A Big Question, Lots of Answers, A CONTEST, and Thank You!
Posted by John Draper | Filed under Insurance, Money Management, This & That
I recently received a mighty big question from NM and thought I’d share it and my answer here since she is asking a lot of the same things many other people are asking and I can kill many birds with this one stone. NM writes:
I recently bought your book and in it, you suggest Disability Insurance, Critical Illness Insurance and Life Insurance. I’ve made a spending plan and am trying to figure out how/when/where these insurance products would fit in. Now that you’ve convinced me insurance isn’t evil, I’m wondering… I’m 24 (about to turn 25), single, and I just started a new job in June grossing $33,000/year. I have about $6,500 owing on a line of credit at 8.5% interest and $2,000 on a credit card at 19.97% interest. My question is: do I need all three types of insurance? Should I get them now or wait until I pay off my debt? And how do I figure out how much disability or critical insurance I would need? I’m assuming that once I move out on my own or collect any assets I would need to look in to getting Critical Illness or Disability insurance?
NM, since you are single and young, you’re most important insurance step is to get disability insurance. Not any old disability insurance, but the very best disability insurance you can afford. (Tomorrow I will post a guest blog on disability insurance from a Guy In The Know, so read it.) Life insurance is important when you have assets and dependants, and since you have neither, and are still very young, this doesn’t have to be a priority. Critical Illness insurance is also useful, but I often recommend it for those who can’t get disability insurance because they are old, and that’s not you. So, the best DI you can find, m’girl, that’s what you’re after.
NM went on to say:
Speaking of debt, I plan to pay off the 19.97% interest credit card debt and then start an emergency fund (meaning I will have a very small emergency fund until I pay off that high interest credit card). I was then going to put away about $300 per month for emergencies. 5% of my income goes in to my company’s pension plan; I was also thinking about increasing those contributions once I pay off the credit card. Should I save less and continue making huge debt repayments? Or should I work on boosting my savings even though it would take me longer to get out of debt?
Also, my company’s pension plan acts like an RRSP in that my income is taxed after the contributions are deducted. My company also matches my contributions. The plan is locked, meaning I can’t get to the money until I retire. Is there any downside to having this type of a pension plan (for ex. I can’t borrow against it to get a house, etc.)? I want to contribute the maximum to this plan, but I’m wondering if I should also get an RRSP?
Thank you for this book–I can hear your voice talking to me through the pages! I plan to use it to guide me in to being a Woman of Independent Means.
Good questions all, NM. Focusing on getting your debt repaid is the right thing to do, particularly since you are not ignoring either your long-term or emergency savings. When I work with my fams, I often start them off saving only $100 a month for each, just to get the habit established. You’re already doing this so go nuts on the debt repayment.
Since 5% of your income goes toward your company pension plan (which is fine, by the way) and they match your contributions, that means you’re saving 10% long term. Perfect. And $300 a month for emergencies until you get to the months’ worth of Essential Emergency Expenses is terrific. As for not being able to borrow against your retirement savings for a home, I’m not a huge fan of this strategy. Once you have all your consumer debt paid off, take the money you were using for debt repayment and start building a Home Downpayment Fund.
I’m glad you’re enjoying A Woman of Independent Means. It’s always good to hear when people are using the book to make more sense of their money. I’m working on an outline for a new book, but if you stay this course you’re on, you won’t need it! Ha!
This is my final blog of the year, so I want to wish you all a very healthy and happy 2009. Last year I made a resolution that kept me sane through all my ups and downs. Being the stone in the river was one of the things that got me through the tough changes at the end of the year. (All your hugs and my emergency fund were the other two.)
We have been in our new home now for almost a month and things are settling down and developing a rhythm. I want to thank you all from the bottom of my heart for all your good wishes and kind words. I believe that it was being wrapped in your positive energy that made the last couple of months bearable. Now I can hardly wait to see what 2009 has in store for me!
The best to you all. I am so proud of so many of you for seeing the light and taking control of your money and your lives.
Hey, I’m almost out of success posts, so if any of you want to share your stories, please send them along so everyone else can be inspired by you, or can share their wisdom with you to help you along.
One more thing: Since we’ve covered a lot of ground in the past year, is there anything in particular you’d like more information about? I already know you want more on investing, so I’m going to work up some stuff on that. Anything else?
Cheers, with heaps of love, and great big hugs.
January 4, 2009 at 12:26 pm
I vote for Dinah!
January 4, 2009 at 1:28 pm
Vote for Saver Queen!
January 4, 2009 at 1:43 pm
I vote for Nadene Steinbach!
January 4, 2009 at 2:40 pm
Happy new Year…. I vote for Saver Queen!
January 4, 2009 at 2:49 pm
My vote’s for Lana!!
January 4, 2009 at 3:29 pm
I vote for AnnaM.
January 4, 2009 at 3:50 pm
I vote for Saver Queen.
January 4, 2009 at 4:15 pm
My vote is for Lana!
January 4, 2009 at 5:21 pm
I vote for AnnaM.
January 4, 2009 at 5:29 pm
I vote Angela W
January 4, 2009 at 6:07 pm
I vote for Lana!!!
January 4, 2009 at 6:08 pm
I vote for AnnaM.
January 4, 2009 at 6:09 pm
I Vote for LANA!!
January 4, 2009 at 6:14 pm
I Vore for Rebecca Mincher !!!!!!
January 4, 2009 at 6:15 pm
I Vote for Rebecca Mincher !!!!!!
January 4, 2009 at 6:20 pm
Voting for Lana
January 4, 2009 at 6:21 pm
My vote is for Lana
January 4, 2009 at 6:37 pm
I vote for Rebecca Mincher!
January 4, 2009 at 6:37 pm
My Vote is for Lana
January 4, 2009 at 6:38 pm
My vote is for Rebecca Mincher!
January 4, 2009 at 6:39 pm
I vote for Rebecca Mincher
January 4, 2009 at 6:41 pm
I vote for Rebecca Mincher
January 4, 2009 at 7:15 pm
I vote for Rebecca Mincher.
January 4, 2009 at 8:31 pm
I vote for AnnaM
January 4, 2009 at 8:33 pm
I vote for Anna M.!
January 4, 2009 at 8:34 pm
I vote for AnnaM!!
January 4, 2009 at 8:35 pm
I vote for Rebecca Mincher!
January 4, 2009 at 9:05 pm
Lana has my vote!! =)
January 4, 2009 at 9:49 pm
I vote for Rebecca Mincher.
January 4, 2009 at 9:51 pm
I vote for Rebecca Mincher.
January 4, 2009 at 9:52 pm
I vote for Rebecca Mincher.
January 4, 2009 at 10:43 pm
I’m voting for Lana!! Cuz of her awesomeness!!
January 5, 2009 at 12:22 am
I vote Rebecca Mincher
January 5, 2009 at 6:34 am
I vote for the always amazing Lana! (of course)
January 5, 2009 at 8:12 am
I vote Rebecca Mincher
January 5, 2009 at 8:23 am
“My vote’s for Lana!”
January 5, 2009 at 8:25 am
“My vote’s for Lana!”
January 5, 2009 at 8:27 am
“My vote’s for Lana!”
January 5, 2009 at 8:33 am
I’m Voting Lana!
January 5, 2009 at 8:35 am
My Votes For Lana!
January 5, 2009 at 8:41 am
I vote for Lana!
January 5, 2009 at 9:33 am
i was thinking of what i would like to read about in the new year. i really like the case studies…they are interesting and make me realize how little i truly know about financial stuff….but like a previous poster said if there were too many of them it would not be as cool.
i really would like to know more about budgeting for young families. daycare, lessons, clothes, food, and gadgets and gizmos oh my! is a lot to absorb. i really want to learn more about saving for retirement. i also need more information on things like: when is it better to pay off debt rather then save for retirement, what is emergency fund worthy?, why is daycare in your ‘life’ category (to me meaning optional?), i would love to see focuses on different parts of the country and what different provinces offer that is different from what you always hear about. i just want to know more!
January 5, 2009 at 11:53 am
I vote for Anna M.
January 5, 2009 at 12:48 pm
My vote’s for Lana.
January 5, 2009 at 1:03 pm
Voting for Lana
January 5, 2009 at 2:32 pm
I vote for Rebecca Mincher
January 5, 2009 at 2:33 pm
My vote is for Rebecca Mincher
January 5, 2009 at 3:16 pm
I vote for Lana!
January 5, 2009 at 9:43 pm
My vote’s for Lana
January 5, 2009 at 9:58 pm
I vote for Anna M.
January 5, 2009 at 9:59 pm
I vote for Anna M!!!
January 5, 2009 at 10:17 pm
I vote for SaverQueen!!
January 5, 2009 at 10:28 pm
I vote for Lana St-Louis
January 5, 2009 at 11:57 pm
I vote Angela W
January 6, 2009 at 12:08 pm
Gail…I would LOVE to see tidbits about self-employed money management. I saw a re-run this morning about the contractor who never estimated enough and his income was very unpredictable, I would love to know what kind of advice you had for him. I have applied a lot of your techniques to my husband’s pay, and take as little as possible from my business to fill in the gaps, but have no real structure when it comes to my business accounts. Any guidance in that area would be super…information is hard to come by, and I can’t afford to pay big money…:(
January 6, 2009 at 6:50 pm
Gail I had taken your book out of the library, and was making my way through it, writing notes and contacting my broker for quotes and had met with a lawyer to do our wills the friday before Christmas. She asked if we were in rush and agreed to finish them up when she got back from her holiday. I had also decided to postpone the insurance until after my next body scan for cancer in January. That’s why I have no disability, critical illness or death benefits on the house.
I have been folllowing you for over a year and have gotten a significant amount paid off on our dept, life is less stressful and for the first time in 3 years we have not credit card dept after Christmas. My husband and I were talking about this on our drive home from Christmas dinner. Just how our lives have changed so much in the past year. We are so proud of ourselves.
Then “caca” happened. We were hit by a drunk driver on our way home and our lives are a mess again. I am so happy that we are all alive and are recovering from all the injuries. We are dealing with insurance companies, the police, psychologists, doctors. It is just too much, but I am glad that I learned so many lessons from you. I just wish that I had been a little quicker on the ball last month and not put off getting the insurance. It’s going to be even harder financially for the next few months but we have a very supportive family who is helping us out as much as they can, and I had no idea that when something like this happens how every neighbour and people in our community have come together to help us.
Life is crazy but we are resilient.
January 6, 2009 at 8:26 pm
I vote for Nadene Steinbach!
January 11, 2009 at 11:24 pm
Angela w
January 12, 2009 at 4:18 am
THANK YOU GAIL!!! This was better than any Christmas present!