Best Bank for Saving Money

Why do you need more than one savings account?

 

Best Bank for Saving Money

Best Bank for Saving Money

We have a number of saving accounts. While some people are quite happy with having just one saving account, I like having a number of them for all our needs. To me, it just makes your saving goals clear and defined. You need to save some money for a new TV? Well, figure out how much money you need and make sure by certain date there’s that much money sitting in your “New TV fund” account – as opposed to lumping your savings into one account and not knowing what goals still need to be reached.

Investment account or what I call “Paying Ourselves First” account. This is where we transfer a set percentage of our income to be later invested.

Emergency fund. This is our rainy day fund – anytime we have an emergency, we have access to our own safety net as opposed to borrowing money or using credit cards. I already covered the importance of having an emergency fund a while ago. Last time our dryer broke down, the money came from our emergency fund without breaking the bank or monthly budget.

Gifts. My wife is one of the kindest and giving women I’ve ever met. She loooooves giving presents – and she gives a lot of thought to presents. Her brain has a built in calendar for birthday dates of anybody we’ve ever met. I on the other hand have terrible memory and can never pick anything meaningful – partly because I’m a practical kind of a guy. To make sure gifts and presents never throw our budgets out of whack (how it used happen right before Christmas), we’ve came up with a monthly figure we contribute towards gifts. It accumulates there month after month, and my wife can spend it anytime she needs.

New Car account. Our car is closing on 20 years by now – but it is in excellent shape and fairly low mileage of just over 200K. There’s not a single thing wrong with it, and for its age it looks absolutely fabulous. Honestly, it will be hard for me to say goodbye to our Donkey (that’s what we call it between me and my wife). But you never know what happens, and there might be a day when the engine completely gives or it gets stolen. Just in this case, we’ve been saving money for a new car – if the need for a new car arises. By now it’s almost fully funded, so we can just write a check and buy a new car – but for now we’re perfectly happy with our Donkey.

– Annual property taxes. We own our condo, and one of the pleasures home ownership comes with is the annual tax bill. Thankfully, our condo if quite affordable when it comes to taxes, and we just have to save around $90/month. Once a month we transfer $90 into this account, and come July pay our taxes. Easy, peasy, nice and breezy.

– Annual car insurance and condo insurance. These are pretty self-explanatory.

On top of it, sometimes I open accounts for small things we’re saving towards, for example a new couch or anything else we might want to buy that we have to save towards over few months.

 

What is the best bank for saving money?

 

Here’s how I define “the best bank for saving”:

– It has to be absolutely free. I haven’t paid any service fees in years, and would never pay for banking. No, even free banking in exchange for a min. balance won’t cut it – it has to be absolutely free!

– Funds have to be guaranteed by Canada Deposit Insurance Corporation (CDIC). If your bank goes bankrupt, CDIC will cover your funds up to $100,000.

– It has to be flexible. If we need to open an account, it has to be done quickly. Transferring money should be quick and painless.

– Money should be accessible at any time. Online, over the phone, or through an ATM.

 

Why I’ve chosen ING DIRECT?

 

I’ve been an ING DIRECT client for over 10 years by now, and I still consider them the best bank for saving money. I still remember their cheesy TV commercials when they first came to Canada – energetic fella telling us to “Save your money!” with a Dutch accent. It sounded so fresh and different from other banks, I had to check it out! Well, a mind-boggling interest amount paid out they’ve been proudly displaying online didn’t hurt.

1. ING Direct is absolutely free. No fees, no minimum balances.

2. ING Direct has an absolutely awesome mobile app to access your account along with online banking, phone banking, and access to ATMs. I’ve never had problems with getting a hold of customer service people, and their mobile web site is top notch. As a younger person, it is especially appealing to me – as transferring money on my iPhone sounds way easier than a trip to the bank branch.

3. ING Direct actually pays interest. While it’s not super high (1.35% last time I checked), it’s still higher than any “brick and mortar” bank such as RBC or CIBC.

4. You can deposit checks into your account (if you happen to have a checking account with ING) in your bedroom! By taking two pictures of a check with their app, you can deposit money straight into your account without the time-consuming trip to an ATM.

5. You can create as many accounts as you want. They all appear instantaneously online once you create them. Just as easy you can close them, move money between then, and set up savings goals. Every time me and my wife decide we have to start saving for something, we instantly open up an account and set up a monthly transfer goal.

On top of it, they also offer other products such as no-fee checking account (Thrive account), GIC’s, mutual funds, business accounts, and mortgage loans. On a side note, they happen to be the only bank in Canada that posts their real mortgage rates, as opposed to playing “bait and switch” game that other banks are famous for. I’m not familiar with their other products, so I’m not going to say much about them.

 

If you want to open a new account with ING…

 

It is surprisingly easy to open a new account – just go to their website, and have your SIN number ready. You’ll be surprised at how you lived without them after a while! And I know they’ve been bought out by HSBC recently, but personally I have no issues or worries about it. It’s a great business, and people who run it take a great pride in helping people save their money and reach their financial goals.

 

FREE MONEY???

 

1. Go to Tangerine Bank

2. Locate “Tangerine Savings Account” in the list and click “Enroll Now”

3. When filling out all the personal information, enter my Orange Key 14213984S1

 

Best Savings Account

Best Savings Account

 

 

Both you and I will enjoy some free money. No work involved besides signing up for an account. Life is beautiful, eh?

 

I am Financial Underdog, and I highly recommend having multiple bank accounts for your savings!

 

Should I Be Saving Money If I Won’t Be Living Long Enough to Retire?

What if I won’t be living long enough to retire?

 

On one of the forums I check out from time to time, somebody asked a question:

” – My brother-in-law puts very little thought into retirement savings. He has a tiny amount being funneled to a 401k and a small emergency fund. He isn’t a spendthrift, but isn’t interested in making a bigger effort. When I brought up my own plans, he told me he isn’t going to live long enough to retire.”

 

Is there a point to saving money then?

 

Well, here’s my personal opinion.

To me, saving money, improving your financial situation, and slowly building up your estate (portfolio, assets, whatever you want to call it) is not about living long enough to retire. The whole retirement thing as presented most of the time isn’t appealing to me at all – working hard all your life, saving up money, just to play golf all day and go on cruises once in a while? That’s just depressing if you ask me.

Living Long Enough to Retire

Living Long Enough to Retire

To me, having money is not about retirement. Heck, I don’t think I will ever retire. I think I will always work on something – if it’s not me working with my two hands, it might be an online business. If it’s not working on my own gig, it might be helping somebody with their company. Bottom line, the way retirement is portrayed most of the time is not something I am looking forward to, and it’s not why we’re working so hard on improving our finances.

 

What if I won’t be living long enough to retire?

 

Will everything I will do to that point be pointless? Of course not. If I do die early, my family won’t have to worry about money. My kids’ education will be taken care of so they can obtain their degrees. My wife won’t be forced to re-marry just because she can’t make it on her own – she will have enough money to make wise choices, not forced choice.

Having money will allow us take care of our parents and relatives – so we can always help them and not just find them a cheap retirement home where they won’t be treated right.

Having money is about freedom to do whatever you want to do – without worrying about your bi-weekly paycheck. There are things, I’m sure, you’ve always wanted to do but couldn’t because it would mean an end to your income. For example, I always wanted to cross Canada on a motorcycle. What if you didn’t have to worry about working 50 hours/week and bringing that paycheck? What if you could focus on your own personal interests for a while – money can make it possible.

Living Long Enough to Retire

Living Long Enough to Retire

Money is about helping others and sharing your wealth – and if you have plenty of money you can share it with a lot of people, and help a lot of people. You don’t have to retire to do that, and you can enjoy doing it way before that gray “near retirement” age.

And lastly, money is about being independent from circumstances. All of a sudden, you don’t have to worry about your car transmission. If it goes out, you just go ahead and fix it – or buy a new car altogether. You don’t have to put up with bad treatment at work – cause you can’t quit anytime, and take your time finding a better place to work for yourself.

None of these things have anything to do with living long enough to retire. And it’s not about being able to buy luxury cars or other “toys”. All of them mean comfort to your family, being able to take care of them, and just enjoying your life in general. Even if you don’t live long enough to retire in a traditional sense, money can greatly benefit your life. And that’s why I focus on working hard, managing money wisely, and investing for the future.

Have you ever asked yourself what money means to you?

Debt Pushers – They’re not your friends, they’re making money off of you

Just a little episode with debt pushers

 

Debt Pushers

Debt Pushers

 

We have a credit card account. Yes, despite all the talk about how bad they are for your personal finance, I do have one credit card. We mostly use it for online purchases (because debit credit cards are not very common in Canada yet as opposed to US) and paying monthly fees at YMCA. So, the balance always gets paid off, we never pay interest, and overall are more than responsible with it.

It just so happens that I had to put a business expense on my Visa. Now, usually it’s a fairly simple transaction – I put it in, and before paying the Visa bill, I cut myself a check for the expense amount, and deposit the check into my account. This way I don’t end up paying any interest or fees, business ultimately pays for the expense, and there’s enough paper trail for bookkeeping to be fairly simple. No big whoop. Now, this time around, the business expense was rather large. While usually our Visa bill is around $150 or so, the business expense sent it way over $3,000. Still, no big deal because I’ll just cut myself a check and pay it without any delays.

But what do I get in the mail along with my Visa bill?

 

” Dear Mr. Financial Underdog,

We are writing to you about your credit account and pleased to advise you that because you effectively managed your account, we would like to offer you a credit card increase. “

Nicely done, debt pushers. I can almost see your software ref flagging my account. ” – Hey, this guy usually spends only this amount on average, but this time around he went into stratosphere! Hey, may be he needs more credit? May be he’s in trouble and now paying his bills with his credit card, I wonder how much more business we can get from him? If we’re lucky, he lost his job, and we’ll hook him up with all the product he needs, just need to make it easier for him to access it. Let’s give him all he wants right now!”

Debt pushers are just like street gangs dealing drugs

 

Debt Pushers

Debt Pushers

 

There isn’t much difference between drug dealers and debt pushers. Same approach. A troubled customer is the best customer! Just a different product. And I especially like the part how they complimented me on effective management of my account! When people start putting on huge amounts on credit cards – that’s not effective.  Sure, my case is an anomaly, but in most cases it means people are out of control with their credit cards – and those are the best customers for banks, credit cards, and other debt pushers.

I’m not trying to say that banks are bad and credit cards companies are evil. They do what they do, and have a place in our economy. But at all times, you have to understand why they are doing what they’re doing. An increase in spending limit on your Visa benefits them, not you. Beware of snakes when you’re playing outside. Beware of gangs pushing their products on troubled customers – even if this product happens to be debt.

Secrets To Financial Fitness – Some similarities between financial and physical fitness and what we can learn from them!

A little intro to secrets to financial fitness…

 

Secrets to financial fitness – do they exist? Is there a set of things you can do that will turn you into a wealthy individual over a short period of time? Ever thought there might be one little thing you’re missing that will help you achieve financial independence?

I’d like to draw a parallel between personal and financial fitness. Once I’ve started thinking about it, I was shocked how similar these two areas are – and how similar are the struggles people face in each area. Ironically, I used to struggle greatly in both, but currently working really hard on improving these two areas of my life. Just like I used to live paycheck to paycheck and owed more money than I actually had – I’ve struggled physically by being out of shape, and almost having a heart attack when climbing stairs.

Eight months ago (33 years old and 55 lbs. overweight), I signed up for a gym membership. I walked into a gym and felt completely lost. I didn’t know what to do, I was afraid people will laugh at me if I ask them for help, and I wasn’t sure where to begin. But little by little, I’ve made some progress. I’m far from being in the shape of my dreams (if there’s such a thing), but I’m proud of the progress I’ve made so far.

Here’s some of my discoveries when it comes to secrets to personal fitness – and how they relate to secrets to financial fitness.

Secrets to financial fitness

Secrets to financial fitness

Nothing happens overnight – and there is no silver bullet

 

Despite what late-night commercials will tell you, you can never get into great shape by working out 8 minutes per day. In fact, it’s scientifically impossible! Getting into shape requires hard work, and constant improvements in your workout routine, diet, and lifestyle in general.

What about financial fitness? Same thing applies! You can’t just do one little thing and turn your paycheck-to-paycheck lifestyle into a life of luxury and prosperity. There’s no software program that will show you all the secrets stocks about to double – if there was one, nobody would be selling it. While I greatly respect Robert Kiyosaki, I’m very leery of his personal finance lessons. You can’t become a Ferrari-driving real estate tycoon after reading a couple of his books. It might be possible, but don’t read his books think you’ll implement his system and be on the way to riches in a matter of months. Won’t happen.

Simplicity makes great sense

 

When I need a good laugh, I pick up a magazine on personal fitness and read a couple of articles. Good god, how many workout programs are out there – and why are they so different? It seems to me that every single fitness writer came up with his own program. In reality, all these programs and approaches do nothing but confuse new members. But if you talk to an experienced coach or trainer, they’ll tell you right away – most of the results can be achieved by doing a number of exercises over and over, again and again. Here’s a barbell, you can squat with it, you can bench press it, you can dead lift it. Do eight or ten exercises for 12-24 months, do them repeatedly and really well, and you’ll be in great shape. Maybe then it will make sense to target some obscure muscle by doing an exotic exercise, but most people shouldn’t be thinking about it.

Financially, it’s exactly the same. Yes, there are some tricks and creative accounting techniques – The Smith Maneuver, flow-through shares investments, etc. But for most average people most of the results will come from a set of simple rules that need to be followed day after day to achieve great results – and they are very simple too. Live on less than you make, invest part of your paycheck wisely, don’t spend money on stupid things, and keep track of your spendings. Yes, it’s hard to do it, especially in the beginning. But it ain’t complicated.

Pay attention to yourself, not the guy next to you

 

Want to completely confuse yourself about working out? Start paying attention to what other people doing more than to what you’re doing. I had to force myself to stop trying following other people at the gym (figuratively speaking). You see a guy slightly smaller than you bench press 180 lbs. and you automatically think – “- Oh, I should be able to do it no problem.” Wrong. What you don’t know is that he might have been doing this for months. Start with what you’re comfortable with, and go from there. Trying to chase other people will only cause you pain (emotional and physical).

On the personal finance side, chasing other people will get you in trouble too. Ever heard of “keeping up with the Joneses?”. It’s not productive to say the least. You don’t know financial situation of everybody, and looks can be very deceiving. Just because your neighbors or friends have nice luxury cars and big houses, doesn’t mean you should follow suite – they might be actually be able to afford those things or they’re deeply in debt. The only thing matters to you is your financial health, not your neighbors’. Don’t pay attention to them, follow your financial plan.

Start small

 

Secrets to financial fitness

Secrets to financial fitness

Things won’t turn around overnight, so there’s no need to go “all in” when you step into the gym for the very first time. You won’t be Mr. Universe (rather ironic title considering there’s only one planet involved) after a month of exercising, so start small. Start going once or twice a week – no need to promise yourself a rigorous 5 days/week schedule. No need to go on a “fruit-only” diet for a month hoping to shock your system into submission – just add an apple or a salad to your normal way of eating and go from there.

When it comes to your money, secrets to financial fitness are just as simple as personal fitness. Start small – try to pay off some of your debts to see how awesome it feels to be less in debt. Instead of promising yourself to eat nothing but cheese and crackers and invest 50% of your paycheck to retire early – try doing 2 or 5% first! Once you work out an appetite for financial fitness – then increase your workload.

Beware of the industry

 

When you start paying attention to your health, you’ll notice how huge the industry of personal fitness is. There are magazines, TV channels, countless websites, and late-night infomercials that are designed to do nothing but take money from you. I love Chuck Norris movies, but after going to a gym for a few months, I’m quite sure that Total Gym endorsed by him (along with other products) is total garbage. There are countless products appear out of thin air every year that are targeting novice gym members – or more like targeting their wallets.

On the financial fitness side things are just the same the same – there is a huge industry and everybody is trying to sell you a product. Educational classes, exotic types of insurance, personal finance software, and personal finance books – all whispering in your ear that these are essential products and you can’t live without them. Some are excellent products, and some are total garbage. You have to be aware of the fact that there’s a small army of salesmen out there trying to sell you something – and this industry is very good at marketing their products. Be aware and beware.

 And the most important “secret”:

 

Never ever ever ever give up.

Secrets to financial fitness

Secrets to financial fitness

 

My name is Financial Underdog, and I’m currently rewarding myself with a nice smoothie for a very exhausting visit to a gym.

Happy Friday!

Somethings good things just happen. Sometimes you tell yourself : “- I can do anything!”. Sometimes you kick ass all day at work, and grab some tasty beer on the way home. And sometimes, when you get home you check your mail and pull out an unexpected check!

We made an investment in this company just couple of months ago – they acquire and operate apartment buildings in United States. On top of capital appreciation (prices of apartment buildings going up), they send out quarterly dividends. Not much, but I’ll take it!

002

It feels great to have money working for you – as opposed to working for money. While I have no problems with work – in fact, I’ll be working this weekend because it’s been so dang busy – but to have money produce money without moving a finger? That’s like free money!

Happy Friday! I’m The Financial Underdog, and I like unexpected surprises!

Investing in Canadian Farmland

One of my core believes when it comes to money, is that you have to invest your money and make it work for you. I don’t want to work for money for the rest of my days – at some point, I’d like to get the money working for me so I can relax a little. Wouldn’t it be great to only work if I want to? To have a pile of money in different investments that produce a healthy return?

This is one of the reasons why several years ago we’ve decided to set money aside and actively invest them. Before that, we would just save money in savings accounts – but at some point it started to look a bit like hoarding – sure it was nice to have it, but with whopping 1-2% returns on our savings, we were basically breaking even after inflation. We could put money into stocks and mutual funds, but I’ve personally had bad experience with mutual funds before (more on that later), so we started looking into alternative investing options. Some interesting opportunities were discovered – one of them was investing in Canadian farmland (mainly Saskatchewan).

Investing in Canadian Farmland

Investing in Canadian Farmland

Why would anybody think of investing in Canadian farmland?

Well, there are several reasons for it:

  • Investing in farmland provides an excellent security – it will never go to zero. Stocks can go to zero. Banks can go bankrupt. But farmland will always be worth something, it’s a real hard asset, and the value will always be there.
  • Supply of farmland is decreasing which puts an upward pressure on its prices. For example, Wisconsin lost almost 500,000 acres of farmland between 1997 and 2002.
  • It is fundamental to life. We need farmland to survive because food comes from farming. Other investments – for example gold or silver – might sounds like solid investments, but at the end of the day you can survive without them just fine – but try surviving without food!
  • Investing in Canadian farmland represents stable, income producing assets that are going up in value and serve as an excellent hedge against inflation. Average annual return to owners of Saskatchewan farmland is around 10% (1972–2003).

What is farmland worth?

 

Farmland values have been steadily going up across Canada and US. Recently, in Canada they’ve reached new record highs. The main reason for it is diminishing supply and increased pressure on production. In other words – people need more food, but no new farmland is being made. In some areas, the prices per acre doubled in less than 3 years!

Here’s a picture of farmland values per acre in various states and provinces:

Investing in Canadian Farmland

Investing in Canadian Farmland

As you see, farmland prices in Saskatchewan are still low comparing to other provinces and various states – but they’re going up in value rapidly. In 2012, farmland prices in Saskatchewan went up by almost 20%.

How does one invest in farmland?

It comes down to basically two ways:

  1. Buying physical farm and leasing it out to a local farmer who will pay you a rent payment out of his business. One blogger that I read on regular basis did exactly that! He bought a farm (on credit which I can never understand, but hey…), leased it out to a farmer, and now receives monthly payments. It was very interesting to follow his adventure – from scoping out the location, to putting down the deposit, and to finally getting his first check in the mail. But while it is certainly exciting, this approach is very hands on, and you basically have to score a direct hit – buy an excellent farm, find a reliable farmer, and pray nothing bad happens. It reminds me of absentee landlording and how tough it can be.
  2. You can buy into a private investment fund that specializes in investing in Canadian farmland. That’s exactly what we’ve done a while ago. AgCapita is a Calgary-based investment company that raised $30M and bought 45,000 acres across Saskatchewan. We’ve limited our investment to $15,000 for now, but looking into buying more shares sometime this year. To be honest, I like this approach better – while it’s certainly doesn’t have the same excitement as owning a physical farm, I can sleep well at night knowing that a team of professionals who know everything about investing in Canadian farmland work hard for me by investing my money – they buy good properties, rent them out, and make sure returns are there. Their portfolio is worth close to $50M by now and annual compound returns reached 20% last year!

Some interesting facts about farmland:

 

  • Saskatchewan contains almost 40 per cent of the farmland in Canada, close to 64M acres.
  • Saskatchewan farmland is of the highest quality with great access to water, and with warming climate its productivity is expected to rise even further.
  • Saskatchewan farmland prices were held down artificially until recently with restrictive laws – and now they have a lot of catching-up to do to reach other provinces.

I’m Financial Underdog, and I could never be a farmer. Something about waking up at 4 am just doesn’t appeal to me…

Family Money – Combined accounts vs. Separate accounts

From my experience after talking with people or reading about personal finance online, there are basically two approaches to how people run family finances when it comes to family money.

Disclaimer: I`m talking about management of family money – if you`re in a boyfriend/girlfriend situation, or just recently started living together this doesn’t necessarily applies to you. I’m talking about people who live together as a family, in a serious relationship, and who may or may not have kids together.

Combined Finances – when family has a number of joint accounts (checking, savings, credit, etc.) and run their affairs (financial that is) accordingly. They pay expenses out of joint account, deposit paychecks into their joint account, buy things with that money, and save for the future by putting money aside into their joint savings account.

Separate Finances – each partner has a separate checking account where they deposit their paychecks and pay for their things out of it. Sometimes they have a joint account for family expenses such as car payments or house payments where they transfer portions of their paychecks. Most likely they have their own separate debts (school loans or credit cards) which they pay with their own money. They might also have a joint savings account where they deposit agreed-upon amounts every month. I’ve seen some extreme examples when people run their financial lives completely separate even though they’ve been living as a family for years.

Family Money

Family Money

Now, personally I don’t understand how people live together as a family and don’t combine their finances. There are huge upsides to combining your finances and very little downside.

Benefits of running combined accounts:

 

  • Clarity. Having all accounts as joint accounts provides clarity to your finances. At any given point, you’ll know exactly how much you have, how much you owe, and what is your current cash flow. Doubling the number of accounts only muddies up the water and makes things difficult to see, let alone follow some sort of plan. Family money is complicated enough – why make it even more complicated by doubling number of accounts.
  • Ease of access. If my wife calls me and tells me that our Visa account is due tomorrow and I need to pay it, I have instant access to our account. If there was a problem with one of the transactions, call center folks wouldn’t even talk to me – because my name isn’t on the account.
  • Single plan of attack. When your family money are combined, it’s very easy to work out a plan of attack. How much do we want to have in the future when we retire (as opposed to how much I have to have and how much you have to have)? How much debt we have vs. how much you have and how much I have? The plan of attack becomes very simple – as opposed to doubling every single task and mudding the water.
  • Commitment. I think this is by far the largest benefit – when people combine their finances and become a family, they commit to certain goals (saving, investing, etc.), agree to specific rules (how much to spend and on what items), and become one unit of the society. I completely miss the point of starting a family and living separate lives financially – with separate goals and plans of attack. What, you miss feeling independent? Hate to break it to you, but that’s what being married is – commitment to your family. Family isn’t a joint partnership with independent partners.
  • Accountability. My wife and I are accountable to each other for our finances. If we agree to a certain spending pattern, we make sure we stick to it. Having family money separate would destroy any type of accountability we have – I’d have to be accountable to myself only. That’s what makes joint accounts great – sense of accountability for your family finances.

 What is the downside of combined finances?

 

Basically, after living with my wife for almost seven years, I can honestly say there’s only one downside – buying presents for each other. If few days before her birthday she looks at our online budget on her phone or computer, she might see something that will give away the nature of the gift I’m buying – and same for me. Simple solution? We just tell each other before we buy any presents and promise not to check accounts online prior to gift giving. Easy as that.

So, call me old-fashioned (even though I’m in my 30’s), but I don’t believe in keeping family money separate. From family dynamics, from financial perspective – it makes sense. Combine it all, what’s yours is mine, and what’s mine is yours – there’s no other way in my opinion. I mean, there are – but they don’t make sense to me.

I’m The Financial Underdog, and I like clarity and simplicity.

Emergency Fund

I think one of the most important accounts anybody should have is an emergency fund. Emergency fund isn’t an investment – it’s just a pile of money sitting in your savings account – far away from you – in case you need it. We’ve had it for the last 5 or 6 years, and let me tell you – not a lot of things give you the same peace of mind as fully funded emergency fund will give you. My wife repeatedly told me that she feels in peace when she knows that most major problems we might have down the road can be solved by simply accessing our emergency fund.

2013-05-27-Rainy-DayWhat is it for?

Emergency fund is your old-fashioned rainy day fund. Let’s face it, things happen. You want to be prepared for it – and money makes a lot of issues go away without too much stress. For example:

  • You lose your job and need to find another one – in the mean time you have means to pay the bills.
  • Transmission on your car goes out and it needs to be towed – your emergency fund will cover the repairs.
  • Your car gets stolen and you need to cover the deductible.
  • Hot water tank goes out and needs to be replaced as soon as possible.

What do average people do? Pull out their credit cards if they don’t have enough money or borrow money from pay-day loan scam artists. What is the proper way to handle emergencies? Using your own money and tapping into your emergency fund.

What is NOT an emergency?

  • Being short on cash during Christmas shopping. Seriously, everybody knows when Christmas comes – plan for those expenses in advance, and if you don’t have enough money – well, suck it up.
  • Emergency furniture replacement. Just because your in-laws are coming and your couch looks like it was used for target practice by Somalia’s militia – doesn’t matter. Don’t dare touching it for frivolous expenses.
  • Kids need new clothes for school – once again, not exactly an emergency.

How can emergency fund help your financial life?

Having emergency fund has multiple benefits which would help an average family to get ahead. First of all, if you use your own money for emergencies, you don’t pay interest associated with it. If you were to pay for new transmission with your Visa, you’re paying 19%+ in interest or even more with pay-day loans. Second, emergency fund will help you save money – if you have an emergency fund, you can increase deductibles on your car or home owner insurance – which will bring down your premiums considerably.

How do you set one up?

  1. Decide how much you need. It’s usually recommended to have 3 to 6 months of expenses. If you’re a bit paranoid, bump it up to a year. In our house, it’s 4 months – roughly $10,000 dollars. We only used it two times so far – once our car broke down and needed a new alternator (along with tow all the way from Merritt to Kelowna), second time our dryer broke down and needed repairs.
  2. Decide the rules around using it. If you’re married, get your partner involved in this discussion – what it’s for, what is it not for, etc.
  3. Set it up as a savings account – I recommend ING Direct as you can transfer money between your main checking account with ease, and you can also write checks out of it. The interest paid to you will be minimal, but once again, it’s not an investment, it’s an insurance against future rainy days.
  4. Start small – put a few hundred in your emergency fund, and see how it feels. Set a goal to fully fund it by certain date, and keep putting money away into it. Once you have it fully funded – enjoy life with less stress about your financials.
  5. Evaluate your fund every 6 or 12 months – what if your expenses went up? Might need to beef it up.

Well, enjoy your race towards the weekend (only 2 days left!), and see you later. I’m The Financial Underdog, and I’m in need of some sort of sandwich…

I am kind of a big deal …

This is going to sound completely silly.

Few weeks ago, when I was rushing to complete tax documents for me and my wife, I discovered we’re missing few tax forms from one of our small investments. No big deal, but kind of annoying. So, I called up my financial advisor asking what should I do. He said not to worry, and promised to follow up. So, I went back to doing whatever it is I was doing.

All of a sudden, my phone rings. I pick up, and a secretary on the phone says:

Her: – Oh, hello. If you have a second, I’ll connect you with Peter So-and-So, chief executive officer of Big Real Estate Capital Inc.

Me: – Oh……..go ahead.

Peter So-and-So: – Good afternoon. Just wanted to follow up with you regarding your tax documents. Just so you know, we had a bit of a mix up, my secretary will courier the documents to you by tomorrow morning. My apologies, call me with any other issues, and if you are ever in Calgary, stop by our office.

Me: – Oh…….uhmmm….Thank you very much, Peter!

And although it was just concerning some tax documents, I felt completely bad-ass. I felt like Gordon Gekko himself called me. Coming from very humble beginnings, I could never imagine that a CEO of a company would call and talk to me. After all, I’m just one out of hundreds of investors in this particular company, yet I get his undivided attention for few minutes.

Anyways, like I said – totally silly. But kind of cool!

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This message is brought to you by The Financial Underdog, and sometimes I feel like a big deal!

Follow-up on life insurance

Just wanted to follow up on this whole life insurance business. It just so happens I witnessed a rather serious car accident today right in front of me – thankfully nobody got seriously hurt – but it got me thinking how fast life can go the wrong way. One moment you’re driving down the street drinking your daily coffee and thinking what needs to be done today …. and next, you get T-boned by another vehicle, your truck gets flipped on the side, and you have to climb out of the side window bleeding from your ears. Life seems cushy sometimes, like a Groundhog Day scene being played out over and over again, and then takes a terrible turn. You have to be ready – and once the dust settles, you better be protected as it’s kind of late to buy insurance.

Think about your loved ones. They deserve protection along with you. Think of worst case scenarios – how can you be prepared for them? Do you have content insurance for your condo/house? Proper insurance for your cars? Liability insurance on your business? Life insurance? Disability insurance? Critical illness insurance?

Here’s cool infographics file on life insurance. Keep in mind, it was created by a whole life insurance company, so the bias towards whole life vs. term life is somewhat obvious. But other information is rather eye-opening:

Life Insurance Infographics