# 12 steps to financial independence



## Jon Chevreau (Apr 4, 2009)

A couple of bloggers have attempted to boil down the essential steps the protagonists took in my novel, Findependence Day: notably Larry MacDonald at Canadian Business here:

http://blog.canadianbusiness.com/road-to-financial-independence/

and here:

http://blog.canadianbusiness.com/12-tips-for-financial-independence/

To clarify, I did my own version of the "skeleton" of the novel and came up with 12 sequential steps, which I described at a talk at the Financial Forum in January. 

Jeff Wareham's Beyond Funds blog reproduced the 12 steps to financial independence here:

http://beyondfunds.blogspot.com/2009/01/lessons-from-findependence-day-by.html


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## archanfel (Apr 7, 2009)

> We all need a place to live and if you’re renting you’re still paying a mortgage: your landlord’s mortgage! Eventually, he or she has built up equity with your rent payments: you get to live there month by month but have nothing to show for it. In fact, the landlord will likely increase the rent each year to keep up with inflation.
> 
> Once you own a home and pay if off, your property taxes and maintenance expenses should come in at less than half what you’re paying out in rent. Of course, condos may also charge monthly maintenance fees.
> 
> The fastest route to a paid-for home is putting up a large down payment rather than take on the higher debt of a low-ratio mortgage. Once the emergency fund is established, keep maximizing contributions to the TFSA in order to accumulate a down payment for first home, preferably putting up 25% down payment.


Jon, I am afraid I don't agree with the above paragraph. Property taxes and maintenance are certainly not the only expenses left after mortgage is paid off. The opportunity cost of money tied up in home equity can easily make home ownership more costly than renting. 

For example, say I got $250,000 cash right now. I can either invest it in the stock market or I can buy a house using cash. With the stock market, I get dividends and capital gain. With the house, I get rent saved and home value appreciation. Therefore, home ownership should be evaluated just like a stock purchase. Let's say my monthly rent is $1500, that's $18,000 yearly. Property tax should be $2500 and maintenance is usually estimated as 1-2% of the home value, that's another $2500. The net rent saved is $13000, or 5.2% yield, which is good, but not spectacular considering that home appreciation are historically much slower than capital gain. In certain cities (like Toronto), the yield is probably even lower due to the unfavorable rent/price ratio. 

Another issue with home ownership is living above one's need. Because home purchase is such a major investment, people tends to leave rooms for growth. For example, they will usually budget for future children, inlaw visitings, etc...., which means a couple can live in a 3-4 bedroom home unnecessarily. Thus causes significant drains on a family's finances. 

I still think home ownership is not a bad investment, especially considering the favourable tax treatments. However, I don't think it's necessarily helpful for the road to financial independence.


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## CanadianCapitalist (Mar 31, 2009)

archanfel said:


> Therefore, home ownership should be evaluated just like a stock purchase.


In theory, everything you've said here is true. But in practice, it doesn't work out that way (keeping in mind I'm taking about the average experience of most people here). Numerous studies have shown that mutual fund investors earn much less than the returns of the mutual funds, stock investors earn far less than the market averages (DALBAR study) etc. I think the reason is very simple: it is so easy to buy or sell stock (usually takes only a push of a button) but not so with residential homes. Houses are relatively illiquid not to mention the hassles and headache involved in moving. So, people stay put and get the benefits of long-term ownership. 

Also, home ownership initially costs more than renting, which forces home owners to save more. In theory, renting and wisely investing the savings will put a person ahead. In practice, any savings coming from renting over owning will be spent.


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## archanfel (Apr 7, 2009)

CanadianCapitalist said:


> In theory, everything you've said here is true. But in practice, it doesn't work out that way (keeping in mind I'm taking about the average experience of most people here). Numerous studies have shown that mutual fund investors earn much less than the returns of the mutual funds, stock investors earn far less than the market averages (DALBAR study) etc. I think the reason is very simple: it is so easy to buy or sell stock (usually takes only a push of a button) but not so with residential homes. Houses are relatively illiquid not to mention the hassles and headache involved in moving. So, people stay put and get the benefits of long-term ownership.
> 
> Also, home ownership initially costs more than renting, which forces home owners to save more. In theory, renting and wisely investing the savings will put a person ahead. In practice, any savings coming from renting over owning will be spent.


That's a good point. Home ownership does force people to save and stick with their investment.


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## Jon Chevreau (Apr 4, 2009)

The stock market may give you capital gains and dividends; then again you may get losses and dividend cuts, as with General Electric. Not sure if I read you correctly: if you're talking a Turner-like "The Strategy" of sucking equity out of a home, I wouldn't agree with you. Others may. 

So I repeat Theo's line: "a paid-for home is the foundation of financial independence."

www.financialpost.com/fd


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## archanfel (Apr 7, 2009)

Jon Chevreau said:


> The stock market may give you capital gains and dividends; then again you may get losses and dividend cuts, as with General Electric. Not sure if I read you correctly: if you're talking a Turner-like "The Strategy" of sucking equity out of a home, I wouldn't agree with you. Others may.
> 
> So I repeat Theo's line: "a paid-for home is the foundation of financial independence."
> 
> www.financialpost.com/fd


Yes, stock market has its risks (GE is a non-system risk that can be easily avoided by diversification, but system risks would still remain), but so does real estate. What I was trying to say was that home ownership can cost significantly more than renting (even after the mortgage is paid off), thus potentially lower one's net worth, costing him financial independence in the end.


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## ethos1 (Apr 4, 2009)

I agree that carrying a mortgage to get to finally owning a home is forced savings.

On the other hand a home totally paid for can and does as Archanfel said, could cost a lot of money in upkeep

In the area that I live in Pickering there are two identical 2400 sq'ft homes on the same street (circa 1990) - one is for sale at $375k (market price) the other is a rental at $1600/mth

taking away the ultilities which each has to pay, the comparison is

The mortgage free home owner pays insurance, maintenance and property taxes, which I figure is about $4500 - $5000 year ($400/mth)

The renter has only the rent and contents insurance to pay

Should the home owner sell their house then puts the money into GIC or dividend paying stocks & rents for $1600/mth - they would have positive cash-flow as well as the original equity in cash

Owning a home that is paid off is fine for most, so is having the equity in it - but paying the running costs and not having access to the equity is a negative IMO - it can reduce the total equity value as well in some cases for seniors have them struggling

Renting is not for everyone, neither is leveraging your home for investment purposes. Its a tough decision and one which each must figure out the best choice for them based on their financial savvy and the countless sleep easy or sleepless nights you may have

Then there is reverse mortgages

There are I'm sure many seniors that live in million dollar homes or any home that is paid off who are struggling to pay the running costs & who do not have enough food or warmth. But not too worry - when the senior(s) die the family will be thankful for the generosity of their frugal dead relatives


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## DrStan (Apr 5, 2009)

Jon Chevreau said:


> The stock market may give you capital gains and dividends; then again you may get losses and dividend cuts, as with General Electric. Not sure if I read you correctly: if you're talking a Turner-like "The Strategy" of sucking equity out of a home, I wouldn't agree with you. Others may.
> 
> So I repeat Theo's line: "a paid-for home is the foundation of financial independence."
> 
> www.financialpost.com/fd



What many people fail to take into consideration is that the home you buy will likely be larger and more luxurious than any rental accommodation. For instance, renting the equivalent to my home would be something like $2K per month, making ownership an attractive solution. Of course, I could rent for $900 a month, but the two properties would not be of equal size and quality. If someone is perfectly happy living in a rental at a low price, doesn't need the extra room, doesn't want to customize and doesn't enjoy maintenance, etc., rental is fine. 

As pertains to the "12 steps" Mr. Chevreau mentions, I can't find a single thing wrong with them. In fact, we have implemented successfully every single one of these steps, except number 3, hiring a financial advisor, and 11, because we plan on never touching the TFSAs.

1. Eliminate debt. Done.
2. Be frugal. Well... getting all the other steps right makes this one a bit less important.
3. Prepare a financial plan. Done, but without an advisor. It's still very detailed and I'm sure it would stand up to any scrutiny.
4. Use TFSAs. Done.
5. Enrol in pension plan/RRSPs. Topped up.
6. Buy a home. Done.
7. Prepay the mortage. Done, paid off. 
8. Protect your family. Done with term insurance.
9. Teach your children. Absolutely.
10. Use TFSA for big purchases. Better than debt, if it's required.
11. Use a non-registered plan. Done and growing nicely.
12. Develop multiple streams of income. Done: freelance and dividends.

For the vast majority of Canadian families, this represents very sound advice. I think the most important are : 

1. Eliminating crippling consumer debt
2. Saving for retirement
3. Protecting your family with adequate insurance

Baby stuff, but so many people screw up the basics. Just get this done, and you're on your way.


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## Rickson9 (Apr 9, 2009)

DrStan said:


> 1. Eliminate debt.
> 2. Be frugal.
> 3. Prepare a financial plan.
> 4. Use TFSAs.
> ...


I never read the 12-steps in context, but they all sound good!


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## archanfel (Apr 7, 2009)

DrStan said:


> What many people fail to take into consideration is that the home you buy will likely be larger and more luxurious than any rental accommodation. For instance, renting the equivalent to my home would be something like $2K per month, making ownership an attractive solution. Of course, I could rent for $900 a month, but the two properties would not be of equal size and quality. If someone is perfectly happy living in a rental at a low price, doesn't need the extra room, doesn't want to customize and doesn't enjoy maintenance, etc., rental is fine.
> 
> As pertains to the "12 steps" Mr. Chevreau mentions, I can't find a single thing wrong with them. In fact, we have implemented successfully every single one of these steps, except number 3, hiring a financial advisor, and 11, because we plan on never touching the TFSAs.
> 
> ...


Exactly. I lived in shared accommodations for years. For several hundred dollars with TV and Internet included, it's hard to beat in Toronto. 

As for the 12 steps:

1. Eliminate debt. Done.
2. Be frugal. I am bordering being cheap. 
3. Prepare a financial plan. Not really. I do my best, that's all I can do. 
4. Use TFSAs. Done, but not invested yet. 
5. Enrol in pension plan/RRSPs. Maximized. 
6. Buy a home. Renting. I plan to buy using cash before I retire for the tax benefits though. 
7. Prepay the mortage. Don't have one. 
8. Protect your family. Never. It's the same as gambling, just reversed. The odds is never in our favour.
9. Teach your children. N/A. 
10. Use TFSA for big purchases. Not really. Can't think of a purchase that would need to touch TFSA.
11. Use a non-registered plan. Done and losing nicely.  
12. Develop multiple streams of income. Too lazy.  I really need to work on this.


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## ethos1 (Apr 4, 2009)

1. _Eliminate debt._ Done.
2. _Be frugal._ you cannot get any better than me
3. _Prepare a financial plan. _Done, and I found in later years it was easier than I thought - no panic/no worry - sleep well every night 5-hours is all that I need
4. _Use TFSAs._ Done, but do not understand "use". see question #10
5. _Enrol in pension plan/RRSPs._ Done
6. _Buy a home._ Done.
7. _Prepay the mortage._ Done, paid off. 
8. _Protect your family._ Done with term insurance, although kids are gone so its time to cancel it.
9. _Teach your children._ Always. The problem is getting them to listen & as grown children they are even worse than they were when they were teens
10. _Use TFSA for big purchases._ never, because there wont be any.
11. _Use a non-registered plan._ 'Use' - does not make sense, but anyway if it means have income from the RRSP's the answer is yes. If it means use RRSP's to buy a first home, then this does not apply too me
12. _Develop multiple streams of income._ Done: guaranteed passive income is now greater than the employment income


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## CanadianCapitalist (Mar 31, 2009)

DrStan said:


> 1. Eliminate debt. We never had any significant consumer debt to begin with.
> 2. Be frugal. I think we are very thrifty because our life style is a couple of steps lower that what we our incomes would allow.
> 3. Prepare a financial plan. (and IPS). Check.
> 4. Use TFSAs. Not yet done but will be fully maximized every year, for sure.
> ...


It is not mentioned here but one important step that should be added is:

*Invest wisely, by controlling expenses and emotions*

It is true that without the above step, financial freedom is still possible but following the step puts us on the fast track to achieving it. I don't want to get into another active/passive debate but all investors, whether active or passive, would be better off if they follow this rule.


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## DrStan (Apr 5, 2009)

archanfel said:


> Exactly. I lived in shared accommodations for years. For several hundred dollars with TV and Internet included, it's hard to beat in Toronto.
> 
> As for the 12 steps:
> 
> 8. Protect your family. Never. It's the same as gambling, just reversed. The odds is never in our favour.


This is wrong. Insurance is simply not the same as gambling. Insurance is to protect yourself against life's crippling blows. The odds are I won't die tomorrow, but if I did, my wife and two kids would be ruined without insurance. Bye bye, nice house, education savings, etc. This is what you need to protect yourself against. 

If you have no dependents, you don't need life insurance. But those who do absolutely need some until they are wealthy enough so that their passing would not cripple their dependents. Same goes for liability insurance. Having my car damaged in a parking lot wouldn't ruin me, but severely injuring another driver or pedestrian could. Or house insurance. I would be ruined if my house burned down. I do keep $1000 deductibles on car and home insurance, but I don't skimp on life insurance. I figure I will only need to renew my current T10 once, in about 3 years, and when that term is up we won't need life insurance at all because we will be self-insured. I'm happy to give away some profit margin to my insurance company to make sure my family is protected.


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## archanfel (Apr 7, 2009)

DrStan said:


> This is wrong. Insurance is simply not the same as gambling. Insurance is to protect yourself against life's crippling blows. The odds are I won't die tomorrow, but if I did, my wife and two kids would be ruined without insurance. Bye bye, nice house, education savings, etc. This is what you need to protect yourself against.
> 
> If you have no dependents, you don't need life insurance. But those who do absolutely need some until they are wealthy enough so that their passing would not cripple their dependents. Same goes for liability insurance. Having my car damaged in a parking lot wouldn't ruin me, but severely injuring another driver or pedestrian could. Or house insurance. I would be ruined if my house burned down. I do keep $1000 deductibles on car and home insurance, but I don't skimp on life insurance. I figure I will only need to renew my current T10 once, in about 3 years, and when that term is up we won't need life insurance at all because we will be self-insured. I'm happy to give away some profit margin to my insurance company to make sure my family is protected.


For both gambling and insurance, the return is chance x payout. And both the lotto company and the insurance companies reap huge profits from the odds. 

We try to keep our finance fairly separated, therefore neither would be in trouble if the other one perishes. My death wish is fairly simple. Dig a hole, throw the body in and let the worms eat it, so not much final costs. My asset should last the family for a while. Even if I bought a $100,000 insurance, it would not be all that significant. That's another reason I don't like house. It's just too illiquid and have too much fix costs associated whereas renting is a lot more flexible. 

Car insurance is difference since the payout would be unlimited. My friends in the insurance companies said they usually hate car insurance since it's impossible to predict the damages. A client hit a bridge once and they lost millions on that one.


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## DrStan (Apr 5, 2009)

archanfel said:


> For both gambling and insurance, the return is chance x payout. And both the lotto company and the insurance companies reap huge profits from the odds.
> 
> We try to keep our finance fairly separated, therefore neither would be in trouble if the other one perishes. My death wish is fairly simple. Dig a hole, throw the body in and let the worms eat it, so not much final costs. My asset should last the family for a while. Even if I bought a $100,000 insurance, it would not be all that significant. That's another reason I don't like house. It's just too illiquid and have too much fix costs associated whereas renting is a lot more flexible.
> 
> Car insurance is difference since the payout would be unlimited. My friends in the insurance companies said they usually hate car insurance since it's impossible to predict the damages. A client hit a bridge once and they lost millions on that one.


I believe you don't have dependents, so you don't really need life insurance, which is my point exactly. If I had no kids and no house, there's no way I would pay for life insurance (actually, it should be called death insurance). I do think it's a wise expense if the need is real and you stick with term insurance, which is relatively cheap. I think it's great that the odds are I won't croak tomorrow, and I hope the insurance company is right on that end!


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## George (Apr 3, 2009)

archanfel said:


> For both gambling and insurance, the return is chance x payout. And both the lotto company and the insurance companies reap huge profits from the odds.
> 
> We try to keep our finance fairly separated, therefore neither would be in trouble if the other one perishes. My death wish is fairly simple. Dig a hole, throw the body in and let the worms eat it, so not much final costs. My asset should last the family for a while. Even if I bought a $100,000 insurance, it would not be all that significant. That's another reason I don't like house. It's just too illiquid and have too much fix costs associated whereas renting is a lot more flexible.


Even if your finances are separated from your spouse, the bottom line is that when you have other people who depend on your income for their livelihood, you need to have life insurance to replace at least a portion of that income if you die suddenly.

Basic term life insurance, particularly for young families, is cheap. A $500k joint first-to-die term policy can be had for a young couple for about $500 a year, or about $42 per month. Most families spend more than that on their cell phones. There's no reason not to have it, if you have kids.


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## CanadianCapitalist (Mar 31, 2009)

We didn't have any life insurance other than being offered through work before we had kids. After the kids were born, life insurance is a must. Like other posters pointed out, term life is extremely cheap and a no-brainer in my opinion.


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## archanfel (Apr 7, 2009)

George said:


> Even if your finances are separated from your spouse, the bottom line is that when you have other people who depend on your income for their livelihood, you need to have life insurance to replace at least a portion of that income if you die suddenly.
> 
> Basic term life insurance, particularly for young families, is cheap. A $500k joint first-to-die term policy can be had for a young couple for about $500 a year, or about $42 per month. Most families spend more than that on their cell phones. There's no reason not to have it, if you have kids.


No matter how cheap it is, there must be a reason a company spending so much efforts selling it. It's like when I meet my financial advisor, she is all nice and smiling, you know she will get something out of it. 

I also don't think my kids would be depending on me for their livelihood. What if I lose my job and couldn't find another one? I don't think the life insurance policy would cover suicide. I think they would be supported by the social network. God knows I pay enough taxes for those.


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## George (Apr 3, 2009)

archanfel said:


> No matter how cheap it is, there must be a reason a company spending so much efforts selling it. It's like when I meet my financial advisor, she is all nice and smiling, you know she will get something out of it.
> 
> I also don't think my kids would be depending on me for their livelihood. What if I lose my job and couldn't find another one? I don't think the life insurance policy would cover suicide. I think they would be supported by the social network. God knows I pay enough taxes for those.


Insurance companies *don't* spend a lot of money selling basic term insurance - most of their efforts go toward whole-life and universal-life policies, which are far more profitable. In any event, I want the insurance company to make money from my life insurance policy - given the choice between "making them pay" and staying alive, I think I'd choose the latter.

It really sounds like you're rationalizing your avoidance of life insurance on the basis that it's a money grab for the life insurance companies, or on the basis that it'll somehow increase your likelihood of death. Neither is true.

Your children (if you have any) clearly depend on you for their livelihood - it's the job of a parent to feed, clothe, and shelter a child. Sure, they could help out and get part-time jobs once they are teenagers, but that isn't a possibility when they're babies or in elementary school.

Life insurance isn't meant to cover job loss or suicide - it's meant to replace your income if you meet an early death. The government-paid "social network" you seem to be referring to simply doesn't exist, unless you like the idea of your children being put into foster care rather than with a caregiver that you know and trust.

If you have young children, life insurance is absolutely essential. The sudden loss of a parent/spouse is an extremely difficult *emotional *event, and it makes no sense to make it a more painful *financial *event for the surviving spouse and children.


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## archanfel (Apr 7, 2009)

George said:


> Insurance companies *don't* spend a lot of money selling basic term insurance - most of their efforts go toward whole-life and universal-life policies, which are far more profitable. In any event, I want the insurance company to make money from my life insurance policy - given the choice between "making them pay" and staying alive, I think I'd choose the latter.
> 
> It really sounds like you're rationalizing your avoidance of life insurance on the basis that it's a money grab for the life insurance companies, or on the basis that it'll somehow increase your likelihood of death. Neither is true.
> 
> ...


Why would having a life insurance improve the odds of "staying alive"? If anything, I would think it would make a lot of people wishing you to die. Lawyers, financial advisors, funeral homes, the sharks will start to circle once they smell money, especially if you are worth more dead than alive. 

I am also not sure whether having insurance would make the financial events any less painful. In fact, the cheaper the insurance, the more skeptical I would be. They have to make money from somewhere. I have never dealt with a life insurance company before, so I might be over thinking this, but I don't really want my family to jump through hoops for money that is rightfully theirs. My experience has been that when people want money from you, they would be all nice and smile. And when you exercise your rights bought with the money (like getting a refund, or ask for warranty), they would suddenly become rude, making excuses and would not return your calls. I'd rather my family go home, open my bank account and find out I stashed $8000 (10 years worth of premium) in there to last them 6 months. 

As for social network, they better be there. I paid a lot of tax money for them. It's not going to be a comfortable ride for sure, but I'd expect the basics are there. Like student loans, help for single mother, etc... As I said, I might lose my job or become disabled, life insurance does not protect against those. Me dying suddenly is the least of my concerns.

Maybe I will change my mind once I get older. I mean I never thought in my lifetime I would be shopping for a mattress in Sears. I mean what for? I slept on hard board just fine. Yet now I am deciding between a latex one and a pocket coil one. Still a total waste of money if you ask me, but what can you do? Sigh....


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## CanadianCapitalist (Mar 31, 2009)

archanfel said:


> In fact, the cheaper the insurance, the more skeptical I would be. They have to make money from somewhere. I have never dealt with a life insurance company before, so I might be over thinking this, but I don't really want my family to jump through hoops for money that is rightfully theirs.


The reason term life insurance is cheap for young(er) people is quite simple: the odds of dying are very small. Sure, the insurance company is probably making a profit on the underwriting alone (and in addition gets to use the float for free) but that's the wrong way to think about it. Insurance should cover risks that you may be unable to bear. And the loss of a parent for a young family would be financially devastating. 

The same goes for fire insurance. The premiums are relatively cheap precisely because the odds of a fire are small.


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## ethos1 (Apr 4, 2009)

on insurance, there have been interesting comments & since I am closer to 65 than most posting who are discussing life & death insurance, I view it this way

>Single - probably need none
>Married & no kids - probably need none
>Married with kids - yes of course as income replacement to get the survivor spouse through the tough stretches
> Divorced with kids - yes, continue to have life insurance
> Married empty nesters - of course, continue to have some insurance just in case one of you pops off while still in the working age group
> Married & close to the age 65 retirement - need very little to none
> Widowed (one of you has gone) - then there is no need to continue to have any, unless you can afford to pay term and want to leave something to someone

At 62 both my wife & I have personal term life $250k & $500k respectively. The total cost is about $1500/yr. The current 5-year renewal rate and term expires when we reach 65, when we shall not renew. 

Should we cancel it now, or wait till 65?


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## johnsazzr (Apr 20, 2009)

CanadianCapitalist said:


> We didn't have any life insurance other than being offered through work before we had kids. After the kids were born, life insurance is a must. Like other posters pointed out, term life is extremely cheap and a no-brainer in my opinion.


Absolutely..having lost my first wife 10 yrs ago with an 18mth old and 3 yr old...it is now the FIRST item I check off the list for families with kids..its so cheap..


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## George (Apr 3, 2009)

archanfel said:


> Why would having a life insurance improve the odds of "staying alive"? If anything, I would think it would make a lot of people wishing you to die. Lawyers, financial advisors, funeral homes, the sharks will start to circle once they smell money, especially if you are worth more dead than alive.


I think you missed my point. Many people avoid buying life insurance because if forces them to think about their own death, which isn't a pleasant subject. The reality is that your chances of dying aren't any higher (or lower) if you have a life insurance policy.



archanfel said:


> I am also not sure whether having insurance would make the financial events any less painful.


If you suddenly died and your spouse was left in the position of having to care for your children, earn a living, and pay off your mortgage, they'll probably have an extremely hard time to do so. 

Your need for insurance varies greatly with your life situation - if you have kids and jointly-held debts (i.e. a mortgage), then you NEED insurance. If you don't have kids, or they're grown up, or you have a huge wad of cash in the bank (hundreds of thousands), then insurance isn't needed.



archanfel said:


> I have never dealt with a life insurance company before, so I might be over thinking this, but I don't really want my family to jump through hoops for money that is rightfully theirs. My experience has been that when people want money from you, they would be all nice and smile. And when you exercise your rights bought with the money (like getting a refund, or ask for warranty), they would suddenly become rude, making excuses and would not return your calls. I'd rather my family go home, open my bank account and find out I stashed $8000 (10 years worth of premium) in there to last them 6 months.


Insurance companies are generally pretty easy to deal with when they know you're making a claim for a life insurance payout. All your spouse should have to do is submit a death certificate to receive the cash.

Bear in mind that $8000 is about enough to pay for your funeral and burial costs, nothing more. It won't replace your paycheque, and it won't pay off any of your debts.



archanfel said:


> As for social network, they better be there. I paid a lot of tax money for them. It's not going to be a comfortable ride for sure, but I'd expect the basics are there. Like student loans, help for single mother, etc... As I said, I might lose my job or become disabled, life insurance does not protect against those. Me dying suddenly is the least of my concerns.


I'm not sure what kind of social supports you think are out there, but "help for single mother" doesn't amount to very much - try asking a few single mothers what kind of help they get from the government and you'll have an idea (it isn't much).

Life insurance isn't meant to protect against job loss or disability, but it is meant to replace your income.

Sudden death isn't common for young people, but it does happen - illnesses can unexpectedly strike young people, and there's always the possibility of dying in an accident, especially if you do a lot of driving.

I stand by my original point - the cost of a few hundred thousand dollars in basic term life insurance shouldn't cost more than your CELL PHONE BILL. Think of it as a gift to your survivors, in the unlikely event of your death.


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## MoneyEnergy (Apr 5, 2009)

As for buying a house vs. renting on the road to findependence, I'm finding myself starting to pay more attention to arguments about why renting can be more advantageous.

In the video "Crash Course" which I watched just last night (YouTube Chris Martenson, CrashCourse - but see his website first), they raise the example of rising home equity vis a vis inflation.

Basically, home values rise at least in tandem with inflation (due to the materials costs of building homes, etc.) - of course they certainly can rise *more* than inflation too (as happened in the last bubble). But the example brought up was that if your $250,000 home appreciates to $500,000 and you decide to sell it in order to get that equity, for example, you still have to buy another house (NB: unless you decide to rent, of course....). 

And if you buy another house, all the other home prices will also have largely gone up by that point for the same general reasons that yours did, so you might be stuck buying another house of around the same new value of $500,000 (using easy numbers here; obviously you could probably find one at $450,000 etc.).

So insofar as home equities rise with inflation in this sense, it's somewhat of an illusion to think it's really easy to walk away with "new money" - or at least, very much of it. If you fully pay off your house, great - but all that equity isn't necessarily available - .... it's a bit better if you stay in the same house, perhaps.

I think it's probably best to use a fully paid-off house and rent out a room. That, to me, is the most solid benefit of home owning from my understanding at this point. I certainly plan to do that in the future.


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## canabiz (Apr 4, 2009)

MoneyEnergy: I have reservations about renting out a room in my principal residence. We actually thought about it and did some due diligence and to us: the negatives outweigh the benefits.

I don't know your personal situation so I won't generalize anything but we don't feel comfortable having a stranger in our house, no matter how spotless the credit checks or the criminal records are. If you have kids, that is another issue altogether. You can rent rooms to acquaintances or family members but I always try to keep the 2 separate i.e. finance and relatives. 

It's different if we have a rental property but if things go sour between us and the tenant, for whatever reasons, the last thing I want to happen is for him/her to be in the right place at the wrong time, if you know what I mean. 

But your mileage may vary, i have seen folks renting out rooms, especially to international students who *should* be on their best terms, seeing they have invested a good chunk of coins to come here and study, and they have developed good relationships while generating healthy cash flows at the same time.

Best of luck in whatever you decide to do!


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## MoneyGal (Apr 24, 2009)

Actually, buying life insurance may *reduce* your chance of death. This is a phenomenon known in medical science as the "healthy user bias." 

In short, this bias is: people who regularly do things that are good for them (or are prescribed to them, if you can think about the many expert recommendations for adequate life insurance as like a "prescription" for life insurance) experience a reduced risk of dying from all causes, _even in accidents_.

Here's a link to a long article on the medical science.


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## steve41 (Apr 18, 2009)

What this indicates is that if you decide to take out life insurance thinking it will increase your life expectancy, you probably won't increase your life expectancy, however people who are inclined to carry life insurance as a general rule, will.

i.e. the latter individual is inclined to a healthier, less risky, lifestyle.. diet, non-smoking, exercise.. etc.


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## MoneyGal (Apr 24, 2009)

Yeppers; exactly.


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## the new guy (May 4, 2009)

*12 tips for financial independence*

In the link to 12 tips for financial independence, it mentions that "a typical person achieves financial independence after saving and investing a minimum of 24 years (as defined by alternate income sources exceeding primary salary source). 

Questions:
i) Does financial independence = retirement readiness? if so,
ii) Does this imply that the litmust test for retirement readiness is this vs. achieving the present value of a sum that can fund the future value cash flow streams required throughout retirement?






Jon Chevreau said:


> A couple of bloggers have attempted to boil down the essential steps the protagonists took in my novel, Findependence Day: notably Larry MacDonald at Canadian Business here:
> 
> http://blog.canadianbusiness.com/road-to-financial-independence/
> 
> ...


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