LFS REPORT

Four money mistakes to avoid

When it comes to money, most of us like to think we're pretty sharp. We know enough to comparison shop, stay out of debt and set up some sort of savings plan. Sometimes though, we just get things wrong. Last year, Consumer Reports highlighted how making poor choices can cost you. Here are some of the highlights that apply to Canadians.

1. Investing too conservatively during retirement

Conventional wisdom suggests that as you age, you should shift money out of stocks and into more stable investments, such as bonds. For instance, a popular rule of thumb is to subtract your age from 100, the difference being the percentage of stocks you should keep in your portfolio. However, being too cautious once you retire can hurt you. Annual returns on bonds may barely keep pace with inflation, while stocks, typically provide returns that do.

Even in retirement, be sure to keep as much of your money in stocks as your comfort level allows. London Life’s new Lifetime Income Benefit option may provide the security you want while allowing you to continue investing in the markets.

2. Living an unhealthy lifestyle

Unhealthy habits mean higher life-insurance premiums. Consumer Reports compared the costs of a $1 million term insurance policy for a 40-year-old, healthy male with one who had one of several risk factors often associated with poor health habits, such as smoking. The additional costs in premiums, for higher-risk men, worked out to roughly $42,000 over the subsequent 20 year period.*

Langlois Financial Services represents many of the top Insurance companies in Canada, and can help align your goals with the product that best meets your needs. Also, by purchasing insurance for yourself or your children while you are young and healthy, you ensure your ability to buy the insurance you need in the future at normal healthy rates.

3. Underfunding your retirement

The best way to make RRSPs really work is to start contributing early. A longer time horizon creates more tax-deferred income through the power of compound interest. Look at it this way: At age 20, George makes his first RRSP contribution — depositing $1,000 into his plan and contributing the same amount each year until age 65. Assuming an average rate of return of 5 per cent, the value of George's RRSP at 65 is $167,685. His older brother Raymond doesn't get started in an RRSP until he's 30 years old, depositing the same $1,000 and making the annual contributions until age 65. At the same return but with less time to compound, Raymond will end up with just $94,836. That’s $72,849 less than his little brother.

Click on the client discovery section of our website to complete a risk analysis and ensure your portfolio matches your risk tolerance. The calculators section can help you see how much difference contributing today can make for your specific situation.

4. Carrying a credit card balance

Owing money on a credit card is a costly mistake that can take an incredible toll. If you have a card with an interest rate of 15 per cent, (that is low for most consumer credit cards), and you pay only the minimum due each month, it will take you 22 years and 2 months to retire a $5,000 debt, and you'll have paid $5,729 in interest.

Make sure, when using a credit card, you pay off the balance each month. Langlois Financial Services can help you set up a budget to ensure you are living a lifestyle you can afford while still planning for the future. We can also provide you with advice on debt management and solutions for eliminating existing debt.