sure to choose a lawyer that you feel is skilled and experienced with Wills and Estates, trustworthy, honest, and that will hopefully be around longer than you. A lawyer will help you put your affairs in order and ensure you don’t miss anything important.
2. Name your trustee/executor— This person will make sure that the stipulations outlined in your will are met. So, choose someone you know and trust.
3. Decide how your assets will be divided — Planning for every scenario will alleviate additional stress on the part of your trustee/executor when having to make decisions about your personal assets.
4. Name your beneficiaries.
5. Determine if you are contributing to any charity or trust and describe said identity in the will.
6. Outline your end of life decisions in your living will ( also called Power of Attorney for Personal Care)
7. Update beneficiaries for all your life insurance policies and registered accounts, including pensions

A Living Will for End of Life Decisions

A Living Will is a legal document that a person uses to make known his or her wishes regarding life prolonging medical treatments.

A Living Will outlines your wishes for medical treatment if you are unable to speak or lie in a vegetative state. The document outlines which life prolonging treatments you want and do not want in regard to resuscitation.

Canadian law is changing on the matter of Right-to-Die, and a Living Will could include additional instructions that address overt action to end a life.

Estate Planning and Beyond

Determining how your life will be remembered in the event of your death is an important part of your legacy. Making the big decisions easier for your family by having them outlined in a comprehensive document can be one of the most important choices you ever make. You may determine establishing a charitable trust is the right choice for you or you may deem to divide the assets among family. The most important thing to remember is that it is your decision and will therefore be the right one.

Bottom Line

Planning the management of your estate after you’re gone is not an easy endeavor. Your financial advisor is an appropriate person to consult at the beginning and throughout the process.

Executive Summary

It’s a common misconception that having a pre-existing condition means that you automatically do not qualify for life insurance. The good news is this is not always the case and armed with a good life insurance agent, many individuals with pre-existing conditions get approved for insurance. The path to being insured just may look a little different for someone with a medical condition.

What You Need to Know

Work with a Broker – There are many life insurance carriers in Canada and each company has a different set of underwriting guidelines and level of flexibility. It is crucial to reach out to a number of companies when trying to get a pre-existing condition covered. Working with a broker is the most efficient way to research companies as most life insurance brokers have the ability to work with any company they choose.  This also means they will have knowledge of which companies work best for hard-to-insure clients.

Understand Traditional Underwriting vs Non-Medical Underwriting – Many companies now offer non-medical underwriting. This usually means that applicants will be asked a number of medical questions and if the questions satisfy the insurance company, then the insurance will be approved. If they don’t, the application will be rejected.  This can work in the favor of someone with a pre-existing condition if the questions either:

1. 1. 1. do not ask bout that particular condition
      2. the question asked about that condition is forgiving (example: you are diabetic, but the application only asked if you are an insulin dependent diabetic).

However, sometimes traditional underwriting can be the best option for someone with a pre-existing condition. Traditional underwriting can allow you the opportunity to make a case for a well-managed pre-existing condition through in person exams and doctors statements.  If the applicant doesn’t qualify for non-medical insurance because of a condition, there is usually no wiggle room with the insurer.

Manageable Condition vs Severe Condition – Not all pre-existing conditions are treated the same by insurers. Life insurance companies put each applicant through an underwriting process that uses in person medical exams, claim histories, and underwriting guides to determine whether or not they will insure someone.  There is a big difference to an insurance company between someone with a manageable condition and someone with a severe condition.

For example, having high blood pressure is considered to be a pre-existing condition.  However, it is a condition that can often be managed by medication and lifestyle choices. Therefore, an insurer may look at someone with high blood pressure and determine that their condition is well under control and be willing to make an offer to insure. 

Conversely, someone who has been diagnosed with a terminal cancer would be considered to have a severe and unmanageable condition that would cause the insurer to reject the application.

Guaranteed Acceptance Products – Many companies offer guaranteed acceptance life insurance products and sometimes this is the only option for applicants with a pre-existing condition. These products are typically offered with high premiums and small face amounts.   As well as higher premiums, they usually contain a deferred provision.  This means that the insured is expected to pay premiums for two years before the insurer will pay out the death benefit. In the event the insured dies within the first two years, the premiums are most often paid back to the beneficiary.  This can be a good option for those who are otherwise uninsurable but would like to have something to cover final expenses.

The Bottom Line

Knowledge is power when it comes to getting approved for life insurance and so is having a good advisor to guide you along the way.  Be sure to bring a complete list of medical conditions and any medications you are on when meeting with a life advisor so that they can help you sort through companies and products to find the best fit for you.