Shopping for insurance can be similar to shopping for a car with all the available options. This process is not so thrilling, but certain insurances are necessary for your financial security.   Most people realize they need life insurance at some point, but overlook insurance that will help them when they become sick or disabled, which I find funny, since we are statistically more likely to get sick than to die.

Medical technology advances every day – we are constantly hearing about new drugs being tested, robots doing surgeries and people surviving diseases that used to mean certain death.  Despite knowing this, there is still a lack of consideration for what will happen financially if one becomes critically ill.  Have you ever wondered how your regular living expenses might increase during these times?  What if you wanted the newest and greatest drug? Or you had to travel out of town to get to the hospital with the most experience?  Maybe you want to go to the US?  How will you afford for your spouse to take time off work to be with you? What will you do with your kids while you are both tied up?

The majority of people have disability insurance that will replace a portion of their income during a time they cannot work.  If you don’t have disability insurance and you earn an income, go get some now!  Disability insurance is without a doubt one of the most important aspects of your risk management plan.  However, will it be enough to cover both your regular living expenses (including retirement savings) and all the additional expenses that you are likely to incur with a critical illness?

Critical illness insurance provides a lump sum benefit in the event you are diagnosed with one of the covered illnesses in the contract (contracts can range from covering 3 illnesses to 25, such as cancer, Alzheimer’s and paralysis).  This money can be used in any way you like – but the purpose is to allow you to do whatever is needed in order to get better without worrying about financial consequences.  It is paid over and above your disability insurance, so they work in conjunction with each other.  There are many different plan types out there with many different features available so be sure to do your research before settling for one.

I frequently get asked if there is a situation where I should carry critical illness insurance and not disability insurance. What is the benefit of one over the other?  The truth is, they work as a perfect complement to each other; disability insurance will cover your typical living expenses, critical illness insurance will cover the extraordinary expenses that aren’t part of your day-to-day life.  If you can only afford one and not the other then I say get your disability insurance.  Disability insurance is like having brakes on a car, whereas critical illness insurance is more like the airbags.  If you had to have one or the other, which would you prefer?  Back to the question in the first paragraph, would you take the airbags if you were car shopping back in the 90’s?

For example, a plan that is short and easy to follow will have a better chance of being put in place than one that requires an accounting degree to understand. I don’t have statistics to back that up, but you won’t be able to convince me otherwise; it just makes sense.

Read his blog to find out the 5 other reasons why your financial plan might suck.

Why Your Financial Plan Sucks, by Joe Wood, from Boomer & Echo

I wrote a blog in the spring about cash flow (income minus expenses) and explained a simple way to figure out what you spend every year. However, another equally important number to know about in your financial picture is your Net Worth. You should always ensure that it’s moving in the right direction!

These days, with easy access to revolving credit, it’s too easy to overspend. Gone are the days when the bank account at zero meant no more money until pay day. To avoid digging ourselves into holes financially we need to take stock of our net worth every so often.

When you subtract everything you owe (liabilities) from everything you own (assets) you are left with your Net Worth. Makes sense, right? Funny enough, this number is usually quite different from your actual financial worth. Why? There are a few reasons for this but the big one is the deferred tax bill associated with certain assets like RRSPs, RRIFs, equity investments and real estate (other than your primary residence which receives an exemption when sold). These assets grow tax free until they are sold, then the taxes become payable. There are also brokerage and legal fees associated with selling a property.

So, if Net Worth isn’t an accurate depiction of your true financial worth, then why bother with it at all?

We bother because it is a great tool for tracking progress towards financial goals. Is your net worth increasing every year? Fast enough to get you the retirement you want? If your Net Worth is decreasing, or not increasing at the right pace, you are most likely overspending. This is why cash flow and net worth go hand in hand. To reach your financial goals you need to increase your net worth and to increase your net worth you need to have surplus cash flow. With these two things under control you will be well on your way to financial freedom.

How much money you do spend every month? Can’t answer that? Does it concern you? Join the club and read on.

Budgeting, tracking expenses – or whatever you want to call it – is a daunting task for most of us…and I mean “us”! With a young family of our own it feels like our money is flying out the door every time we blink. It’s quite scary sometimes. Recording every dollar we spend is a massive undertaking. Trust me, I’ve tried it and it never takes.

So, what’s the answer to the budgeting dilemma most of us face? I have come up with the most simple and irrefutable way to figure out monthly expenses. Call it your “burn ratio”, household budget, lifestyle expenses, discretionary income, surplus funds…whatever you like, it’s all the same. Here’s how to do it….

1. Look at you last year’s tax return to get your total income (line 150 of your T1 General) – that’s what you earned from all sources and if you don’t have it ask your accountant for it
2. Subtract total tax payable (line 435 of your T1 General)
3. Subtract regular mortgage and loan payments (multiply monthly payments by 12 to get annual totals)
4. Subtract contributions to all savings plans (look at either your bank account or investment statements for this information)
5. 5. Subtract insurance premiums (home, auto, life, health)

The leftover is what you spent last year. Divide it by 12 and that’s what you spent every month – and there’s no denying it. I really don’t care how it was spent. That is a personal thing. Although I do enjoy watching Gail Vaz-Oxlade telling people how much to put in each money jar….her approach works well too. Really well! But good luck with it.

Trudi St Marie from Zavitz Insurance is a strong supporter of funding research to find a cure for Duchenne. Her cousin’s son Louie, who is currently 4 years old, was diagnosed with the disease. It causes a degeneration of his muscles causing them to die off. This disease puts kids in wheelchairs and shortens their lifespan to an average of 25 years.

To help raise money, Trudi organized a trivia night at Zavitz Insurance where 90+ people participated. The event was a huge success and raised $2200.

In addition, Louie’s grandpa is walking 500kms from Owen Sound to London. To show her support for his grandpa and the disease, Trudi will be walking 100kms from May 12 -19th. She will also participate in the Jesse’s Journey walk on May 6th. To show our support for Trudi and this cause, Zavitz Insurance has donated $1500.

To learn more about the walk for Duchenne and how you can contribute or participate, please watch this short video: http://www.youtube.com/watch?v=H38dNvJk39c

The last thing any of us want is to burden our families. We use different types of insurance as a means to protect our families – and ourselves – from financial hardship. So what happens when we die? Who is responsible for paying off debts, taxes, funerals? The answer is, it depends. At death, the need for life insurance can depend on if you’re married, have children, or have debts that are co-signed. So when is the right time to buy life insurance? How much do you need? Despite what anyone might tell you, everyone’s needs are different. Here are a few guidelines to help you know when the time is right:

1. You have debts that someone has co-signed. If your debt is not co-signed and the answer to number 2 is ‘no’ then the bank can only take whatever assets you have to cover what is owed to them.

2. You have debts and are married. Once you are married, your debt becomes your spouse’s and vice versa. If something happens to you, your spouse is left with your debts.

3. You are married and your lifestyle is built based on total household income. For example, if you and your spouse are accustomed to a lifestyle that requires both incomes to afford, then the loss of one of those incomes would have a financial affect on the surviving spouse. Life insurance provides for a continuation of the lost income.

4. You have children. Whether or not your marriage is still intact, your children depend heavily on both you and your spouse for income and care.

5. You are concerned about your future insurability. The ability to get life insurance always depends on your health. By getting it now, you will lock in your insurability and do not have to worry about the state of your future health. If there is no other financial reason to have it then this results in an unnecessary expense but does provide for peace of mind.

There are many other more complicated reasons to get life insurance but these are the basics when you are first starting you careers, families and financial lives.

Many young families find it hard to make ends meet. You might not be earning your full income yet, and if you add a couple kids to the mix things can get tight fast. So how do you decide where to put your money? Here are the top 5 financial priorities that all young families need to address.

1. Protect your income. You and your family will not have any money to use if you can’t earn it. So what happens if you become ill or die prematurely? Life insurance and disability insurance are essential for young families.

2. Track spending and avoid debt. If you spend more than you earn by using credit cards and lines of credit without a thought, you are digging yourself a big hole. Figure out what your life costs every month. It’s unfortunate that this simple and free strategy is the one that is most often neglected.

3. Have a source of emergency funds. I used to tell people to have the equivalent of 3 to 6 months worth of expenses in a savings account in case of emergencies. Currently, that’s hard to justify with near zero returns on savings. Another option is to leave room on a line of credit. If you are desperate (not for a vacation or spa – I mean real emergencies) you can access these funds without ruining your financial plan. If the interest rate environment changes this advice may change as well.

4. Start saving for retirement. It is hard to plan for something so far away, but your retirement won’t take care of itself (even with a pension you will need your own savings). A dollar invested at age 25 has a lot more time to work for you than one invested at age 35 or 45. Start soon, even if it’s a small monthly amount.

5. Start saving for the kid’s education the year they are born. Do you want to pay for your kid’s education? There are many great options for education savings. But it comes fast, and it’s costly, so the earlier you start the better.

Don’t have enough money to cover the top 5? Talk to a financial planner to prioritize your financial priorities. The earlier the better!

I met with a client last week who just finished medical residency. He is in quite a bit of debt from medical school, has a mortgage and is finally making money. He came to me and our in-house financial planner, Jenn Morrison, with a question…what do I do with my income? Do I focus on paying down debt or do I invest since it is cheap to carry debt right now? Where will it be most effective? In the end, our conclusion was – Do both.

There are many arguments to maintaining your debt level in a low interest environment since debt is cheap. However, at the end of the day, no one can time the markets to know when you will achieve an amazing return on investments. You could potentially miss out on these returns if your money is not already in the game…not to mention the impact that compounding returns have over a long investment time frame. Just like you diversify your investment portfolio to hedge against these uncertainties in the market, so too should you diversify your debt repayment and saving mix. Regardless of how cheap debt is, you will still save a lot of money in the long run by paying down your principal faster. You will also avoid increased expenses should interest rates rise.

As simple as his question seemed to us at the time, it was a reminder to us of the value in diversifying and of obtaining advice. Not only did we help with finding a good mix of paying down debt and saving, we also provided him with the most tax efficient means of doing both and set him up with a financial plan that we can reference every year moving forward.

When you’re sick, do you call your doctor? When you need financial advice, do you call an advisor?

There are so many times when we want to do it ourselves. I’m a sucker for that. Why pay someone when I am perfectly competent? But there are also many times when we should consult the experts – one of which is for financial advice. Here are 5 reasons you should use a financial advisor:

1. Advisors are educated and have experience. I don’t pretend I could do without my doctor. Sure, Google might be consulted first but let’s be honest…doesn’t the internet always tell you it’s possibly cancer? Even if you do take the time to learn about financial issues, it changes overnight. What you learn today may not be appropriate or possible tomorrow. Advisors have access to the most up-to-date information in order to ensure we always know what’s relevant.
2. Financial planning is comprehensive! It is not simply about where to invest your money. It involves decisions like whether to pay down your mortgage or invest in an RRSP, or how to pay for your child’s education in the most tax efficient manner. It also involves estate planning, tax planning, retirement planning, risk management…the list could go on! All these pieces have to work together and advisors understand how to do that.
3. Advisors have relationships with the companies they deal with. Have you ever called Rogers or Bell and felt infuriated by the fact they didn’t understand your problem and were not helpful in finding a solution? I know I have! Advisors are your middle man so you can avoid phone calls with the large companies. They have relationships with you so can empathize with your issues, and they have relationships with the large companies so are not treated like they’re just another “number” when they call.
4. Advisors make sure that their clients stay on track through constant contact and reviews. Once a plan is implemented they want to make sure that life changes like buying a house, getting married, having a child, changing careers, market downturns and upturns, etc. are all taken into account and will recommend and implement changes to your plan accordingly. This helps clients remember their overall financial objective and the process to reach it. It also ensures diligence and execution!
5. Finally – Advisors are trained to see issues in their clients’ plans well before the client, and they can help plan accordingly before it is too late. There have been an astounding number of articles printed lately about people outliving their money in retirement. Advisors have the tools and knowledge to monitor that and work to prevent such an occurrence. We can’t predict the future, but we can try to plan for the worst possible scenario.