My wife and I just recently got back from a trip to Toronto where I was reminded of all the little extras that can add hundreds of dollars to a flight.
You’ll go through them from the time you walk into the airport to when you get off your flight at your destination. Some are mild annoyances while others can cost you a substantial sum.
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Here are eight hidden costs of travel:
Seat selection
Before you even walk into the airport, some airlines may charge around $10 to select your own seat as part of the ticket purchase process.
For those who are quite tall, this may be money well spent to get the few economy seats with extra leg room.
Upgrading your seat
Right when you check in, airline staff have the opportunity to up-sell you on a bigger seat. This may be called something like club class, premium economy or something similar.
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The upgrade will be positioned as a bargain, though the cost will vary by the length of flight. Let’s say for the sake of argument that an upgrade costs $199 or more. This is a cost which is completely unnecessary.
If you opted to buy an economy ticket in the first place, upgrading sort of defeats the purpose of buying a cheap seat!
Airport lounge access
The airport lounge, a nice to have but not a necessity for leisure travellers. Some airlines charge to use their lounge ($25 or $50, Air Canada), others may give you free access but charge you for food and drinks.
Free access sounds like a good idea however the airline is using this as a loss leader. They figure that you’ll end up consuming enough food and drink to make up for the cost of the lounge.
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Given that the mark-up on alcohol is easily over 300%, this is a great way to increase profits. Buy a few drinks in the airport lounge and you’ll be out of pocket $20 or more.
Additional baggage fees
It seems like every airline has different luggage weight allowances, so be sure to check what these are before packing up and leaving for the airport. Having an overweight bag could cost over $70.
Rather than getting caught off guard and having to pay the fee for an overweight or second bag, use your scale at home or buy one specifically for weighing luggage.
Duty free round one
Now that you’ve checked in, you’ll inevitably have to walk through the duty free section. All those bottles of alcohol, cartons of cigarettes, souvenirs, chocolates and candy call out to us.
Spend too much time here and you’ll easily end up spending $75 or more. Your waistline may also suffer!
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Comfort kits
Once the plane has finally taken off to your chosen destination the flight attendants will come around with some mixture of ear phones, blankets, eye shades, socks, slippers, etc. These kits cost between $3 and $10 per person.
In flight food & alcohol
While flights with higher end air carriers will usually include food and drinks, discount airlines may not. Expect to pay $7 to $15 for a meal and a drink.
Alcohol of course will be extra. Though I’m not a big drinker, I will definitely have a one on a flight where I want to get some sleep!
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Duty free round two
If you didn’t buy something in the airport, the airlines give you another chance on board the flight. Expensive watches, alcohol and bizarre gadgets are all available in the glossy in-flight magazine.
I hardly ever see anyone buying these items but they must sell or the airlines wouldn’t carry them!
Flying is expensive enough, it gets worse with all of the products and services that are made available to us throughout the experience. The best way to combat additional flight costs is to be prepared and don’t get lured in!
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Bring your own earphones, sweater and sandwich and be content with your choice of seat. Avoid duty free and you’ll not only save money but you’ll also improve your health by staying away from alcohol, sugary snacks and cigarettes.
By keeping these hidden costs of travel in mind you can easily save hundreds of dollars every time you fly. For those with families, remember that these costs really add up!
Andrew is a Canadian personal finance and investing blogger who recently moved to London, England. He has a background in technology and a passion for travel. His blog, She Thinks I’m Cheap aims to help Canadians build wealth by sharing facts, stories and advice.
Q. I don’t have a large income or a lot of investments. How can a financial planner help me?
You don’t have to be wealthy to make a financial plan. A financial planner can help you in the following ways:
1. Clarify your current situation
A planner will provide you with a personal and financial data-gathering document to fill in with information about your family, your job, spending habits, your assets and liabilities, and your goals and objectives.
They’ll also look at your investment statements, loan statements, your pay stub, income tax returns and assessments, employee benefits statements, insurance policies and perhaps your will.
If you decide to see a fee-for-service planner who charges by the hour, it’s best to be as organized as possible with your paperwork, or it could get expensive.
2. Identify your financial and personal goals and objectives
The planner will review your stated goals and objectives and can help you establish time horizons and estimated costs for each one.
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Personal financial values and attitudes should also be discussed so the planner has a clear understanding of what is important to you and your family so any recommendations won’t make you uncomfortable.
3. Identify potential problems
The financial planner can identify certain precarious situations such as too much credit card debt, income tax inefficiency and too much risk exposure that could make you vulnerable if a crisis occurs, and provide you with sound advice.
4. Provide written recommendations
Once the planner has reviewed your situation, clarified your goals and identified barriers to those goals, he or she can prepare a plan providing specific recommendations that should move you toward your goals.
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He or she should also provide you with various alternate solutions for you to consider so you can choose what feels most comfortable.
5. Implementation
Your plan will only work if you implement it, and you should be free to use any financial services adviser to do so. However, your planner has a responsibility to see that the plan is put into motion, and may help you co-ordinate with other knowledgeable professionals.
6. Periodic review and revision
A financial plan must evolve as your life circumstances change over time. The planner should review your plan with you periodically – typically once a year – to account for changes in your lifestyle, economic conditions and tax legislation.
If you implement a debt reduction or savings/investment program, the planner should monitor your progress to ensure you are on track.
Do-it-yourself
The above is the six-step financial planning process that is standard for members of the Canadian Association of Financial Planners.
You can certainly do them yourself if you are motivated, knowledgeable and have the time to do research. Many people enjoy the process.
Some people, however, need a plan – a map if you will – to get them started on their financial journey. There are many excellent personal finance and investment books available, but sometimes it can be difficult to translate the concepts to your own personal situation.
Related: Why I Became A DIY Investor
Often an objective observer can be very helpful in figuring out a direction or setting goals and mapping a plan to achieve them. An outsider can make you more accountable in implementing the plan and avoiding procrastination.
Final thoughts
Developing a plan will give you an opportunity to realize your financial goals and develop your wealth as time goes by. Whatever your age or circumstances, it’s never too late to begin.
There are many people who enjoy spending a lot of time reading financial literature, researching investments, and building and monitoring their own portfolios.
Some people need a bit of help to get them started and, once the plan is in place, they can continue to manage it on their own.
Others are willing to have a trusted advisor implement their plan and make investment purchases, with only periodic reviews for review and monitoring purposes.
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Then there are those who have no specific financial plan, who go half-cocked in many different directions solely dependent on the latest news item or hot investment tip and wonder why they are not making any progress.
Which one are you?
I was 19 or 20 years old when I first started investing. I diligently put money aside every paycheque, starting with $50 every two weeks and eventually increasing that to $200 per month.
Sounds like I was off to a great start, right? Wrong!
Related: How Young Investors Can Get Started
Even though my intentions were good, my first attempt at investing for the future was a complete disaster. Here’s why:
No Plan
It’s good practice to save a portion of your income for the future, even at a young age. The problem for me was that I was still in school and didn’t have a plan – I didn’t really know what I was saving for.
I had read The Wealthy Barber and The Millionaire Next Door and so I knew the earlier I started putting away money for retirement, the longer I’d have compound interest working on my side, and the bigger my nest egg would be.
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Unfortunately I was saving for retirement at the expense of any other short term goals, like paying off my student loans, buying a used car or saving for a down payment on a house.
No Budget
I worked part-time while I was going to school, but the hours were irregular. I never developed a proper budget to make sure that my school expenses, living expenses and partying expenses were under control.
The results were predictable; I spent more than I earned and then resorted to using a credit card to get me through most months. It didn’t take long to build up $5,000 in credit card debt, when all the while I was still putting a couple hundred bucks per month into my RRSP.
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No Savings Account
Speaking of RRSPs, what was a 20-year old kid doing opening up an RRSP when he’s making $15,000 per year?
There were no real tax advantages for me to save within an RRSP when I was in such a low tax bracket. I’m sure I blew my tax refunds anyway, so what was the point?
Granted, the tax free savings account hadn’t been invented yet, but I would have been better off using a high interest savings account for my savings rather than putting money in my RRSP.
And carrying credit card debt (at 18% interest) alongside of my investments was a bad idea.
No Clue about Fees and Tracking Performance
Like a typical young investor I used mutual funds to build my investment portfolio. I was encouraged to select all-equity growth funds because, I was told, they would deliver the highest returns over the long term.
What the bank advisors don’t tell you is the management expense ratio (MER) on some of these funds are over 2.5% and those fees will have a negative impact on your investment returns.
Related: How Index Funds Compare To Equity Mutual Funds
Bank advisors also don’t tell you what benchmark these funds are tracking (and trying to beat) so when you get your statements in the mail it’s impossible to determine how well your investments are doing compared to the rest of the market.
No Choice but to Sell
My credit cards were maxed out and I was living paycheque to paycheque with no way to break the cycle. I had no choice but to raid my RRSPs to pay off my credit card debt and get my finances back on track.
Taking money out of your RRSP early means you’ll owe taxes up front. Withdrawals up to $5,000 are subject to 10% withholding tax, between $5,000 and $15,000 will cost you 20%, and withdrawals over $15,000 will cost you $30%.
Your financial institution withholds tax on the money you take out and pays it directly to the government. So when I took out $10,000 from my RRSP, the bank withheld $2,000 and I was left with $8,000.
Related: Selling Your RRSPs Early Will Cost You
In addition to the withholding tax I also had to report the $8,000 as taxable income that year.
While I can’t really argue with my reasons for selling, my dumb decisions beforehand cost me a lot of money and caused me to start over from scratch.
Final thoughts
If I had to do things over again today I would have done the following:
- Create a budget – This is the foundation for responsible money management. Had I used a budget and tracked my expenses properly from an early age I would have lived within my means and kept my spending under control.
- Open a tax free savings account – Yes, the TFSA wasn’t around back then but for today’s youth it makes much more sense to save within your TFSA instead of your RRSP like I did. You can put $5,500 per year inside your TFSA and withdraw the money tax free. You’ll contribute with after-tax dollars, so you won’t get a tax refund, but you’ll likely be in a low tax bracket anyway, so contributing to an RRSP won’t give you much of a refund either.
- Make a financial plan – We all have financial goals and even at a young age I should have identified some short-and-long term priorities to save toward. I’d take a three-pronged approach where I used a high interest savings account to fund my short term goals, my TFSA to fund mid-to-long term goals, and eventually open an RRSP to save for retirement. No doubt I’d be much further ahead today if I took this approach earlier in life.
- Use index funds or ETFs – Now that I know how destructive fees can be to your portfolio, I’d look into building up my investments using low cost index funds (like TD e-series) or ETFs. The advantage to using index funds is that you can make regular contributions at no cost while achieving the same returns as the market, minus a small management fee (the MER on TD’s Canadian index e-series fund is just 0.33%). Some brokers, like Questrade, also offer free commissions when you purchase ETFs.
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Did you make similar mistakes when you first started investing? How did you overcome them?