Step 6 – Build Your Security Basket
The Security Basket as prescribed by Bach denotes exactly its name – protection versus the unexpected; as we all know that “stuff” always happens to our scheduled lives.
“Hope for the best and plan for the worst” is verbatim for this particular basket. So what kind of security would benefit both the individual and couple?
Bach highlights six safeguards that everyone should set up to achieve financial security:
Straight-up cash accessible within 24 hours for an emergency provides a comfortable cushion for anyone. Banking 3 months minimum of living expenses through an outside source from your local bank would be suffice. Minimum interest rates for any these accounts should start around two percent to cover inflation at the least.
Hubby and I are aiming for three months – this is what we decided is not paranoia yet. Running the numbers puts us at around $15,000 – very comfortable of course. It’s interesting that this is probably the hardest security blanket in the basket for us as it’s just a large chunk of cash in waiting. We’re struggling between paying off bad debts and contributing to this fund. We’ll be at the $5000 mark next month, so looks like we have another two years to build this? Better something than nothing… As our debt reduction snowballs this account will surely grow faster as well.
Will & Living Trust
We all must inevitably face the question “what happens when you die?”. Establishing a will and living trust answers this, unique to each owner while addressing important decisions when you leave this world.
Families deserve clear legal direction with your estate should you get terminally ill or we pray not both of you die simultaneously. Have an estate planning lawyer draft up your will for between $400 to $1,000 and a living trust between $1,000 and $2,500. While trusts are a bit more expensive they certainly prove worthy if avoiding probate.
Common mistakes to avoid when establishing a trust include not following it through (give yourself a deadline to complete), hiding relevant documents (give a copy to your lawyer and notify loved ones of access information), and not updating on a regular basis. Bach recommends updating both your will and trust at least every five years and at pivotal life changes such as having children. And why not check in with your parents as well?
We really don’t know where are parents are at with this. While we haven’t put these together yet either, our financial advisor did send us home with the information to start with. We’ve made a point to review it together but still need a lawyer to represent us. I think once we have these both established (deadline end of 2010), we can then turn to help both our parents’ progress objectively.
Bottom-line: the sooner you jump on this bandwagon, the cheaper. Life Insurance is a protection plan that covers your dependants. When purchasing, ask yourself…
Who relies on our income right now?
In our situation, it’s just us – and Chuck Norris. Pretty simple and cheap for the time being – which is exactly why we took care of this right away.
What does a year cost for your dependent?
This is something our financial planner walked us through as it would have been overwhelming for us to put these numbers together.
Do you carry any large debts you would like taken care of?
Do your family a favour and have any outstanding bad debt taken care of – even covering funeral expenses takes a huge burden off those continuing on…
The last thing either of us wants is to leave our loved ones with additional financial stress in any form. We included our conducive loans (auto, mortgage, line of credit), but the smaller debt including credit cards are on the board to be paid off this year so we didn’t bother with these.
Do either of you have a company policy?
Understand what kind of coverage you have with your company if provided. A good review with your financial planner will highlight any additional coverage needed. Awareness is always your best support in these matters. Bach recommends taking a policy with a death benefit that totals between six and 20 times your annual spending needs.
This places us between $330,000 and $1,100,000; as our current policy stands at $400,000 each I think we are sufficiently covered until children come into the picture – until then we don’t really need all that much coverage.
As expected there are many types of life insurance available:
Term Insurance – annual renewable or level term
Permanent Insurance – whole life, universal life, or variable universal life
There’s no way I’m going to try to summarize the differences, so now that you have the terminology – Google it and do some research. We currently hold term and will eventually convert to permanent as established through numerous consultation meetings with our financial advisor. We feel both well informed and confident with our choice in life insurance as you should when choosing your own plan.
Here’s some further reading:
Everyone knows the story of Christopher Reeve or you should. Bach also highlights some scary statistics:
One out of every 88 homes will catch fire.
One out of every 70 cars will be in a serious accident.
Chances of becoming disabled are 9 to 11 times higher than both of these.
Why do we need disability insurance? Because losing your primary income seriously threatens anyone’s financial security.
Again – for more information check out Bach’s recommended websites and of course, talk to your financial advisor about your best fit:
This is another task on the to-do list for us. Once B is working full-time again, we can consider apportioning this expense into our budget. For the time being, we’ll be reviewing our needs and options with our financial guru who is also a strong advocate as his own father is a paraplegic. Unfortunately sometimes a close example becomes the motivation to be proactive with these issues.
Long-term Coverage Care
If you are over 60, this decision marks a higher priority.
As we are only in our first life quarter this does not apply for now. Our parents on the other hand, are approaching this life event in the next decade. Until then, I think more reading would be appropriate as Bach outlines critical questions when finally in the market for this coverage.