Posted by Dave on August 9, 2011
Have you ever noticed that people who have no financial plan tend to be surprised when disaster hits? For example, their two-vehicle household has two vehicles break down on the same day, at the same time their air conditioner breaks down. Now admittedly, this is just terrible luck, but it’s weeks/months like these that put people into a debt-spiral that takes some time and dedication to get out of.
In contrast, I assume that at some point all of this stuff will happen to me, and possibly all at the same time. This may be seen as a very pessimistic way of looking at the world, but realistically my main goal is to ensure that I do not experience a financial “hit” that puts me into poor financial shape. Beyond putting the brakes on my goal of early retirement or financial independence, such an event would be very stressful for my wife and I (or anyone) to take on, which for the most part with adequate planning can be totally avoided.
Here are some techniques my wife and I employ for avoiding financial disaster:
1) We keep our monthly expenses low: In doing so, such things as prolonged unemployment or disability (to a certain extent) can be mitigated as our expenses are set up so that the low-earner can cover our total monthly expenses.
2) We have a decent-sized amount of savings: Since we cleaned out entire savings account buying a car in March, this has been our number one goal. Having no savings means that something as small as a car repair would cause us to utilize debt, which we would like to avoid at all costs. Our end goal for savings is to have an entire year’s worth of “fixed” expenses (around $10,000).
The reason for this is two-fold – the first being insurance against unknown expenses, the second is if we don’t really feel like working at our current job / career, there is a buffer we have built into our finances to allow for a job-search or lower wages if the new job doesn’t pay as much.
3) We have a bunch of insurance: Car insurance, life insurance, CAA for automobile breakdowns, as well as health insurance through my workplace which provide a cushion for expenses that if we incurred them at 100% would put significant strain on our finances. I don’t really like to pay for the insurance, but the peace of mind it provides is worth it when I examine what would happen if I didn’t have it in place.
I don’t really think there are many financial disasters that can’t be planned for, I just don’t think many people think about the downside or have the same pessimistic viewpoint as myself or others with a robust financial plan.
How do you plan against financial disaster? Do you think you have a negative viewpoint in thinking up a financial plan?
Posted by Dave on July 12, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
I spend 40 hours a week sitting at a desk. I have a decent knowledge of accounting via the hundreds of hours of studying and application of the skills, along with a degree in Economics. After perhaps reading too many post-apocalyptic books, I have come to realize that if push came to shove I really don’t have a whole lot to offer outside of these skills.
In the latest “collapse” book I read (Patriots by James Wesley Rawls) an economic collapse was triggered in the US which caused society to basically break down into anarchy, with people forced back to homesteading as food and other supplies ran out rapidly.
I’m not a part of some fringe sect of survivalists, (really, I promise I’m not) but as part of my personal finance plan, I generally look at the worst-case scenario of any possible situation and attempt to insure I have at least some sort of a plan to combat the down-side scenario. In a situation where I may have to live off of what I can produce by myself, I’m thinking that my desk-sitting ability may not come in too handy and my knowledge of accounting would not be overly useful to anyone.
It seems to be over the past 30 or 40 years or so that a sort of “hyper” specialization has taken place, with people gaining knowledge in only a few areas, while not bothering to figure out the basics of life, some people don’t even know (or care) where their food comes from. My grandparents, when they were growing up still butchered their own meat, built their own houses and really didn’t look for outside help unless the task they were carrying out was new or extremely intricate. Compare that to me, who can barely do basic home repairs without breaking something, and there seems to be a disparity of skills.
So, I have no “real” skills – I am not really all that handy, have never really built anything substantial by myself and really don’t have the opportunity to do so at this time. The main thing I’m missing and I think my grandparents (and more so my great-grandparents) had was time – none of them worked in “town” they all lived and worked on farms and essentially grew the food they ate. In doing so, they learned real skills which, other than a small percentage of people in North America have largely disappeared.
I have previously written about Homesteading as a quaint lifestyle – I don’t believe it would be easy, but I do think even a partial setup which would allow some self-sustenance would not be out of place. I really don’t think that there is a significant risk of financial collapse occurring, but gaining some real skills, such as the ability to build something (anything really), hunt/fish/farm would be useful. What it all boils down to for me, is that what I know how to do, if there is a major problem with the economy doesn’t really translate into survival all that well.
Do you have any “real” skills? Does the possibility of a significant Economic collapse concern you?
Posted by Dave on March 1, 2011
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
My work has decided that I need to learn about Insurance, specifically the Chartered Insurance Professionals courses in order to get an insurance designation. This is great (I like to learn new things), other than I was already taking accounting courses for a Certified General Accountant’s designation. So, for the next month or so I will be a little busier in the evenings and weekends then I was really planning on being.
In taking this first insurance course, there are a couple of things that I thought would be appropriate to share with readers of this blog:
1) It doesn’t pay to lie: Insurance companies work on the premise of “utmost good faith”. Basically, the onus is on me to inform the insurance company if there are any changes in what I’m doing that would change my current policy. For example, a few weeks ago I was assigned temporally to a job that would require me to use my personal vehicle for work. In total, this may mean only 1,000 kilometers I would have to drive for work.
I called the insurance company and told them what I was going to be doing for the next few months. They reclassified my car to account for the added activities I would be undertaking and changed the premium I would be paying. I don’t really appreciate paying the higher rate, but at the same time if I hadn’t told them what I was doing and gotten into an accident they may not have covered the claim.
Personally, I never want to be in a situation where I have been paying for insurance, get in an accident and find out that it isn’t covered – it doesn’t really pay to not disclose material facts about your activities. You may pay a lower premium, but being turned down on a claim would not be good financially.
2) Make sure you’re properly insured: Meaning make sure you haven’t bought too much insurance or not enough. From an early retirement perspective, being properly insured is probably the best way you can spend your money.
How do you know if you’re properly insured? Basically think of the worst things that could happen to you financially and protect yourself against that – there is insurance available for the majority of types of occurrences that would limit your ability to make money and retire. Examples of personal insurance are liability, disability, and automotive. If you’re not sure what you need, an insurance broker or agent would be more than happy to explain (and sell) any of these products to you.
I don’t particularly enjoy paying for insurance, but at the end of the day there is a certain feeling of peace-of-mind knowing that I have handled most of the catastrophic events that would hinder my future financial plans. I try to ensure that the insurance companies know what I am up to so that I am being covered for everything and not just thinking that I am.
How do you figure out where to draw the line with insurance? Do you keep your insurance company up to date on any changes that happen in your life that would change your policy?
