Confessions: My Financial Sins

It’s great to write about financial success stories and wisdom from past experiences.  Paying off debt, building a growing stock portfolio, and sticking to a budget are all part of my road to financial success.  However, there are some things that should also be part of my financial plan, and either I haven’t got around to it, or I don’t believe there is a great need for it at this time.

It’s time to confess my financial sins.  I don’t have an emergency fund.  I don’t have a will.  I don’t have adequate life insurance.

Emergency Fund:

The rule of thumb on this varies, based on who is giving the advice.  Let’s assume the standard emergency fund should cover 3-6 month’s expenses and should be held in a relatively safe account that can be readily accessed when needed most (like a high interest savings account or money market fund).

Ok, I get it.  You need to have some form of security in case you lose your job, or have a major repair to your house or car.  Also, for some people that earn commissions for a living it would be nice to have money set aside for the lean months.

But I’m not really in that situation.  I have a secure job, and we live well within our means.  In the event that something terrible did happen, or multiple things happened (a true emergency) we have a secured line of credit that we would draw from.

Yes, I have a fully funded TFSA.  But that savings vehicle is part of my long term retirement plan, so I would prefer not to dip into it.

Making a Will:

I have absolutely no excuse for this, as it has been on my “to do” list ever since I became a dad last year.  Maybe it’s the perception of being young and invincible, but I have a hard time thinking about my own mortality.  I’m not the only one who feels this way, as less than half of Canadians have made a will and a large proportion of Canadians die without ever making a will.

From what I have read, making a will is a fairly straight-forward and relatively inexpensive process.  Here are the main types of wills:

• Holograph Will – This may simply be a few hand-written lines accompanied by your signature.  Valid in most provinces, this would be the most inexpensive way to go (no pun intended), but may not be in the best interests of your loved ones should you have a complicated estate.
• Conventional Will – You can draw up a conventional will yourself, or have someone (a lawyer) prepare one for you. You must sign and date your will to make it valid. Depending on your province of residence, your signature must be witnessed by one or two people.
• Living Will – Formally known as an Advance Health Care Directive. These specify the nature of medical treatment you wish to receive (or not receive) if you become incapable of communicating your own wishes. Not all provinces have laws making health care directives binding. These can be complicated, and are best drawn up with the help of a legal advisor.

I hope to make this a priority and meet with a lawyer to draw up a conventional will in the next few months.

Adequate Life Insurance:

Again, I don’t really have much of an excuse for this.  When I started my new job, there is a mandatory life insurance plan that all employees buy into.  The policy is set at $200k, although I do have the option to top-up this policy at my discretion.  I just don’t know the answer to the life insurance question – which is, how much is enough?

I’ve heard anywhere from 10 to 20 times salary is the general rule of thumb.  Personally, I think that’s crazy.  As long as all of your debts are covered and you have enough left over to support your surviving spouse for a few years, that should be plenty.

I would much rather have larger critical illness/disability insurance policies (which I do), because the likelihood of being off work due to illness or accident is far greater than an early death.

Perhaps I’ll look into a 10 year term policy to top up my life insurance to $500k.  Once the term expires I wouldn’t renew, as we’ll likely be self-insured at that point.

So there you have it, I confessed to my financial sins.  What about the readers, do you have anything to confess?