10 Scariest financial situations, and how to avoid them
Think about what REALLY scares you in life. Maybe it’s snakes (like me!) or spiders. Maybe it’s heights or public speaking. These types of things are usually the first ones to come to mind. Talking about money seems to scare a lot of people, too, even in our office. That brown envelope in your mailbox with the CRA logo in the corner is the object of many clients’ nightmares! Hiding from these fears, however, will do more harm than good.
To get the spooky juices flowing just in time for Halloween, we compiled a list of the SCARIEST FINANCIAL SITUATIONS, but don’t worry! We have a few tips on how you can avoid them too:
- Losing your identity and/or getting hacked
In the digital age, when almost everything we do is powered by the internet, the security of your information is paramount! We all have a role to play in protecting your data. At Trinity, we have robust security measures for any stored data and work with security providers to keep that data safe and sound. You can and should be putting your best efforts in to protect yourself as well. Keep secure passwords using upper and lowercase, symbols, numbers, and change your passwords regularly. Use 2-factor authentication (2FA) where it is available to you: with 2FA you get a text with a code to confirm it is you before being able to log in to a given service).
- A huge tax bill
That brown envelope from CRA may as well have ghosts on it, as I don’t know anyone who likes receiving them. While there isn’t much that can be done after you receive a notice of balance owing (unless it’s a mistake!), there is some planning that can be done through the year, and on your return, to lessen the pending pain. Work with an accountant or tax preparer to go over your income and ensure all your deductions are counted when you file your return. If your deductions are maxed out, it may be time to sit down with your advisor and develop a more tax-efficient income plan, if that is an option for you.
- Not having enough for retirement
Imagine this… you are turning 65 next year and sit down with an advisor for the first time to develop a retirement income plan, based on your current savings and a pension plan at work that you thought had you covered. Turns out, your pension plan is nowhere near what you thought it was and you’re going to be $500 short every month! AAAHHH!!
The best way to avoid this is NOT TO WAIT. Start saving early and often. Think ahead to your retirement income more than one year ahead of when you plan to retire, so you can sit down with an advisor to ensure that you are on track to take home the income you will need in retirement.
- Racking up NSF Fees
Not everyone is able to make ends meet every month; worrying about whether you can put food on the table this week is scary enough. Add in a $45 charge for not having enough in your bank account when the water bill comes out? That is a scary reality for many Canadians (one that lobbyists at ACORN Canada are fighting to end! 1). One method to try avoiding this (besides the obvious, not spending so much) is to set up mobile alerts on your bank account when the balance drops below a certain level. This way you know right away when your account might not have enough for the next pre-authorized payment that is due to come out. Keep a list or spreadsheet somewhere that you can access it in a rush to see when the next payment is due out of your account.
- Not being able to work
Your income, or your ability to earn one, is one of your most valuable assets. Even if you don’t have a large savings account to your name, the ability to work and receive a paycheck for that work is something to be thankful for. Without it, you may be dependent on limited support from family, the government, or other supporting organizations just to buy food. The easiest way to mitigate this risk is through critical illness or disability insurance. Ask us how!
- An outdated Will
Your will is one of the most important documents you will ever sign and should be revisited every few years or whenever there is a major change in your life. Your wishes will likely change over time. Perhaps there is someone new in your life (like a partner, child, or grandchild) to whom you would want to bequeath some funds or assets, but who you did not know (or didn’t exist!) when you last wrote your will. The last thing someone would want is their assets to be distributed to someone they don’t even speak to anymore, or fights arising between family members who had a new baby since the will was written. As soon as you decide you need to update, do it. If you wait, it might be too late (we have seen this happen!).
- Not naming beneficiaries on your registered investments
The potential problem with not naming beneficiaries on your RRSP (also RRIFs, TFSAs, LIFs, and LIRAs) is that, on your passing, the market value of your account will be subject to probate fees which go into the province’s pocket, not your family’s. In Nova Scotia for example, fees are $1,002.65 + $16.95 per $1,000 that is in excess of $100,000. An estate over $100,000 is paying 1.7%! 2
- A big, unexpected cost
Oh no… the transmission is gone on your vehicle! Or the roof is leaking! Or you’ve been robbed!
Are you prepared for a big, unexpected cost? One of the first lessons in personal finance is to save for a rainy day. If you lose your job, it may take some time before you find another source of income. Will you be able to make it in the meantime? Some big hits could be covered by your insurance, like house insurance for a robbery. Your claim can take weeks, though, and you have to be able to get by until the benefit kicks in.
- Money losing its value
We feel this pain in Nova Scotia lately, that’s for sure. The rising cost of, well, everything is hitting our bank accounts hard. Your dollar just doesn’t go as far as it used to. The value of our currency, and the value of your investments, fluctuates. Where it will go in the future is technically unknown. We observe and expect trends but if the pandemic taught us anything, it’s that there are curveballs out there we don’t even know about. That is scary.
- Losing your debit/credit cards while travelling
It’s bad enough to realize you lost your wallet when you are at the grocery store trying to pay; at least you likely have someone to call to come bail you out. It’s a much more daunting experience when you are in another country and suddenly have no money! Your options are much more limited in getting cash to you when your bank isn’t present in the country, or you don’t know the language. A few tips to avoid being caught entirely out of luck? Before you even leave, arrange a way to have someone send you money from home should it be necessary, and research which banks at your location may be part of your home bank’s network so you can access your account. Only carry half your money with you at a time, including debit & credit cards. If you have two, leave one locked in your room. Finally, you can add your debit card to your mobile phone’s “mobile wallet” if you have one.
Money matters don’t have to be scary. Just like your other, more material, fears… it just takes some preparedness, and perhaps some exposure to your fear, to realize the situation isn’t as terrifying as you think, or that you have more control over it than you ever dreamed.