Plan Like a Pessimist. Live Like an Optimist
Posted by Gail | Filed under Money Management
You’ve probably heard me say this before; it’s one of my mantras: Plan like a pessimist so you can live like an optimist.
Very often people go through life believing everything is always going to be great. In their world, crap doesn’t happen. No one loses jobs. No one gets sick. No one dies. It’s la-la-la, and off to the mall we go because we’s gots money and they’s shoppin’ to be done.
Sadly, there’s a very real possibility that crap will happen. According to the Society of Actuaries and the national Centre of Health Statistics and Transactions (big title… must mean their know their stuff, eh?) every year one in eight people become disabled. And at age 35, the claim incidence is three times greater for women than for men.
According to the American Cancer Society, in 2008 over half a million people died of cancer. Never mind all the people diagnosed who watched their income shrivel as they coped with their treatments. And while The Big C is the thing we are most fear, the incidences of death by heart disease are higher; 1 in 5 (compared to 1 in 7 for cancer).
Here are some more:
- Stroke Lifetime Odds: 1 in 24
- Motor Vehicle Accident Lifetime Odds: 1 in 84
- Suicide Lifetime Odds: 1 in 119
- Falling Lifetime Odds: 1 in 218
- Firearm Assault Lifetime Odds: 1 in 314
- Pedestrian Accident Lifetime Odds: 1 in 626
- Drowning Lifetime Odds: 1 in 1,008
- Motorcycle Accident Lifetime Odds: 1 in 1,020
Among my immediate friends and family, I have lost dear ones to cancer, suicide, car accident, drowning and a motorcycle accident. I know people die. I can die too.
If you know that crap can happen then you should take the steps to ensure that if it does you and your family are adequately protected. Just worrying about the anvil falling on your head is a waste of energy; using that image to motivate you to plan for the worst – to plan like a pessimist – means you can stop worrying because you’ve done all you can. You’ve got your safety net. Time to have fun!
Every step you take, from building an emergency fund, to buying enough insurance, from saving money for the future to executing a well thought-out estate plan, gets you closer a place where you don’t have to worry.
If it’s been a while since you looked over your financial life, today’s the day to make your checklist and get busy putting your Pessimist’s Plan into place so you can forget about the yuckies and live like an optimist:
- Check credit report; fix errors
- Review savings goals; chart progress.
- Establish/review emergency fund goals; chart progress.
- Review life, health, disability insurance coverage; supplement if necessary.
- Update resumé. Plan for your next job review.
- Review your estate plan: wills and powers of attorney, along with guardianship designations for your children.
- Review Debt Free plan; chart progress
- Set a new goal for increasing your financial knowledge. The more you understand about how money works, the less you have to worry about it.
Once you’ve got all your ducks in a row, you need only do a periodic review to see that you’re still on track. Semi-annually, or each time there’s a significant change in your circumstances, you can go over your checklist and make sure everything is still ticketiboo. Or you can make the changes you need to put things back in order.
Then you can forget about worrying. You’ve done all that you should, and worrying isn’t going to make a scrap of difference. Get busy being happy.
June 8, 2009 at 9:26 am
Gail, this is eerie – I just sent you a comment telling you about my recent life-altering situation and how I have been able to cope with the fear because I know I have a plan. It really takes a lot of uncertainty out of scary situations so that I can focus on the important issues.
June 8, 2009 at 9:32 am
When I was reading your blog this morning I realized how far I’ve come in two years. It was that long ago that I started to implement your suggestions to get my money in order. At that time, I had nothing to “review” because I had no savings other than a few RRSP’s. Now I have savings, an emergency fund, yearly savings for anticipated expenses like insurance, vehicle registrations, CAA etc so that I don’t take a hit whenever those bills show up, and as of this month I am completely out of debt – no car payment, no visa payment, no line of credit payment. Thank you for making this all make sense to me!!
June 8, 2009 at 9:47 am
Sandy-I wish you the best in the situation you’re facing. Thank goodness money won’t be your prime concern during this difficult time.
Joanne-congratulations! Don’t you feel so free? That’s amazing.
Gail-thanks for the great reminder to finish my last niggling to-do’s on that list.
June 8, 2009 at 10:11 am
We were looking at taking out extra disability insurance for my husband but all of the companies we have looked at will not cover him for stress-related work disability. Sadly his job has a high level of stress/burnout/Post traumatic Stress involvement. I am trying to figure out if we should still get the insurance as it will cover him for other illnesses/disability or never mind and put that $75 towards something else every month?
We both have additional life insurance above and beyond our workplace, have excellent pensions, max out our RRSP’s every year, are debt free other than our mortgage (and are paying that down quicker than we need to with extra payments every year), plus we have a fully funded emergency account, have maxed our TFSA’s, and contribute to RESP’s for our 1 and 3 year olds. We have a vacation fund/new car fund etc etc
I ended up on disability at the age of 32 (working in the same profession as my husband) and I have been unable to return to work since 2002. I worry about the same thing happening to my husband, who is now the bigger income earner and we are trying to find a way to protect his income should something happen to him on or off the job.
Any advice or suggestions from anyone? Should we go ahead and purchase the additional disability insurance even though they won’t cover stress related illnesses?
June 8, 2009 at 11:00 am
@ Joanne
I have recently started the road to being debt-free, with a solid savings plan.
I currently have seperate savings accounts for: Gift Fund, Emerg F, House down payment Fund, RRSPs, while trying to pay off one credit card and two student loans.
You have just given me the idea to have one more account… yes one more. An annual spending account. I think it’s a great idea to have a seperate account for things like CAA memberships, and insurance. Using Gail’s method I beleive this would just be incorpoerated into the the ‘transportation’ jar – but I like the idea of just pulling it out completely so it doesn’t get ‘accidently’ spent while I’m in the transition of getting out of debt.
Thanks for the idea!
Jessie
June 8, 2009 at 11:20 am
I’ve been pondering this question for a while now, and since this post mentions emergency funds, I think it may be appropriate to put it here:
Does a “fully funded” emergency fund cover six months’ worth of expenses (bills only) or six months’ net salary?
At the end of this year, I’ll have enough to cover six months’ net salary. What I’m wondering is, do I need to have that much in a savings account or should I take some of it out to put in secure investments that I can get to easily (like cashable GICs?)
I don’t have any debt (yay!) but I do have other savings goals, like going back to school to finish my diploma, and would welcome any opinions on where to put this money. How much should I keep as an emergency fund, put into investments, or spend on school?
Just in case you’re wondering, I do also have long-term savings. I have an RDSP – Registered Disability Savings Plan – which I contribute to. See http://gailvazoxlade.com/blog/archives/338 for details on what that is.
Thank you in advance for your advice.
June 8, 2009 at 12:18 pm
Julie – in my opinion I would still purchase disability insurance – even with the exclusion. Years ago, I attempted to purchase critical illness insurance as I feared the cancer epidemic, but was disallowed. (At the time I was quite overweight). Two years later I developed multiple sclerosis. I have lost the weight and would love to be able to purchase insurance, any form of insurance with an exclusion for ms but I am told I am too much of a risk. At least I have been able to talk DH into increasing his life insurance and add in critical illness insurance. (He has disability ins. through work).
June 8, 2009 at 12:26 pm
@ Rhiannon:
The two important parts to consider where to keep your emergency funds are security and liquidity. Security being that if some of the fund is invested in some way, that you would not lose the principal amount. Liquidity being that when you need it, you can get it.
So basically if you were to invest some of it, would you be able to access that portion by the time that the part you didn’t invest runs out? To know this you’d have to look at the re-imbursement terms.
June 8, 2009 at 1:05 pm
Yes! Yes! Yes!
You are awesome, Gail!
The way you put it all so simply and in-your-face facts is the best, I respect that — and I’m listening.
So far so good: the will, the credit, the budget and emergency savings are all well under control. I am self-employed, so every time I meet a new client it’s like updating my resume… and honestly I am very shy about it but getting better after 11 years.
The only thing still making me bite my nails is the retirement savings. Though I really enjoy the work I do, and feel capable of doing it indefinitely right now, according to the retirement calculator, we can retire with a very modest income at age 84! With young kids at home, that is my biggest hurdle. We contribute monthly but it’s only about 7% of our net income, obviously not enough, I know the earlier the better for the magic of compound interest to work…. somehow I need to scratch out a bit more in the budget. It’s SO hard to say “Hey boys, you need to squeeze into those worn out shoes a little longer, daddy and I want to retire someday”.
( I confess, there are days when I am green with envy at the folks that have pensions through their work. )
June 8, 2009 at 1:05 pm
Roxanne,
Thank you for your reply. I was thinking in terms of a cashable GIC or Canada Savings Bonds, which you can cash at moment’s notice with only a small interest penalty.
My main questions are:
1) Emergency funds: How much is enough? Six months’ worth of expenses (bills, groceries) or six months’ salary?
2) Emergency funds: How much is too much?
Thank you for taking the time to answer my questions.
June 8, 2009 at 1:35 pm
Dianna-
Thank you for taking the time to respond. I definitely lean towards taking out the disability policy even with the exclusion for the exact reasons you talked about!
Rhiannon-
Our emergency money is 6 months of bare-bones expenses, like mortgage, insurance, groceries, gas, utilities etc. I would prefer about 8 months of expenses tucked away and hubby would be comfortable with 3 or 4 months worth so we compromised at 6 months worth. I think it depends on how secure your job is, how high your expenses are, things like that. We socked it away in a bank account and the rest is in employee CSB’s which we can cash in at any time with no penalty involved.
June 8, 2009 at 1:38 pm
Thanks Gail!
Question for you – how do you check your credit report in Canada? I found lots of info on how to do this in the USA but can’t figure it out for Canada.
June 8, 2009 at 1:58 pm
WilderMiss
You can get a free credit report by mail from each of the three credit reporting companies (Equifax, TransUnion and Experian) once per year.
You can get your free report with one company, then wait 4 months and get another free report with a different company. If you do this every four months and rotate companies, you’ll have an ongoing idea of what’s going on with your credit without spending a dime.
However, if you don’t want to wait for your report to arrive by mail, you can get it online instantly. Getting it this way can cost anywhere between $15-$25, depending upon the company you choose.
Here’s the link for getting a free credit report in Canada:
http://canadian-creditreport.com/free.htm
June 8, 2009 at 2:00 pm
@WilderMiss
You can get a free credit report by mail from each of the three credit reporting companies (Equifax, TransUnion and Experian) once per year.
You can get your free report with one company, then wait 4 months and get another free report with a different company. If you do this every four months and rotate, you’ll have an ongoing idea of what’s going on with your credit without spending a dime.
However, if you don’t want to wait for your report to arrive by mail, you can get it online instantly. Getting it this way can cost anywhere between $15-$25, depending upon the company you choose.
Here’s the link for getting a free credit report in Canada:
http://canadian-creditreport.com/free.htm
June 8, 2009 at 2:09 pm
@ Rhiannon
I agree with Julie. 6 Months of bar-bones expenses is just about right – everyone’s circumstances are different and so you may want to have more or less, but 6 is a great goal!
In terms of having ‘too much’ saved for an emergency I don’t think that possiblity exists.
June 8, 2009 at 2:11 pm
@ WilderMiss
Check out this website:
http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02197.html
(or do some digging on Gail’s site)
to learn about how to get your credit report in Canada. There are three places you can do this with – the two listed at the site above: Equifax and TransUnion are used most often.
Keep in mind that to receive your report – it’s free! If you want to see your credit score – the same score that lenders see – you’ll have to pay a small fee to obtain that online.
June 8, 2009 at 2:46 pm
Julie, if your husband does not have good disability insurance through his employer, I would most definitely take the insurance, since he is the sole breadwinner.
June 8, 2009 at 2:57 pm
WilderMiss:
You can get a free credit report by mail from each of the three credit reporting companies (Equifax, TransUnion and Experian) once per year.
You can get your free report with one company, then wait 4 months and get another free report with a different company. If you do this every four months and rotate, you’ll have an ongoing idea of what’s going on with your credit without spending a dime.
However, if you don’t want to wait for your report to arrive by mail, you can get it online instantly. Getting it this way can cost anywhere between $15-$25, depending upon the company you choose.
Here’s the link for getting a free credit report in Canada:
http://canadian-creditreport.com/free.htm
June 8, 2009 at 3:55 pm
Rhiannon: The rule of thumb is six months’ worth of essential expenses. But having more won’t hurt in these uncertain times. When the economy stabalizes, if you want to move some money to retirement savings where it can be invested for the longer term, go right ahead.
@WilderMiss, Jessie gave you a good connection at http://www.ic.gc.ca/eic/site/oca-bc.nsf/eng/ca02197.html
*pol, remember that life cycle plays into your investment patterns. So while your kids are younger, your mortgage is bigger and your expenses are higher, you may only investing only the most basic amounts. Later, when you are in a more flexible place with your cash flow, you’ll be able to put more money towards your long-term future. Don’t get yourself too much in a twist.
Joanne, a great big hug to you, and congrats! Such progress.
Sandy, having a plan is always a good idea. I try to tell people, having money isn’t about the “money”, it’s about the options having that money gives you. When you have choices you have more control.
June 8, 2009 at 4:00 pm
@ WilderMiss
Just repeating what Jessie has suggested. Over the years, I’ve used TransUnion (and Equifax) to review my credit. I pay the small fee online through Transunion: http://www.transunion.ca/
A few years ago, I had my Visa card ’skimmed’ which really ticked me off, because I am so very careful on where and how I use it, when I use it. It is because I rarely use it that I discovered what had happened. Believe it or not, I was at a Comfort Inn in Ottawa, and not paying attention as the guy behind the desk took my card and wandered all around the back area (pretending to check with a staff member about cleaning my room – who responded ‘what?, ohh… yes it’s done’) while he organized my booking. I was so angry at myself a few weeks later when I saw my Visa activity online; called Visa and found out that someone had a duplicate of my card to make purchases. They fence the copied card to someone in my own area of town (in Toronto); and made small purchases first.. movie theatre tickets etc.. so you don’t notice it. I then added extra security to my credit which shows on TransUnion and Equifax. Even if *I* try to open a new line of credit *anywhere*, it will not be processed until the credit folks call me at home to receive my verbal “yes, it is ME inquiring for new credit” – be it something small or major like my new car lease etc.
It’s well worth checking your credit as often as deemed normal by the credit folks. You just never know what’s going on or if some dork has stolen your id. In this day and age, it was worth the extra few dollars to ask them to put a special safety feature on my personal credit profile.
June 8, 2009 at 4:19 pm
Hmm.. I just created a long post, towards WilderMiss’ question.. and poof.. no where to be found. lol
I also found that Gail’s blog today reflects the comment I had made for the Delusional Dicks blog…. people sometimes just don’t realize that things can happen out of the blue, even if you think nothing can (or will) happen to you.
June 8, 2009 at 4:19 pm
Let me see if I can try my previous post now…
@ WilderMiss
Just repeating what Jessie has suggested. Over the years, I’ve used TransUnion (and Equifax) to review my credit. I pay the small fee online through Transunion: http://www.transunion.ca/
A few years ago, I had my Visa card ’skimmed’ which really ticked me off, because I am so very careful on where and how I use it, when I use it. It is because I rarely use it that I discovered what had happened. Believe it or not, I was at a Comfort Inn in Ottawa, and not paying attention as the guy behind the desk took my card and wandered all around the back area (pretending to check with a staff member about cleaning my room – who responded ‘what?, ohh… yes it’s done’) while he organized my booking. I was so angry at myself a few weeks later when I saw my Visa activity online; called Visa and found out that someone had a duplicate of my card to make purchases. They fence the copied card to someone in my own area of town (in Toronto); and made small purchases first.. movie theatre tickets etc.. so you don’t notice it. I then added extra security to my credit which shows on TransUnion and Equifax. Even if *I* try to open a new line of credit *anywhere*, it will not be processed until the credit folks call me at home to receive my verbal “yes, it is ME inquiring for new credit” – be it something small or major like my new car lease etc.
It’s well worth checking your credit as often as deemed normal by the credit folks. You just never know what’s going on or if some dork has stolen your id. In this day and age, it was worth the extra few dollars to ask them to put a special safety feature on my personal credit profile.
June 8, 2009 at 6:15 pm
It’s obvious that a lot of the Gail readers have gone through surprising life changes including unexpected health care crises, death in the family, and job loss. This is clear from many of the responses to various posts throughout the year. It’s unfortunate that tragedies happen, but they happen all the time, and they happen to US. Being prepared is tough to do, but so important.
July 14, 2009 at 1:48 pm
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