A look at the best of the Internet, from an SPP point of view

How to start the good habit of saving
We all know about bad habits – they are easy to start, hard to give up, and generally provide a lot of pleasure, guilty or otherwise.

But good habits – more kale, perhaps, or jumping on the elliptical, or getting out of debt – all seem harder to start. Why?

Interviewed in the Globe and Mail, Manulife’s Bob Tillman warns that with disappearing workplace pensions, the habit of retirement saving needs to start early, when couples are young.

“If people start sooner there’s more ability to make a difference,” he states in the article. “No matter how much money you make, it becomes much harder as you get older, if you haven’t been saving, to save anywhere close to what you’ll need to come close to your pre-retirement income.”

His key tip is to make the savings automatically, every pay day, before you have a chance to spend it on anything else. The earlier you start, the better, he adds.

Start small, suggests The Balance. “Focus on the fact that you’re saving something. It doesn’t have to be a big amount. $5 is better than $0, right? Not many people start their financial journey with thousands of dollars in the bank,” an article on the site states. You can ramp things up later, the article adds.

The UK-based Money Advice Service blog suggests what this writer thinks of as the Uncle Joe rule, namely, that you should always live on something less than your full paycheque. Uncle Joe used to tell us to “pay ourselves first” by putting 10 per cent of every cheque away. The blog suggests five per cent.

“Think about saving once you’ve paid your main bills,” the blog advises. “If you find that you can do this, then try to save at least five per cent of your income – the more you’re able to save, the better.”

To recap – start early, make it automatic, begin with a small amount and ramp it up, and try to live on less than 100 per cent of your pay.

And the Saskatchewan Pension Plan is a great place to put away those savings. They can do automatic withdrawals from your account so that you are paying yourself – savings-wise – first.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

The National Institute on Ageing is a relatively new university-based think tank focused on leading cross-disciplinary research, thought leadership, innovative solutions, policies, and products on ageing.

The NIA brings together thinking not only on the money side of retirement, but the health side as well.

So says the NIA’s Dr. Bonnie-Jeanne MacDonald, PhD and FSA (she is also resident scholar at Eckler Ltd.), who recently took the time to speak with Save with SPP. “A happy, healthy retirement is not just about money,” Dr. MacDonald notes, adding that NIA hopes to tap into university, government and other worldwide research to come up with “better ideas that will help Canadians as they age.”

One aspect that Dr. MacDonald has done much research about is the “decumulation” phase of retirement, the period when savings from the work years are used to finance life after work.

“Retirement planning used to focus on saving up until age 65,” she explains. You would then start spending and travelling, with “the old assumption (being) that you would begin to need less money as you aged, that you wouldn’t be spending as much by age 90.”

However, Dr. MacDonald notes, this type of thinking overlooked the possibility that retirees might eventually need to pay for age-related healthcare costs, including living in a nursing home.

In reality, many retirees in their 60s and even 70s “can still earn money, and can choose to downsize, or reduce spending. Their expenses are flexible,” Dr. MacDonald explains. “Once you are 80 to 85, there is less flexibility, expenses are increasingly less ‘voluntary’ (namely the costs arising from declining health) – so it is at this age when having a steady stream of income becomes much more necessary for financial security.”

What she calls “shifting socioeconomic customs” have driven changes in the way retirement money is spent and the effect it has on individuals and families.

“Society has shifted, women are now working more and are not able to provide elder care without accruing considerable personal expense,” notes Dr. MacDonald. Even still, the majority of caregivers are women. The NIA’s report on working caregivers, authored by Dr. Samir Sinha, a geriatrician and Dr. MacDonald’s colleague at the NIA,  shows that women are not only more likely to be working caregivers, but that they provide much more care to their elderly relatives than do men. What’s more, the typical age at which women provide care overlaps with peak career earning opportunities and with their own family building, which in turn causes a knock-on effect on their lifetime earnings and income potential. Financial independence in older age has significant ripple effects, beyond just the individual.

In the past, it used to be more likely that the family would look after elderly parents, helping to feed them, socialize them, prepare their taxes, transport them, and so on. And while 75 per cent of elder care is still done by the family, increasingly people are finding they have to or want to pay for their own care as they enter their late 80s and 90s. And while family caregivers play an important role in the lives of the elderly, people generally prize their independence. But independence also comes at a cost. “It costs a lot of money to replace (the care provided by family), it has become extremely expensive for nursing home care.,” says Dr. MacDonald.

While some retirees can afford to cover the costs of their own care, those who can’t must be assisted by the government, she explains. “The overall effect of this is that some older people aren’t decumulating their savings as expected. They are holding onto their money; they are concerned about the future,” she adds.

Dr. MacDonald is the author of a recent paper on this topic for the C.D. Howe Institute called “Headed for the Poorhouse: How to Ensure Seniors Don’t Run Out of Cash Before They Run Out of Time.” The paper suggests the creation of a government-sponsored LIFE (Living Income for the Elderly) program that would provide additional life income beginning at 85.

“LIFE would provide longevity insurance to Canadian seniors at their most vulnerable time of life… giving them choice, flexibility and income security at advanced ages,” she writes in the paper.

In an article for the Globe and Mail written last year, she suggests women – who live longer – consider not starting their CPP benefits until they are older. “Starting CPP benefits at the age of 70 instead of 65 will increase a person’s CPP by 42 per cent,” she notes in the article.

NIA is looking at other ways to boost income security for older retirees. One way, says Dr. MacDonald, would be to find ways “for people to stay in their own homes longer.” Another way would be to allow family members providing care to be paid. Currently rules generally allow paid caregiving by strangers, but not by someone’s daughter,” she notes.

We thank Dr. MacDonald for taking the time to talk with us.

Remember as well that before decumulation can occur there needs to be retirement savings. The Saskatchewan Pension Plan offers a flexible savings program for individuals.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

Study shows how we can thrive in retirement
As we have been learning, there’s more to retirement than the math of it. While having sufficient income is obviously key, there are health and activity benchmarks we should all be aiming for in our drive to thrive.

A recent study by The Wellesley Institute in Toronto, titled Thriving in the City: A Framework for Income and Health in Retirement sheds some important light on the topic.

As a start, the study notes, we need to be eating well. “Nutrition significantly influences older adults’ general health and well-being, affecting sensory functions, cognitive abilities, and chronic disease risk,” the study notes. “Older adults are at particular risk of inadequate diet and malnutrition,” the report adds.

Next, housing must be adequate and safe, and needs to be affordable, “meaning it costs less than 30 per cent of a household’s pre-tax income.”

The study also looks at physical activity, and supports the Health Canada guideline of 150 minutes of “moderate to vigorous” activity per week for those over age 65. Exercise, the report adds, should include muscle and bone strength-related exercise twice a week.

The research found that while Canadians all have basic health coverage, not all seniors have adequate coverage for “high need” drugs, vision and dental coverage. “Healthy and independent aging,” the study notes, “may involve significant costs,” particularly when privately-delivered care is factored into the equation.

Another key area the research looked at was socialization – the need to spend time with friends and family. “Older adults who engage in social activities frequently (at least weekly) are more likely to report having good health and are less likely to report feeling lonely or dissatisfied with their lives,” the study notes.

So while government retirement programs generally provide a good income for older Canadians, focus must be placed on non-financial aspects of retirement as well, the study states. “If the goal of the retirement income system is to help Canadians maintain an adequate level of income to thrive in their retirement, we need a different approach to the retirement income system and other policies,” the study suggests.

Remember that much can be done in advance of retirement on the savings side. The Saskatchewan Pension Plan offers an end-to-end program that can turn your savings into future income. That can certainly help you with at least one part of a thriving retirement down the line.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

Did you know that 47 per cent of Canadians volunteer their time to help others, donating an incredible 2 billion hours of work?

Those figures are a bit old, from Statistics Canada in 2010, but that volunteer work constitutes “the equivalent of 1.1 million full-time jobs,” Sector Source reports.

While seniors donate the most volunteer hours of any age group, “only 36 per cent of seniors volunteer, compared to 50 per cent of other age groups,” reports the Globe and Mail.

“Volunteering in retirement has an amazing mutual benefit: The organization receives free contributions from someone with a lifetime of experience and wisdom, while retirees get a positive transition from their paid working careers,” the Globe article notes. “There’s also intellectual stimulation (beyond Sudoku puzzles), connection to social networks (so you don’t drive your family crazy with all that time on your hands), enhanced health and quality of life (when not traveling to all those exotic destinations), and a sense of purpose (aside from getting your golf handicap down).”

What do the senior volunteers get out of it? Mark Miller, a stroke survivor, wants to help others in the same boat. “I’m a volunteer facilitator with Heart & Stroke’s Living with Stroke program. I want to help stroke survivors make positive changes and move forward with their lives,” he states on the Heart and Stroke Canada website.

Retirees, notes US News and World Report, “have the most discretionary time” to be volunteers. “They have almost twice as much time as working parents in their 30s or 40s,” the article adds. “They feel that giving back to society means they make a difference in the lives of others. Some 70 per cent of retirees also say being generous provides a significant source of happiness.”

Seniors have skills and talents that are increasingly in demand. A look at the Senior Toronto website shows volunteer help wanted ads for Associated Senior Executives of Canada, Inc., Big Brothers and Big Sisters, Charity Village and Habitat for Humanity, Greater Toronto Area, to name but a few from a very long list.

This blogger has volunteered over the years with the United Way, the Salvation Army kettle drive and the Royal Canadian Legion poppy campaign.

So if you’ve reached the end of your working days, and are feeling a little isolated and in need of something to do, consider volunteering. You’ll be glad you did.

If you’re still saving up for life after work, don’t forget to check out the Saskatchewan Pension Plan’s efficient, well-run and effective retirement system.

 

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

Boomer pension crisis is “here, and it’s real,” says survey
Saving for retirement is a lot like eating your beets. You know they are good for you, all the literature talks up their benefits, and many say you’ll be sorry later in life if you don’t eat them now. But they are not everyone’s cup of tea, and many of us choose to ignore and avoid them.

Unfortunately, retirement is a bigger problem than not eating a beet.

A recent Canadian Payroll Association survey found that 69 per cent of working people surveyed in British Columbia save less than 10 per cent of their earnings, “well below recommended savings levels.” The CPA survey is covered by this ABC Channel 7 news article.

The article goes on to say that 40 per cent of Canadians surveyed are “overwhelmed by debt,” an increase from 35 per cent last year. Debt, the article says, is clearly a factor restricting the average person’s ability to save for retirement.

Research from Royal Bank of Canada that found that 60 per cent of Canadians were concerned “about outliving their savings,” and only 45 per cent of them are confident they’ll have the same standard of living when they retire. This research was covered in an article in Benefits Canada.

So, eat your beets – contribute to a Saskatchewan Pension Plan account and if you are already doing that, consider increasing your contributions each year. You’ll be glad you did down the line.

Many savers using the wrong long-term approach
Let’s face it – whether it’s hanging a new door on the shed, patching a hole in the drywall or growing our own vegetables, many of us prefer to do things ourselves rather than depending on others.

However, when it comes to retirement savings, there are “DIY” mistakes that people tend to make, warns The Motley Fool.

First, the article notes, people tend to avoid riskier investments, like stocks. But over the long term, bonds and fixed income assets “are unlikely to provide a sizeable nest egg in older age,” the article says. The stock market is a good long-term investment, the article notes.

You need bigger long-term returns to outpace inflation, The Motley Fool advises.

Finally, it is important to avoid “short-term” investment thinking; retirement investing is for the long term, the article concludes.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

Whether you’re saving for retirement or are living on those savings, one thing’s for sure – the more you can stretch your spending dollars, the more you can save.

Save With SPP took a look around the Interweb to see what the experts say about the spending side – or more particularly, ways you can spend less and save more.

The Money Saving Expert blog offers three great ideas to save big. They recommend you quit smoking, try to shop around for cheaper, generic prescription drugs, and to have a “money saving wedding.” They offer tips on “how to get the best value out of your big day, so you don’t spend the rest of your married life paying for it.”

Over at The Simple Dollar blog ideas include shopping for the bank that has the lowest fees and highest interest, watching less TV (and cutting the cord to cable), a great one – “stop collecting and start selling.” Those old collections of trinkets, keepsakes and other clutter creators can be converted into cold, hard cash, the blog advises.

At Clark.com, one idea is one that your humble blogger used to use when paid every two weeks. Since you are getting 26 pay cheques a year, work it so you are living on 24. The other two can be treated as bonuses. The extra money, the blog advises, can be used to “pay off debt, contribute to a retirement account, (be added) to a new car fund,” and more.

Other tips from this blog include shopping for a cheaper cell plan and cutting way back on restaurant meals.

The MyMoneyCoach.ca blog recommends another strategy that we have tried – banking your raises. “You lived on less before… do you really need those extra few dollars?” the blog asks. Use the same budget you had before the raise and bank the difference – and do it again with the next raise.

Other great tips from this blog are using tax refunds to increase your savings and picking one expense to cut out completely. Once you do that, you save the money associated with that single expense. Examples might be a coffee on the way to work, a subscription, and so on.

Life is good, and making it a little less costly is a strategy that will pay you back in the future. And imagine all the extra bucks you will be able to direct to your Saskatchewan Pension Plan account.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Retirement isn’t always a money thing. There’s mounting evidence that how we behave – the things we do or don’t do – can directly impact how long we live.

Let’s not include dietary matters (most of us obsess about them enough already) in our look for things that add years to our lives.

According to Reader’s Digest, a key behaviour is to de-stress. “Stress and stressors are everywhere,” the magazine notes. “Learning how to manage your stress with guided imagery, meditation, deep breathing or another practice can add years to your life,” states Dr. Michael Roizen in the article.

The Westlake Bay Village Observer notes that quitting smoking by age 30 adds 10 years to your life, and if you quit by age 65, you get three additional years. “Some health benefits are immediate,” the article notes. “Hours after stopping smoking, heart rate and pressure improved,” and within a year, your risk of a heart attack is cut in two.

Then there’s fitness. Cardiovascular Business magazine notes that being fit while middle-aged can extend life significantly. “Middle-aged men with the highest cardio respiratory fitness (CRF) levels live an average of five years longer than peers with age-adjusted CRF in the bottom 5 per cent of the population,” the magazine notes.

Some easier things to do that add up – Woman’s Day reports that flossing your teeth daily will add three to five years to your life, because research shows that “periodontal and cardiovascular disease are linked.” As well, going to bed 15 minutes earlier will add three years to your life, the magazine reports.

Save with SPP has noted, empirically, that cranky people seem to live longer. The Internet provided some backing for this belief, but we couldn’t nail down anything concrete. However, a CBS News report  found that people who “express their anger live two years longer, on average, than those who bottle up their rage.”

Those who don’t blow off steam, the article says, ran the risk of “an elevated pulse, high blood pressure, and other serious ailments.”  If there’s a theme that connects these dots, it is to relax and to not worry. That’s the feeling you can have about your retirement if you sign up with the Saskatchewan Pension Plan – check them out to discover inner peace about retirement saving.

 

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

A look at the best of the Internet, from an SPP point of view

Canada rises to ninth place in world retirement rankings
Pat yourself on the back, Canada – we’re the ninth-best country in the world to retire in.

Canada has moved up from 11^th place to 9^th place in the Natixis Investment Managers’ Global Retirement Index, reports MoneySense. Canada moved up a couple of places, the magazine reports, because of “improving economic conditions and environmental factors.”

The index takes into account 18 factors, such as “Finances in Retirement, Material Wellbeing, Quality of Life, and Health,” reports MoneySense. Canada has the “second-highest air quality and seventh-highest personal happiness scores in the entire index,” the article notes. A stronger job market last year pushed our unemployment rate lower, the article adds.

The top five countries were Switzerland, Iceland, Norway, Sweden and New Zealand. The next five were Australia, Ireland, Denmark, Canada, and the Netherlands.

Save with SPP notes that most of the Top 10 countries were hockey-playing country. Coincidence?

The USA, while good at hockey, came in at 16^th overall, the magazine notes.

“Precarious” workers have less access to retirement savings: report
A report by the Canadian Centre for Policy Alternatives has found that only 40 per cent of workers in “precarious” jobs have access to retirement savings plans at work. That compares unfavourably, notes an article in Benefits Canada, to the 85 per cent of “secure professionals” who do have access to such plans at work.

The secure professional group, the article says, “was classified as having a full-time, permanent job for at least 30 hours per week, working for one employer that provides benefits and that they expect to be working for in one year’s time.” The “precarious” group, the article states, are either full time without these factors or working part time or contract.

The takeaway is that the so-called “gig” economy often leaves workers without workplace pension plans or retirement savings benefits. They must shoulder their own retirement savings program – easier said than done.

A nice “do-it-yourself” retirement program is the Saskatchewan Pension Plan. You decide how much you’ll contribute, and you can vary your contributions as you see fit over your working life. Check them out at www.saskpension.com.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

 

Retirement, the financial part at least, is a two-phase process. First, there’s savings – personal, workplace pension, government pensions, and so on. Second, there’s the art of turning those savings into an income stream that will pay for your retired life, which could continue for three decades.

A nice overview to this process, albeit from a U.S. point of view, can be found in The Retirement Survival Guide, written by Julie Jason and published by Sterling. Jason, a money manager, takes complex concepts and presents them in a clear, logical way, using charts, examples, and memorable textual sound bites.”

“Creating retirement income is all about making sure you can be financially secure for as long as you live,” she writes. Whether you want to sustain or expand your lifestyle in retirement, Jason notes, you need to take into account all your income sources and savings to make sure you have enough “to cover the gap,” and so that you “won’t outlive your nest egg.”

A good first step, she notes, is to know where you stand. “What you need to know first is how much you spend on `musts’ and how much you spend on `wants,’” Jason explains. A must refers to basics – rent or mortgage, utilities, food, taxes, the “essential expenses.” Everything else is a want. Essential expenses must be paid in full and on time, she advises.

Another important consideration is whether your money “will last as long as you do,” she writes. If you are trying to live off savings, how much should you take out each year without running out? Jason says most financial institutions feel a withdrawal rate of four to five per cent of “your initial assets, adjusted each year for inflation,” is a safe amount. Experts disagree, so Jason offers a nice worksheet to help you come up with a withdrawal rate tailored to your specific situation.

Now is always a good time to start saving, she writes, adding that “time is money.”

“Would you rather have a penny that doubles daily for 30 days, or $1 million? Believe it or not, you’re better off taking the doubling penny… a penny earning 100 per cent daily interest would grow to $10.7 million in 30 days,” Jason explains.

While 100 per cent interest isn’t a realistic possibility, the example shows the power of compound interest over time, she explains. She provides a table showing that if a 30-year-old saved $100 a month, or $42,000 over 35 years, he or she would have $215,600 by age 65, $465,500 by age 75 and $2.1 million by age 95. So, she says, “you’ve never too young, or too old, to start saving.”

A later chapter deals with the problem of the vanishing workplace pension plan. She suggests the use of annuities to ensure you have monthly income for life, and never outlive your savings.

The “Finish Line” chapter gives a nice overview of post-retirement portfolio design for do-it-yourself savers, and finishes with this compelling thought. “Take small steps,” Jason writes. “Don’t rush. After all, you’re getting ready for the vacation of a lifetime.” This is an interesting, well-written and helpful book that would make a fine addition to your retirement planning shelf.

The Saskatchewan Pension Plan  offers many of the levers mentioned in the book. The professionally managed fund has an enviable rate of return since its inception, and you can convert your savings into an annuity payout that ensures you’ll get a monthly pension for life. Perhaps it too deserves consideration when you are planning for retirement.

Written by Martin Biefer

Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. After a 35-year career as a reporter, editor and pension communicator, Martin is enjoying life as a freelance writer. He’s a mediocre golfer, hopeful darts player and beginner line dancer who enjoys classic rock and sports, especially football. He and his wife Laura live with their Sheltie, Duncan, and their cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22

Buying a property can be fun and exciting. If you’re buying a new property, you can choosing everything down to the design of your countertops and the type of flooring. If you’re buying a used (resale) home, you don’t get as much choice with the property itself, but you can choose to buy a neighbourhood with everything that you’re looking for (provided it’s within your budget).

While purchasing a property can be a lot of fun, there are costly home-buying pitfalls you can make along the way. By making these costly mistakes, it can set you back months or even years in your finances. You’ll have less money to save in the SPP and for other goals like an early retirement.

Without further ado, here are five common home-buying mistakes and how to avoid them.

Mistake #1: Not Getting Preapproved for a Mortgage
Before going house hunting, don’t forget to get preapproved for a mortgage. Without being preapproved, you’ll have no clue about how much you can afford to spend on a property. You could buy a home for $600K, only to find out that based on your income and down payment amount, you can only spend $550K on a home. Yikes! Don’t let this happen to you.

When you get preapproved for a mortgage, you also benefit from something referred to as a rate hold. With a rate hold, if mortgage rates go up while your preapproval is in effect (typically 90 to 120 days), you’re guaranteed the lower rate (or the spread if you’re preapproved for a variable rate mortgage). You have absolutely nothing to lose.

Just because your lender preapproves you to spend $550K on a home, doesn’t mean that you should go out and spend that much – or even more. Take the time to prepare a mock budget (or if you’re already a homeowner, use your current budget as a mock budget for the property you’re thinking of buying). See what your budget would be like if you actually moved into the home. Budget for ongoing costs like your mortgage payments, utilities, property taxes and home insurance.

You’ll want to leave some breathing room in case you run into any financial difficulties along the way like costly home renovations or losing your job. You also don’t want to find yourself “house rich, cash poor,” with no money left over to save or have fun.

Mistake #2: Buying a Home for the Looks
Purchasing a property based solely on looks is a lot like dating based solely on appearance. Sure, looks are important to a degree, but other factors like compatibility matters, as well.

When you step foot inside a property the first time, it’s easy to get distracted by the wrong things. Sure, it’s nice to find a home with hardwood floors and stainless steel appliances, but what about the “bones” of the property? I’m talking about the roof, furnace, windows and structure. Anyone can hire a contractor to put in a new kitchen, but if the roof is leaking and the windows are old, ask yourself, do you have the money to invest in upgrading them? If it’s a house flip, it’s not unheard of for corners to be cut on renovations. Pay special attention on everything  to stay clear of a home that’s a money pit.

Mistake #3: Not Putting Enough Money Aside for Closing Costs
When buying a home, it’s easy to overlook closing costs, but they’re anything but a drop in the bucket. Closing costs typically add up to between 1.5 and 4 percent of the purchase price of your home. For example, on a $550K home, you’d be spending up to $22K on the so-called “transactional costs of real estate.” And it’s your responsibility to have the funds for closing costs. Your lender won’t foot the bill for your closing costs.

The most common closing costs for homebuyers incur are land transfer tax, real estate lawyer fees and home inspection fees. If you’re buying a home the first time, the good news is you may be eligible for a rebate on land transfer tax depending on the province you’re buying in. Nevertheless, closing costs can still add up to a lot. Don’t forget about them!

Mistake #4: Forgoing a Home Inspection
In more competitive housing markets, you may be tempted to forgo your home inspection. When you find a property that you like and 5 other people are interested, it’s tempting to skip the home inspection and make a clean offer (an offer without any conditions). While a clean offer can help you come out on the winning end in a bidding war, you’re also leaving yourself open to all sorts of costly repairs you may not have anticipated. For example, your new home could have issues with the structure or a knob and tube wiring that an inspector could have flagged.

Hiring a certified and experienced home inspector is money well spent. You’re making the single largest purchase of your lifetime after all. If you’re afraid you might not get the home if you make it conditional on inspection, why not get the inspection done ahead of time? If the inspection is good, you can make an offer knowing that you’re investing in a property that’s a good long-term investment.

Mistake #5: Choosing a Mortgage Only for the Rate
When you go to the supermarket to buy bread, do you buy the cheapest loaf? I hope not. You look at other things like carbs, sugar and dietary fiber. So, why do so many of us do the same thing when looking for a mortgage? We look for the mortgage with the lowest rate when there are so many other factors to consider – mortgage penalties, prepayments and portability to name a few.

Mortgage penalties are probably the last thing on your mind when signing up for a mortgage, but you should care. Here’s why. If you’re signing up for a 5-year fixed rate mortgage like most Canadians, 6 out of 10 Canadians who sign up for that mortgage type will break it before the end of their mortgage term. If you asked those same 10 Canadians whether they’d break their mortgage when signing up, all 10 would probably say, no way!

That’s why if there’s a chance you could break your mortgage, it’s a good idea to choose one with a fair penalty. That’s where a mortgage broker comes in handy. A broker can help you choose the ideal mortgage based on your financial situation. You may be better off paying a slightly higher mortgage rate if it has other features that are important to you like prepayments and a lower penalty.

This post was written by Sean Cooper, bestselling author of the book, Burn Your Mortgage. Sean is also a mortgage broker at mortgagepal.ca.