2022 has been nothing but bad news financially for most Canadians. Our stock portfolios are worth a lot less, everything we buy costs more, and interest rates are making our mortgages and other loans a lot more expensive. More than ever it is time to tread carefully and avoid any financial mistakes, so we gathered up the top 5 missteps you definitely want to steer clear of for the rest of this year and beyond!

1. Not understanding your loan agreements.
It is shocking to see how many people fail to understand the terms and conditions before entering into potentially life-changing contracts like a mortgage or student loan. Don’t assume your student loan will have a low interest rate and make sure to investigate the amount of your monthly payment post-graduation, and how many years you will be paying.

Mortgages can be complicated, but that’s no excuse and a good mortgage broker will take the time to answer all of your questions. Trigger rates in mortgage agreements have recently been in the news with rising interest rates and are a good example of people not full understanding what they signed.

2. Not having any system to track your expenses.
“I don’t know where my money goes” is a common refrain as prices continue to rise. However, given the number of mobile applications, web programs and other online tools available to simplify this task (or just use a pencil!), there isn’t any excuse. Regardless of how much income you have coming in, monitoring and controlling expenses is critical step as plenty of high-earning-now-bankrupt athletes and actors have proven!

3. Investing before paying off debt.
The question of whether it’s better to invest any “extra” cash or pay down debt needs a re-think given recent economic changes. In 2021, mortgages and lines of credit could be had for around 2% and most stock indexes reported double-digit gains. Paying down those debts with money you could have invested in the markets was not the best option.

A year later, borrowing rates have doubled in many cases (mortgages for example) and financial markets are wobbly at best, with many deep into the red year to date. These aren’t the only factors to consider, and you need to do the math for your situation, but the case for paying down debt is getting stronger by the day.

In case you are wondering, credit card debt is another deal altogether! In almost every case you would be much better off by throwing all you have at the unpaid balance before investing any of that money.

4. Not saving and investing.
As higher prices and interest rates suck up more of our disposable cash, something has to give, and putting a little bit of money away each month may be on the chopping block. If you need the money for essentials like food or rent, then you have no choice but be honest with yourself on what is essential! Once you break the saving habit it’s hard to get it back and saving is not really a discretionary expense unless you have an alternative plan to fund your retirement?  Catching up on savings might be possible when things get better, but that could be years and the earlier you start, the more your savings are going to grow.

5. Spending too much on a car.
You should be aiming for 15% of your take-home pay for total car costs including the loan payment, insurance and gas. This leaves you between $30K and $35K for a vehicle if you make $100k annually. That’s not a lot given new and used cars have been in short supply in 2022 and prices are through the roof. Although repairs aren’t cheap and you won’t get that new car smell, hanging on to your current ride may be the best option financially.

At the end of the day, financial knowledge is the best defense for avoiding mistakes and we hope you continue to learn with us.

For powerful personal finance education and training with immediate results, check out the complimentary livestreams each week from Enriched Academy. View the schedule and sign up for upcoming sessions on their events page.

Published by DLC Marketing Team

It’s natural to have uneasiness over the state of your retirement preparedness due to the inherent uncertainties involved:

• How long will I live?
• Will my health or my spouse’s health fail? and when?
• How much will my current assets and investments grow in value?
• How will inflation impact the next 5, 10 or 20 years?

There is no shortage of variables to consider when trying to figure out how you are going to fund your retirement dreams. There is also no magic number — often quoted numbers like $1,000,000 or formulas like six times your annual salary at age 50 have no basis in fact, especially not your facts. They have no way to know if your retirement plans include restoring a pricey vintage car or spending most nights glued to a hockey game on the TV.

A financial advisor can help crunch the numbers and offer investment alternatives, but you need to make the big decisions on the type of retirement lifestyle you envision and how much you can realistically afford to sock away along the way to fund that dream.

If you really need some kind of number for reference, 2019 Federal Government data showed the average annual spend for a household over 65 (including taxes) was $64,461. As you get closer to retirement and some of the bigger bills fade away (mortgage, kid’s education) you will have a clearer picture of your needs.

Retirement age and life expectancy are two more uncertainties to deal with. The average Canadian calls it a day just shy of 83 years, but it is on the rise. If you are 20 now, it is expected that you will have about a 50/50 chance to hit 90! The average age for retirement is 63, so simple math (83 minus 63) tells us you will most likely need at least 20 years of retirement income.

Hopefully you have been saving and investing with your RRSP and/or TFSA and have also developed some other passive income streams to supplement your government pension income. If your employer has a pension plan and you maxed out that and your CPP for 35 years, you may be able to live entirely off of your pension income and not worry about saving anything for retirement!

The key point is to confirm how much you are going to receive. The average CPP cheque is $625/month or just over half of the $1204 maximum. Makes sure you investigate any private or employer pension benefits you have as well as your CPP and OAS benefits to determine how much you will receive. A reverse mortgage may also be an option to generate cashflow.

It’s never too late to get started with retirement savings and investing, but you have to realize that catching up will be harder than it sounds, even as your income rises. If you have unused TFSA or RRSP contribution limits (you can easily check by looking at your latest income tax assessment), by all means, start playing catch-up as soon as you are able.

Another problem with starting late is that you miss out on the magic of compound returns. Maxing out your TFSA every year from age 25 to 65 with an index fund at 5% would yield $725,000. Starting at age 40 would leave you with only $287,000. You could try and compensate for a late start by taking on riskier investments with higher returns, but that doesn’t always end up well!

If you are planning to rely on a side hustle, spouse and/or inheritance to get you through retirement, just be aware that those options can be easily derailed. If your spouse dies, your survivor’s pension could be considerably lower. Side hustles are great, but your health may fail or maybe you can’t find a job – only 10 to 20% of retirees report doing some sort of work. As for inheritance, your parents may live to be a 100, they may make some bad investments, or they may even get remarried.

Anxiety is a natural by-product of retirement planning, and the cure is having the knowledge and facts you need to make your own judgement on how much is enough.

Published by DLC Marketing Team

Rising inflation combined with a strengthening post-pandemic economy gives both reason and opportunity for the Bank of Canada (BOC) to further raise interest through to the end of 2022 and beyond.

The 1% increase to the benchmark overnight rate in early July was a wake-up call that they were not bluffing and are prepared to act aggressively. Depending on how inflation trends, we could be looking at interest rates that are 1% or 2% higher within the next year.

Before jumping into the effects of higher interest rates, we should clarify one common point of misunderstanding about the prime rate and the BOC overnight rate. The prime rate is the basis for most variable rate loans, including mortgages and lines of credit. It is determined by the major banks and currently sits at 4.7%; 2.2% higher than the BOC overnight rate. Although these two rates are different, the key takeaway is that the prime rate moves in lockstep with any changes to the BOC rate, usually within a few days.

Now that we have that out of the way, just how will future interest rate hikes affect your debts?

Variable rate mortgages
The percentage of Canadians holding a variable rate mortgage surged in 2021 and now stands at about 50%. Any rise in the BOC rate is met by an equal rise in variable rate mortgages, so the impact is very clear and takes effect quickly. A 1% increase will add around $200 to the monthly payment on a $500K mortgage. Keep in mind that the interest rate has already rose 2.25% since the beginning of 2022!

Home equity line of credit (HELOC)
HELOCs usually have a variable interest rate that will rise in conjunction with any BOC rate hikes. A $100,000 balance carried on your HELOC will cost you about $20 more in interest each month for every 0.25% increase by the BOC.

Credit card debt
The interest rate on your credit card and how it can be adjusted are outlined in your cardholder agreement. There is usually little correlation between credit cards rates and the rates set by the central bank. However, credit card rates are already so astronomically high that it is unlikely you would even notice a 1% increase! Our advice is to attack any outstanding credit card balance ASAP.

Personal lines of credit
There are fixed and variable rate options out there. If you selected the lower variable rate when you signed your agreement, expect to pay more going forward on any outstanding balance.

Car loans
Most car loans in Canada are fixed, but the average fixed rate is rising quickly and now sits about 5.25%. While not common, variable rate cars loans are loans are available and your payment could be affected by interest rate hikes.

Student loans
There are provincial and federal student loan programs with different interest options so the effect of rate hikes will vary. The default choice for Government of Canada student loans is variable interest “at prime” with a fixed rate option at “prime + 2%”. The point is mute right now as interest charges are currently suspended, but variable rate student loan holders will see a significantly higher payment when interest charges resume in April of 2023.

Most of us will be paying more interest as we move through 2022 and into 2023. A mortgage or some other debt may be inevitable and not all debt is bad, but it’s important to understand your interest expense and adjust your repayment priorities accordingly. For powerful personal finance education and training with immediate results, check out the complimentary livestreams each week from Enriched Academy. View the schedule and sign up for upcoming sessions on their events page.

Published by DLC Marketing Team