Fire Insurance for Your Life


Preparing for the Next Crisis

I hope this finds you healthy and safe in the midst of this unprecedented time.

I once had a long argument with a close friend about how best to support a mutual friend through a crisis.  I don’t remember the specifics, but I do remember that I was advocating for providing immediate support while he was lecturing them on how they could have avoided the situation in the first place.

I finally lost my cool and declared –

“The fireman doesn’t stand on your lawn lecturing about safety while your house burns down, grab an [expletive] hose!”

Right now, many of you are dealing with a financial house on fire.  The Employment Insurance department of the Canadian government usually processes about 27,000 cases a week, last week they received almost 1 million new applications.  If you haven’t lost your job, it’s a pretty safe bet to assume that your world has been significantly altered in some way.  If you are a business owner who has been forced to close your situation is even more dire and complicated.

So far, the government has done a fairly decent job of providing us all with a firehose.  The emergency aid package is not without complications and many people are still experiencing significant stress but it’s better than nothing and as they work out the bugs in the system, I’m sure it will get better.

Like rebuilding after a fire, in the coming weeks we will all have to deal with the fall out from this crisis and there a few things that I can help you start to do now to help you be better prepared for the next time.  Think about it like fire insurance for your life.

1 – Develop an Emergency Fund

Experts tell us that we should all have between 3 and 6 months of expenses saved for emergencies.  Sudden job loss, uninsured damage to property, uninsured health complications, they all have the potential to burn your financial house down.  I encourage everyone, regardless of your financial situation to at least set aside $1000 in a Tax-Free Savings Account.   As you are able, most people are okay to build that up to 3 months of fixed expenses, 6 months is only necessary if you are self-employed or working on contract.

Canada Life offers a broad range of investment options that are suitable to be held as an emergency fund TFSA.   Once this crisis is over and as soon as you are able, let’s get that done.

2 – Eliminate High Interest Debt

If you are carrying a balance on credit cards or any other forms of high interest debt, you should plan to pay that off as soon as possible.  After you’ve set aside the minimum $1000 in the emergency fund but before you worry about the full 3 months of expenses, get your debt dealt with.

As a result of the financial crunch this crisis is causing, we have already seen a significant decrease in mortgage rates across Canada.  If you own your home now is the perfect time to refinance and consolidate it with as much of your other debt as possible.  Canada Life offers a very competitive mortgage program with posted rates among the lowest in the country, along with a home equity line of credit, that could save you thousands and set you on a track to debt freedom years sooner.

Even without a lot of high interest debt, this may be a good option for you.  If you own your home and would like to see how this kind of refinancing can provide an extra layer of security for the next crisis, I’d be happy to show you how.

3 – Review your Living Benefits

The term Living Benefits is a fancy way of saying disability insurance.  In contrast to life insurance, living benefits are all the kinds of insurance tied to your health and wellbeing that pay out while you are still alive.

One thing this crisis has taught us is that we cannot take our health and wellbeing for granted.  While most employed individuals have some insurance through a company health plan should they become sick and unable to work, most people don’t know what it covers or for how long.  Many people are surprised to learn that their policy has a long wait period or provides only a fraction of what is required to maintain their standard of living.   Canada Life offers a number of living benefits programs that could provide that added level of support at a critical time and be the difference between a smooth and relaxed recovery or a drawn out and stressful one.

 

As I said at the outset, if your financial house is on fire, now is not be the time to drop everything and buy into any of these programs.  But if you are able, we are open for business and ready to help.  This crisis will pass, and I want to be there for you when it does.  Let’s stay in touch and when you are ready let’s make sure you are prepared for the next crisis before it hits.

Stay healthy and safe everyone.  We’re all in this together.

Lauren

Are You A Survivor?


survivorLast night my wife and I watched the season finale of Survivor. I know we are a bit late to the party on this one but we tend to load up our PVR and binge watch things over a few days rather than invest an hour or two a week for several months. We miss the boat on some of the water cooler talk that way but in the long run it saves us lots of time so it works for us.

Usually when I watch Survivor I can’t help but wonder what the real survivalists think of this show. Forget the school yard games and the psychological game play, that’s clearly just for TV. What I want to know is how realistic are their attempts to build shelter and hunt for food? I’m guessing not very.

I am clearly not a survivalist. I don’t even have the recommended 72 hour emergency kit in my house. I know where my flash light is (I think) and the last time I used it the batteries seemed okay. I usually have at least a few bottles of water in the house but if there were to be a serious interruption of services, like a long term power outage brought about by a massive winter storm or the Zombie Apocalypse I’m pretty sure I would be one of the first to die.

All kidding aside though, all this talk of survival though got me wondering about how many of my readers would survive another type of emergency, a financial one.

emergencyLast fall Manulife Bank completed a homeowner debt survey. They found that half of the households polled have less than $1,000 in emergency savings. But considering the impact of a job loss or the cost of making a major repair like replacing a roof or a furnace, $1,000 clearly won’t go very far.

In addition to the more common unexpected expenses, consider a couple of others as well, like pet care and aging parents. Unexpected health care expenses for Fluffy the Cat can run into the thousands, $1200 for dental care alone. Provincial health plans rarely provide the level of care aging parents might need following surgery or any other kind of health crisis. Not to mention the cost of travel if you live a distance away and if you need to make a last minute trip to attend to their needs.

The survey found that while 73% of homeowners believe they are at least somewhat prepared to deal with the unexpected, 38% admitted that they were caught short when something did happen, 24% didn’t even know if they had any emergency funds at all and 13% admitted to having no money set aside for emergencies.

Click this link to my financial readiness quiz and see what areas could use some improvement in your life then call me to talk about your results and figure out what next steps you should take to boost your score.

Results

0-38 points – Some serious improvement needed

39-60 points – Moderately ready

61-75 points – Financial readiness all-star

Mr. Lauren C. Sheil is a serial entrepreneur who has been in business for over 20 years.  He is currently a Financial Security Advisor with one of Canada’s premier financial planning organizations.  He holds dual licenses from the Financial Services Commission of Ontario (FSCO) for Life, Disability and Critical Illnesses Insurance and the Mutual Fund Dealers Association of Canada (MFDA) for personal investments.  He is passionate about helping people to live life to the fullest while Eliminating Debt, Building Wealth and Leaving a Legacy.  

He can be reached at themeekonomicsporject@gmail.com or by calling 613-295-4141.

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What About Having An Emergency Fund?


Recently I publishing a booklet called “6 Steps To Financial Freedom”.

6 steps book

Buy it here, or send me an email for a FREE pdf version.

The six steps are:

  • Dominate Debt

  • Regulate Risk

  • Rule Retirement

  • Engineer Education

  • Take Control of Taxation

  • Leave a Legacy

(I like alliteration can you tell?)

It wasn’t long after I started talking about this before somebody asked me, “what about having an emergency fund?”

It’s a popular belief among financial planners and coaches that after you get your debts under control your next goal should be to save up three to six months of expenses. Most people say to put this money in a readily liquid emergency fund like a savings account. That way life’s little hiccups don’t put you back into debt or cause you to have to take money out of your retirement plan to survive.

This is good common sense advice and if you want to do that go ahead, but I think there are better ways to invest your money than keeping large amounts of liquid cash earning little to no interest for a “rainy day”.

Here are three reasons I do not include having an emergency fund as part of the 6 Steps.

1 – Most so called emergencies are actually events that, if you’re being honest you saw coming and should have been planning for.

The roof on your house didn’t start leaking overnight, a little preventative maintenance along the way and a savings plan to deal with the inevitable will save you the need to dip into an emergency fund at all. If you are out of debt and you see a big expense coming, it’s okay to push pause on the rest of your plan and build up cash for a large one-time expense.But don’t call it an emergency – it isn’t.

Although not technically part of the 6 Steps I call this a sinking fund.  You build up money in it over a period of time and then “sink” it when the time comes. Right now I have a sinking fund set up for Christmas Gifts. In December I’ll sink that fund, take the money a buy few gifts. Other common uses for a sinking fund include the purchase a new car, a major home renovation or repair, elective surgery, or even a nice vacation.  None of these are emergencies, they are planned events.

2 – A lot of truly unforeseen emergencies can be funded or mitigated through a well thought out insurance program. Some of the biggest unexpected expenses we encounter are the result of disability, illness or damage caused by weather, all insurable risks at relatively low cost. The entire insurance industry is actually one big pool of money designed to help you with emergencies. One way of looking at is as a giant, communal emergency fund. That’s why step two is to regulate risk.  If you want to be “self-insured” then you can include some form of emergency fund as part of step 2, but you don’t need a lot and it is not a substitute for adequate insurance.

3 – Finally there are some true emergencies that you can’t see coming and that you can’t insure against. As part of step 3, Rule Retirement I talk about several different investment vehicles that are available for long term planning. Some are very liquid and have no tax consequences for early with drawl. If you are faced with a true emergency, something that can’t be planned for in advance or that you didn’t get insurance for, it’s okay to make a one time with drawl from your retirement funds. Just be aware of the tax implications and be sure to put the money back as quickly as possible.

Here’s the big idea about not having an emergency fund.  I firmly believe that by not having a dedicated emergency fund it forces people to change their definition of emergencies. If your emergency fund is too liquid and there are no consequences for taking money out, like incurred taxes or delayed retirement, you may tend to consider everything an emergency. That’s not so say you shouldn’t have some liquid cash on hand, but most people can get by with as little as $1000 or so. If you are out of debt, have adequate insurance and are saving for retirement, there are very few emergencies that you can’t handle in this way.

What’s your opinion of having an emergency fund? How much do you have set aside and where is it held? Have you ever tapped into your emergency fund? If so what for? I’d love to hear your opinion…