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.
December 30, 2008 at 8:54 pm
Hi Gail
I’d love to read about what didn’t work when it comes to finances. There’s great info on what does work and what to do, but I’d also love to know what didn’t work so well because maybe we’re doing that stuff now and don’t realize it!
I’d love to read tons more non-sugar coated advice.
Happy New Year all.
December 30, 2008 at 9:10 pm
I vote for Lana
December 30, 2008 at 9:12 pm
My vote is for Dinah.
December 30, 2008 at 9:18 pm
My vote is for Lana!
December 30, 2008 at 9:19 pm
I’ll vote for my lovely wife – Lana.
December 30, 2008 at 9:19 pm
Hi – I agree with Kate – at first the case studies were interesting, but now are repetitive and very very long – and usually all follow the same pattern –
I really want to see more serious meat – delving into more specific areas of finance – and helping people with more complex questions and issues than getting into serious debt by overspending for years – I do realize that Gail is presenting this website and blog for exactly those people – but I’ve gone beyond it – and I’m sure lots others have as well – but I like Gail’s thinking and I like her advice – I want more – but tailored more to my levels – I’m looking forward to the blog on insurance as that is one of my major areas of question – I have a lot of insurance and I don’t know if I’m adequately or over-insured. What does a person really need? Anyway – I find the latest case study too laden with detail to want to go through it – I’m waiting for more specific advice … hope it comes more and more
December 30, 2008 at 9:36 pm
I vote for Dinah!
December 30, 2008 at 9:38 pm
Voting for Dinah!
December 30, 2008 at 9:42 pm
I’d like more info on things women who have been out of the workforce for years can do to ensure they have ample retirement savings. Thanks!
December 30, 2008 at 9:51 pm
Voting for Dinah!
December 30, 2008 at 9:56 pm
Another vote for Dinah
December 30, 2008 at 9:58 pm
I vote for Angela W.
December 30, 2008 at 10:18 pm
I vote for Anna M!
December 30, 2008 at 10:21 pm
I vote for Lana
December 30, 2008 at 10:43 pm
I vote for Lana!
December 30, 2008 at 10:54 pm
I vote for Angela W
December 30, 2008 at 11:20 pm
I vote for Angela W!
December 30, 2008 at 11:53 pm
Geoff:
I know I shock people sometimes. The advisor was arguing with me after I stated my purpose for the money and she was also upset because I was looking at buying a car from a foreign car company (never mind the fact that some ‘japanese’ vehicles are made in North America which employs North Americans). Offer the option and the reasons, but do not insist if I refuse. At the time, I honestly was nowhere near looking at a down on a home (student loans, old car with worn tires, new job, BIG-BIG need to replenish my emergency account). My RRSP money was intended only for the RRSP. I think you may have selected to put money in for another purpose.
My main problem with the HBP is repaying into the plan. Starting late in life with RRSPs because of school, I must max out my contributions every year and repaying into the plan would take money away from that or from greater mortgage payments. Some people can budget it. 17 years from now… almost only conservative investments for RRSP for me (lower return)!
The tax return on the additional amount can be used for ‘good’ (greater down on home) IF discipline is present, I agree. I hope that my tax bracket will move up, so you have to estimate the tax return in the lower tax bracket versus the greater one later on.
The paying taxes on the ‘gains’ is the cost of peace of mind. I am so grateful for the TFSA. Can’t wait until my banks figures out what it will offer…
Beware of the details of the HBP qualifications! If you live with a significant other who owns a house, you are not likely to qualify for the HBP when you want to purchase a house together!
If you are disciplined, you can do it (make sure you don’t mess up your retirement goals). If more people would be disciplined, the economy would be in a much smaller mess and Gail would not have a TV show about people who won’t budget unless being kicked in the bleep! Be honest about your personality when you make the choice!
December 30, 2008 at 11:54 pm
I vote for Lana.
December 31, 2008 at 12:50 am
My vote is for Dinah.
December 31, 2008 at 1:22 am
I vote for Lana!
December 31, 2008 at 1:44 am
My vote is for Lana!
December 31, 2008 at 2:00 am
I vote for Lana.
December 31, 2008 at 3:29 am
I Vote For Lana
December 31, 2008 at 5:25 am
I vote for Anna M
December 31, 2008 at 8:21 am
Gail, your blog has become a daily fixture in my life. I love reading it and finding lots of great tips to further help our lifestyle. I have two daughters, 7 and 4, and would love advice on how to raise them with a healthy attitude towards money. I haven’t been able to find your book about kids and money, so I would love some advice on here – or the ability to purchase an up-to-date copy of your book. I’m trying to instill in my girls how to appreciate what you have, and not have to “have” everything now – but to work towards it. Any advice would be appreciated!
Have a very Happy New Year, enjoy your new home, and thanks for being you!
December 31, 2008 at 8:27 am
I vote for Angela W
December 31, 2008 at 8:30 am
i vote for Angela W
December 31, 2008 at 9:15 am
I vote for Anna M.
December 31, 2008 at 10:21 am
I vote for Anna M.
December 31, 2008 at 11:33 am
I vote for Lana.
December 31, 2008 at 11:48 am
Lana gets my vote!
December 31, 2008 at 12:14 pm
i vote for anna m
December 31, 2008 at 12:15 pm
I vote for Anna M. (and thanks, Anna, for turning me on to this blog!)
K
December 31, 2008 at 12:18 pm
I vote for Dinah!
December 31, 2008 at 12:24 pm
Geoff:
Bankruptcy and RRSP withdrawals:
I saw some people denied disability (I think they deserved it, but I am not an underwriter) and lost all. You never know what happens down the road, that’s all.
December 31, 2008 at 12:26 pm
I vote for AnnaM
December 31, 2008 at 12:40 pm
I vote for Angela W.
December 31, 2008 at 1:04 pm
I vote for Anna M!
December 31, 2008 at 1:44 pm
I vote for Anna M
December 31, 2008 at 2:39 pm
I vote for Angela W
December 31, 2008 at 4:08 pm
I vote for my little cuz, Lana
December 31, 2008 at 4:11 pm
My vote is for my little cuz, Lana
December 31, 2008 at 4:18 pm
I vote for Lana
December 31, 2008 at 4:28 pm
Oh, please pick my friend Dinah!
December 31, 2008 at 4:42 pm
I vote for AnnaM (and thanks for showing the way, Anna!)
December 31, 2008 at 5:09 pm
Gail~
I’ve held back my request for more info. on retirement hoping someone else would mention same….. Just shows to go ya I’m probably the only one here older than dirt!
May be too late for us, but, the others here may learn how quickly time passes and you’re retiring before you know it!
December 31, 2008 at 5:17 pm
I guess I wouldn’t mind learning more about how to set up a type of fund that would go to support our kids in case something were to happen to both Barry and I so that our kids wouldn’t be a financial burden on the guardians we have chosen for them.
December 31, 2008 at 5:29 pm
I vote Angela W
December 31, 2008 at 5:32 pm
I Vote Angela W
December 31, 2008 at 6:03 pm
Angela W sent me here
December 31, 2008 at 6:13 pm
I vote for Angela W
December 31, 2008 at 6:31 pm
I vote for Anna M
December 31, 2008 at 7:06 pm
i vote for Lana
December 31, 2008 at 7:15 pm
I vote for AnnaM
December 31, 2008 at 7:21 pm
I vote Angela W
December 31, 2008 at 7:27 pm
Angela W has my vote.
December 31, 2008 at 7:35 pm
Definately voting for my daughter Angela W
December 31, 2008 at 8:01 pm
I vote for AnnaM!
December 31, 2008 at 8:01 pm
I vote for Angela W
December 31, 2008 at 8:01 pm
My vote is for AnnaM
December 31, 2008 at 8:02 pm
AnnaM for me!
December 31, 2008 at 10:03 pm
I vote for lana
December 31, 2008 at 10:06 pm
I vote for ze Lana
December 31, 2008 at 11:27 pm
Another vote for dinah!
January 1, 2009 at 2:15 am
i vote for Angela W.
January 1, 2009 at 10:37 am
I Vote Angela W.
January 1, 2009 at 12:03 pm
I vote for Angela Wade
January 1, 2009 at 1:13 pm
I Vote Angela W
January 1, 2009 at 2:29 pm
I vote for Angela W
January 1, 2009 at 7:09 pm
I vote for Angela W!!!!
January 1, 2009 at 9:39 pm
I vote for Lana!
January 1, 2009 at 10:09 pm
I vote for Momma, AnnaM.
January 1, 2009 at 11:33 pm
Vote Angela W
January 2, 2009 at 10:27 am
I vote for Lana
January 2, 2009 at 10:29 am
Vote for Lana
January 2, 2009 at 10:46 am
I vote for Rebecca Mincher!
January 2, 2009 at 10:49 am
I vote for Rebecca Mincher
January 2, 2009 at 10:55 am
i vote for Rebecca Mincher
January 2, 2009 at 11:05 am
I vote for Rebecca Mincher
January 2, 2009 at 11:38 am
I vote for AngelaW
January 2, 2009 at 11:42 am
I vote Angela W
January 2, 2009 at 11:59 am
[...] you wish to vote for me, please vote for Saver Queen on Gail’s recent post here by posting a comment. I need at least 20 to [...]
January 2, 2009 at 12:07 pm
Vote Angela W
January 2, 2009 at 12:12 pm
I vote for the lovely Lana
January 2, 2009 at 12:21 pm
I vote for Saver Queen!
January 2, 2009 at 12:35 pm
I vote for Rebecca Mincher !!!
January 2, 2009 at 12:44 pm
My vote is for Saver Queen!
January 2, 2009 at 1:04 pm
I vote for Rebecca Mincher
January 2, 2009 at 1:06 pm
I vote for Rebecca Mincher!
January 2, 2009 at 1:09 pm
I vote for Rebecca Mincher
January 2, 2009 at 1:09 pm
I vote for Rebecca Mincher!
January 2, 2009 at 1:13 pm
I vote for Rebecca Mincher!
January 2, 2009 at 1:13 pm
I vote for Rebecca Mincher!
January 2, 2009 at 1:14 pm
I vote for Rebecca Mincher!
January 2, 2009 at 1:23 pm
I vote for Rebecca Mincher
January 2, 2009 at 1:35 pm
I vote for Rebecca Mincher.
January 2, 2009 at 1:41 pm
I vote for Rebecca Mincher!
January 2, 2009 at 1:45 pm
I vote for Rebecca Mincher!
January 2, 2009 at 1:54 pm
I vote for Rebecca Mincher!