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Everyone Gather Around the Fire Pit, We're Gonna Burn Some Cash.

Originally Published on Linked In June 1, 2018. Photo from Pixabay.com


There aren’t many people these days that don’t have some sort of guilty pleasure. They do something that costs too much money or is embarrassing or is purely a waste of time.


I have them too.


My major vice is ice cream. A Dairy Queen Blizzard with double Peanut Butter Cups and hot fudge is my biggest and guilty-est.


So I’m not one to judge for not missing an episode of the Kardashians, enjoying a triple-triple from Tim Hortons every morning or buying every pair of shoes you can get your hands on.


However, there is one vice I do not understand: Smoking.


Now, it would be easy for someone like me, who doesn’t smoke, to rant about the health issues of smoking and why you shouldn’t. But this is not another tirade about how bad smoking is for your physical health.


This is about how bad smoking is for your financial health.


Let’s take the emotion out of it shall we? Let’s look at some numbers. Here’s the case study:


Linus is a 40 year old man who smokes a pack of cigarettes every day, he wants to retire at 65 and makes $60,000 annually before tax.

How much does the pack of cigarettes everyday really cost him?


Let’s assume, one pack per day costs $10 x 365 days per year = $3650 he doesn’t ever get back.


He wants life insurance to protect his family in case he passes prematurely.


For a healthy smoker, the first 10 years of $250,000 of term insurance will cost Linus around $42.94 per month. Which doesn’t sound too bad until you compare it to the premium of a healthy non-smoker at $20.71 per month for the same coverage.


According to actuaries, a man Linus’s age has a 26% likelihood of developing a critical illness before the age of 65. He decides to apply for critical illness insurance too.


The premium for the first ten years for $100,000 in coverage for a 40 year old non-smoker would be about $50.59 per month. Unfortunately for Linus, the premium for smokers is $87.28 per month.


It’s also important to Linus that he protect his most valuable asset, his income, in the event he can’t work due to disability. He decides to apply for disability insurance as well.


For a non-smoker making $60,000, the policy Linus wants would cost $72.21 per month. But for Linus, a smoker, it would cost him $98.40 every month.


So let’s add it all up.

The annual cost of the cigarettes: $3650

Plus, $266.45 per year extra cost for life insurance

Plus, $445.30 per year extra cost for critical illness insurance

Plus, $314.28 per year extra cost for disability insurance

Total: Linus would save $4,676.03 every year if he didn’t smoke.


It’s important to note as well that the amount that the cigarettes cost him every year is almost 10% of his after tax income every year.


What if Linus used the money that cigarettes cost him, to invest?


If he were to invest the $4,676.03 in a Tax-Free Savings Account every year earning 5% annually, Linus could end up with approximately $234,332 of tax-free funds when he retires at 65.


So the new question is: If someone offered you over $200,000 to stop smoking forever, would you do it? Or would you continue to gather around the fire pit and burn your cash?


Manulife Wealth Inc. related companies are 100% owned by Manufacturers Life Insurance Company (MLI) which is 100% owned by Manulife Financial Corporation, a publicly traded company.

Details regarding all affilliated companies of MLI can be found on the Manulife Wealth Inc. website https://manulifewealth.ca. Insurance products and services, unless otherwise noted by your advisor, are offered through Manulife Wealth Insurance Services Inc. (in the province of BC operating as Manulife Wealth Insurance Services Inc.).