Boss Blog: May 24, 2017
The Four Cornerstones of Financial Freedom
Many of my posts speak about concepts and strategies. Today I decided that I am going to get straight to the real nitty gritty. Budget Boss is all about taking control of your finances, getting organized and having your money work for you. In this post, I am going to tell you about the 4 things you must look after to make sure you are completely covered. These 4 things will lead you to financial freedom, simple as that. In my industry, we call them the “Four Cornerstones.” I call them the foundation. Have this foundation in place and you will be agile, strong and unshakeable. Enough talking lets get to it.
1) Financial Security at Death
Oh God is he talking about Life Insurance? Yes, but hear me out. The reason I mention this one first is that it is literally the easiest and cheapest of the four cornerstones. All you do is put in an application, that’s it. Premiums are dirt cheap if you are young and then you are guaranteed for life regardless if your health changes. Why it is important is because we are all worth something, yes even you. You might not think so, but you are worth a lot to those around you and even more to those that might be around you in the future. Taking the step to secure coverage when it is cheap and easy to obtain is a great step to building a foundation. Life Insurance is a key cornerstone of a diverse financial portfolio. Get it, set it and forget it.
2) Living Benefits
Okay, okay, I’m getting the two not so sexy ones out of the way first. Living benefits include Health, Disability and Critical Illness Insurance. Why are these important? Do you know how much our government gives you if you can’t work? Ask anyone you know on ODSP or EI or CPP-Disability. It isn’t much. There is nothing that hurts your financial future more than health concerns. It literally ruins people’s lives. Don’t believe me? Do you see people on the news down south freaking out about the possible termination of the Affordable Care Act (Obamacare)? Their lives will literally be ruined if their health coverage is gone. Here in Canada, we don’t fare much better. Although our health care costs are covered, our prescription costs are not. Neither are many treatments that don’t fall under the OHIP umbrella. When you are sick do you want what treatment is best or what treatment is covered? Don’t forget about the loss of wage during sickness, the real killer. Can you live on 50% of your current income? Yeah, neither can I. Your greatest asset is not your house or your car. It isn’t you Gucci handbag either. Your greatest asset is your ability to work so think of Living Benefits as paycheck protection. Okay, now to the fun stuff, I hope you are still here.
3) Liquidity
This is my personal favorite one. I love liquid. Straight cash, the cheddar, the cabbage, moula, De Niro, dollar dollar bills yall. Why do I love liquid so much? Being liquid is having freedom. Being liquid is what allows for opportunity. Being liquid is also what allows you to continue on your desired path if something crappy happens. Job loss, broken leg, death in the family, childbirth, sickness, acid indigestion, stress, all these things happen. Being liquid means money that you can access in case of emergency. I have 1 year’s emergency fund. Experts say somewhere between 3-6 months is enough. The majority of people don’t even have $1,000 in the bank. Here are some stats to illustrate my point. 68% of people live paycheque to paycheque. 26% of people have no emergency savings at all. 52% of people have inadequate emergency savings. Being liquid is literally allows for everything else to take place. It is so important I wrote a whole post on it a few months ago. If being off work for 2 weeks requires you to rack up credit card debt then there is a problem. You don’t know how many times I have seen friends I work with get sick or hurt and have to come back to work early limping around because they couldn’t afford to miss a paycheck. That sucks, sucks bad. You know what doesn’t suck, not being afraid of job loss, sickness or health concerns because you don’t have enough in the bank. Now I don’t miss work like a chump because of this, in fact, I work more. I am a freak, but you get my point. Be liquid, save that emergency fund now! Now to the sexiest part of the foundation: Retirement
4) Retirement
You know what’s better than the 65-70 hours a week I am working every week? I am writing this at 5 AM by the way. Not working at all! How about working when and where you want, doing what you love. That is retirement folks. How you prepare for it will determine what type of retirement you will have. I live at 22 Picton Street here in London, ON. An upscale apartment building with many retiree’s in it. Go to CherryHill area here in London and you will see some buildings with much more affordable housing. They have mainly retiree’s there as well. The difference is the price. Having a plan in place to achieve retirement on your terms is vital. I used to work at a Royal Canadian Legion and the difference is glaring. You see some elderly scrounging to buy and beer and others that got back from golfing in Florida. Find the magic number you need to retire and then save accordingly. The good part is that the earlier you start, the easier it is. Whether you are using a TFSA or the ever popular RRSP saving your money and taking advantage of compound interest is huge. Don’t believe me? A 25 year old maxing out his/her TFSA until the age of 65 will have $1,118,904.89!!! (7% interest, compounded) By the way that is tax-free. Pretty sexy eh? Be aggressive, B-E aggressive.
The world of personal finance can be confusing. In order for me to be the best financial advisor I can be, it is my job to make it as simple as possible for my clients. Following the four cornerstones is a sure fire way to get to where you want to go without letting life’s surprises getting in the way. Life Insurance and Living benefits protect you and your assets. When something happens to you the first place you will go is to the RRSP or the home equity. Covering yourself with insurance is transferring the cost from yourself to the insurance company. That is also where being liquid comes into play as well. Being liquid is what allows you to take advantage of opportunities. These opportunities can include buying an investment property, changing careers or starting your own business. Having cash on hand protects your investments and keeps you agile. It is what also lets you glide into retirement without any hiccups. You know you “Magic Number” needed to retire on your terms and you have a plan in place to get there. The foundation is all intertwined and works together like a spider web.
Taking small steps at any age can really add up. All you have to do is be ready for a change. Have all the knowledge and make the right choices. Do all that and you will have financial freedom and peace of mind. Now that wasn’t so bad, was it?
“Someone is sitting in the shade today because someone planted a tree a long time ago” -Warren Buffet
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca.