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 2, 2009 at 2:02 pm
Saver Queen! She’s fabulous, plus she’s moving so she needs to be kept in the loop somehow until internet’s up and running!
January 2, 2009 at 2:03 pm
I vote Angela W
January 2, 2009 at 2:04 pm
I vote Angela W
January 2, 2009 at 2:06 pm
I vote for Rebecca Mincher!
January 2, 2009 at 2:07 pm
I vote for Rebecca Mincher
January 2, 2009 at 2:11 pm
I vote for Rebecca Mincher
January 2, 2009 at 2:14 pm
I vote for Rebecca Mincher
January 2, 2009 at 2:19 pm
I vote for Saver Queen!
January 2, 2009 at 2:27 pm
I vote for Rebecca Mincher
January 2, 2009 at 2:30 pm
I vote for Saver Queen!
January 2, 2009 at 2:31 pm
I vote for Saver Queen!
January 2, 2009 at 2:35 pm
I vote for Rebecca Mincher
January 2, 2009 at 2:50 pm
I vote for SaverQueen too.
January 2, 2009 at 3:14 pm
I vote for Angela W
January 2, 2009 at 3:24 pm
w00t! go saver queen! (my vote)
January 2, 2009 at 3:41 pm
I vote for Rebecca Mincher.
January 2, 2009 at 4:16 pm
My vote is for saver queen..she’s the BEST!!!!!!!!!
January 2, 2009 at 4:26 pm
Saver Queen…
January 2, 2009 at 5:08 pm
I vote for SaverQueen!
January 2, 2009 at 6:04 pm
I vote for Angela W.
January 2, 2009 at 6:05 pm
I vote for Angela W.
January 2, 2009 at 6:05 pm
I vote for Angela W.
January 2, 2009 at 6:55 pm
I vote saver queen!!
January 2, 2009 at 7:14 pm
I vote for Nadene Steinbach!
January 2, 2009 at 7:16 pm
I vote for Nadene Steinbach!
January 2, 2009 at 7:19 pm
I vote for Saver Queen! She’s great!
January 2, 2009 at 7:20 pm
I vote for Nadene Steinbach!
January 2, 2009 at 7:22 pm
I vote for Rebecca Mincher
January 2, 2009 at 7:24 pm
I vote for Angela W.
January 2, 2009 at 7:29 pm
rebecca mincher
January 2, 2009 at 8:08 pm
Rebecca Mincher
January 2, 2009 at 8:12 pm
I vote for Becci Mincher
January 2, 2009 at 8:18 pm
I vote for Rebecca Mincher!
January 2, 2009 at 8:21 pm
I vote for Nadene Steinbach
January 2, 2009 at 8:54 pm
I vote for Rebecca Mincher.
January 2, 2009 at 8:54 pm
I vote for Rebecca Mincher.
January 2, 2009 at 8:57 pm
I vote for Saver Queen.
January 2, 2009 at 8:59 pm
I vote for Saver Queen!!!!!!!!!!!!!!!!!!!!!1
January 2, 2009 at 9:01 pm
Saver Queen!!!
January 2, 2009 at 9:04 pm
vote Angela
January 2, 2009 at 9:10 pm
I vote for Nadene Steinbach!!
January 2, 2009 at 9:18 pm
I vote for Nadene Steinbach
January 2, 2009 at 9:24 pm
I vote for Nadene Steinbach
January 2, 2009 at 9:46 pm
Angela as in Angela W.
January 2, 2009 at 10:17 pm
My vote is for SaverQueen!
January 2, 2009 at 10:29 pm
I vote for Rebecca Mincher!
January 2, 2009 at 10:31 pm
I vote for Nadene Steinbach!
January 2, 2009 at 10:36 pm
I vote Rebecca Mincher!
January 2, 2009 at 10:44 pm
I vote Rebecca Mincher!!!!
January 2, 2009 at 11:13 pm
I vote for Nadene Steinbach!
January 2, 2009 at 11:21 pm
I vote Rebecca Mincher!
January 2, 2009 at 11:24 pm
I vote Rebecca Mincher
January 3, 2009 at 12:41 am
My vote is for Saver Queen – love her blog !!
January 3, 2009 at 1:07 am
Saver Queen it is!!!!
January 3, 2009 at 1:08 am
My vote is Saver Queen – her blog is honest, heartfelt, and practical!
January 3, 2009 at 7:47 am
Saver Queen gets my vote.
January 3, 2009 at 8:57 am
I vote for Nadene Steinbach!! Hands down, the rest don’t even compare.
January 3, 2009 at 9:11 am
I vote for Nadene Steinbach. I laughed I cried her responses were great.
January 3, 2009 at 10:57 am
I vote for saver queen….been following her blog and love it.
January 3, 2009 at 10:58 am
I vote for Lana.
January 3, 2009 at 10:59 am
I vote for Lana.
January 3, 2009 at 11:00 am
I vote for Lana.
January 3, 2009 at 11:01 am
I vote for Lana.
January 3, 2009 at 11:45 am
I vote for Angela W
January 3, 2009 at 11:48 am
I vote Angela W.
January 3, 2009 at 11:54 am
Angela W all the way.
January 3, 2009 at 12:13 pm
I Vote Rebecca Mincher!
January 3, 2009 at 1:20 pm
I vote Angela W
January 3, 2009 at 1:37 pm
I vote for Rebecca Mincher!
January 3, 2009 at 1:38 pm
I vote for Rebecca Mincher!
January 3, 2009 at 1:51 pm
I vote for Angela
January 3, 2009 at 1:52 pm
Angela W
January 3, 2009 at 1:56 pm
Voting for Angela W
January 3, 2009 at 1:59 pm
I vote Angela W
January 3, 2009 at 2:02 pm
Saver queen for me!
January 3, 2009 at 2:19 pm
I vote for Anna M.
January 3, 2009 at 3:43 pm
Yeah! I agree with Island Witch and Krista. Saver Queen rocks, she get’s my vote, too.
January 3, 2009 at 3:55 pm
Saver Queen! I actually discovered her (great) blog through you, but it’s a weirdly symbiotic relationship- your blogs compliment each other wonderfully!
January 3, 2009 at 4:02 pm
I vote for Nadene Steinbach.
January 3, 2009 at 4:13 pm
I vote for my Auntie Angela W.
January 3, 2009 at 4:27 pm
i vote rebecca mincher
January 3, 2009 at 6:30 pm
Saver Queen!!!
January 3, 2009 at 6:39 pm
Saver Queen rocks!!
January 3, 2009 at 6:50 pm
Voting for Angela W
January 3, 2009 at 7:31 pm
I Vote LANA!!!!
January 3, 2009 at 8:43 pm
I vote for Rebecca Mincher!!!!
January 3, 2009 at 9:26 pm
I’m rooting for Nadene – good luck Nades – let me know if you won!!
January 3, 2009 at 11:13 pm
I vote Angela W
January 4, 2009 at 1:08 am
vote for Angela W
January 4, 2009 at 1:11 am
I Vote Angela W
January 4, 2009 at 1:14 am
Vote Angela W.
January 4, 2009 at 9:47 am
I vote for Saver Queen!
January 4, 2009 at 10:05 am
Vote for Dinah!
January 4, 2009 at 10:36 am
I vote for Lana!
January 4, 2009 at 10:59 am
I Vote For Lana!!!
January 4, 2009 at 11:01 am
I vote for Angela W.
January 4, 2009 at 11:21 am
I vote for Lana!
January 4, 2009 at 12:08 pm
Another vote for Dinah! I meant to vote the other day and instead starting reading your blog. So I’m back to vote now and off to read about insurance after!
January 4, 2009 at 12:18 pm
I vote for Lana!
January 4, 2009 at 12:23 pm
I vote for Dinah!