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Financial Redundancy

In the high-tech world the term redundant is actually a good thing. Most folks think of redundant in terms of jobs, and being declared redundant (i.e. being laid off, or the like). In the high-tech world redundant is actually a vital part of reliability. If there are redundant systems in place, or redundant connections then there are backups in place to take over if one of the systems fails, and that is what I mean by Financial Redundancy.

Last week there was a very good tweet that inspired me to think about this concept.

The point being made is that you need to have a separate bank account in a different bank or savings concept (trust company or the like) just in case your main bank account or bank gets compromised in some way. What do I mean by compromised?

  • Your account has been hacked and thus locked out so you have no access to it, until the issues with the security intrusion is remedied.
  • Your bank “goes down”. This can be a myriad of possible issues including: Interac failure, Computer system crash, bank is hacked (as mentioned in the tweet), etc.,
  • Your bank fails? Yes, this is ridiculously drastic, but it has happened, and I am sad to say, it will happen again (ask the folks who had money in Savings and Loans in the states)

Redundancy ?

Really the question is what do you do if you don’t have a redundant money supply to fall back on? You could use your credit cards, and you already have a redundant system there don’t you (pretty much everyone has more than 1 credit card, a Visa, a Mastercard, an Amex, maybe even a Diners Club), so why don’t you have some redundant savings in place too?

Redundancy
This Seems Redundant

An idea is maybe putting your Emergency Fund (which we all should have in some fashion) at a different bank? That way it really can help in an emergency.

If you are looking to back up your data, here is a link to Backblaze a very useful computer backup and restore site.

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Happy Financial New Year

Yes, another year has already begun and there is a raft of financial stuff you should be thinking about (right now), for the coming financial new year.

My Personal Opinion On Resolutions
My Personal Opinion On Resolutions

What kind of things? You know my great love for lists, so let’s start the year with one:

  1. You will have more TFSA room, so you should be able to deposit more money into yourTFSA. This year your can add $5500 more to it, and the sooner you put it in, the sooner it has a chance to grow as well.
    • If you are adding new funds to your TFSA and you are using a Couch Potato Index portfolio, or you have specific percentages by sector, now might be a good time to use these extra funds to bring the portfolio back into balance too.
  2. Rebalance your portfolios might be a good idea overall, given the cogitations and undulations of the markets over the past little while, now is the time to “take profits” and “take advantage of good prices” if you will allow me those car salesman-ish type expressions.
  3. Check over your current insurance coverage. You need to know when all your insurance comes due, how much you are paying, whether the rates have gone up and maybe write it all down (just in case). You don’t want to be searching for insurance coverage after a major incident. Now might be the time to start thinking about shopping around for better rates as well (before you are about to renew).
    • An excellent example is if you are turning 50 this year, now is the time to start shopping around for better term insurance rates, and maybe time to start thinking about disability insurance as well.
    • Note there is a handy life insurance quote tool on the right side of this —> give it a whirl.
  4. Expecting a new child this year? Have one and haven’t started their RESP yet? Start now, in the name of Sky Rocketing Tuition rates, start now, or you are dooming your child to a huge student debt load (or you can not give a flying hoot and let them pay for it themselves, take your choice).
  5. It’s RRSP time, how do I know? It’s a trick question, it is always RRSP time (and TFSA time for that matter). Before the insanity of February, go put some money in your RRSP now, and give it a month head start on growth.

How to Start?

How is that financial plan going? Now is the time to have a look at it, and see if you need to change it for this year, or just keep cruising along. It didn’t work for you at all last year? Time to start a new plan, try some new ideas, and see if they work better for you. You don’t have a plan? Excellent time to start a new financial plan (just like RRSP time, financial planning time is right now).

New year, new plan, and let’s get going on this.

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Financial Planners a Retrospective

Back in the dark days after I had been laid off from Nortel, I was given access to a Financial Planner (as part of my severance package), and at the time, I had a Fairly Positive Opinion of that Financial Planner. As a retrospective, I will look back on what he told me and the advice given and see if my opinion is still positive.

In Retrospective, Neither of Us Knew the Dangers that lurked not too far behind us!

I think I agree with my overall verdict that Financial Planners who charge by the hour have the potential to be less driven by selling specific products and more inclined to create a plan that fits the client (instead of making the client fit “The Plan”).

To refresh your memories, just after getting laid off, I met with a Financial Planner who would help me plan my Financial Future (which luckily went OK despite my ideas).

Specifically, he looked at:

He started by filling in some of the numbers he gave me about my yearly income, the size of the severance package, and the size of my pension pay out.

The variables to be dealt with are:

  1. Do I take my severance package completely when it is made available?
  2. Do I use the RRSP room I have now or later?
  3. What are the implications of me withdrawing from the pension plan?

The advice “Bill” gave me was fine. In hindsight, there was a large amount of blind luck in some of these decisions (i.e. circumstances changed drastically when I was laid off until all my financial decisions were complete). I will elaborate here.

I take my severance package completely when it is made available?

“Bill” gave some very sound advice that almost ended up being catastrophic (through no fault of his own). I was laid off at the start of August, so my “package” would only be paid out as of mid-October. However, I could defer payment into two parts if I wished. “Bill” advised splitting the money so that I didn’t have a massive tax bill in the year I was laid off and then take the rest on January 3rd of the following year.

That advice was sound. However, Nortel declared bankruptcy on January 15th, and luckily they paid the second part of my severance, or I might have been left like many folks with nothing to show for it.

Grade on AdviceB, but if he had said January 30th, the grade would have been an F

Do I use the RRSP room I have now or later?

The advice given was to use up all the RRSP room that I had to hide as much money as possible, which ended up being a good thing. I used most of the RRSP room in the year I was laid off to soften the tax blow on things, and I still have some of that money left. Again, good advice.

Grade on Advice: A

What are the implications of me withdrawing from the pension plan?

Initially, “Bill” had terrible advice (in hindsight) because he said I should leave my Pension with Nortel. He was pretty insistent that Nortel’s pension plan was safe from Nortel’s imminent demise. Still, at the end of it, he relented (a little) and said that I could take the money out and put it in a LIRA (and RRSP) if I wanted to, but he did say it would be wiser to stay in the Nortel Pension Plan.

Again, “Bill” couldn’t have known that the Nortel Pension Plan was going to unravel the way it did. Still, luckily Mrs. C8j and Michael James both strongly advised against keeping the money in anything with the word Nortel associated with it. We did remove the funds from the Nortel Pension Plan before it unravelled (as well).

Grade on Advice:  D- I can’t give him an F, but he was way too insistent on staying in the plan for my liking. I could be in a bad financial place right now if I had followed that advice.

Overall

I think it was good to talk with someone about our Financial Situation, and I think “Bill” did an OK job, didn’t try to “sell” anything to me, and gave me some good ideas on how to live on my severance package.  Yes, he almost cost me a great deal of money, but then again, can I blame him for not knowing about Nortel’s pension woes? I don’t know.

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“Everybody’s Got Plans…”

The real quote is from Mike Tyson,

‘Everybody’s got plans … until they get hit.”

everybody's got plans
Iron Mike Tyson Telling the Truth

This is true in all walks of life, not just pugilism. What is wild is I already wrote about this topic 8 years ago.

If I could find a Financial Planner who would help put together the original plan, but have as part of that plan a “Plan B” and/or “Plan C” as part of that original plan, or gave an outline of a “Plan B” as part of Financial Planning, I think I might hire them. I have spoken to folks who were told what the risks were when they started to invest like:

  • The Stock Market is Volatile, if your risk aversion is high, then maybe you should be in Bonds
  • Bonds may not pay as high a rate as you wish
  • Things may go wrong
  • etc., etc., etc.,

However, do planners have other interesting ideas like:

  • If there is a market correction along the way, we will not be getting out of stocks, but we may rebalance things at some point during the adjustment, to make sure there is even distribution, in the portfolio.
  • If you suddenly have a large bill for your house, we can take money from the more liquid areas in your portfolio to pay for it, and then plan on how to pay it all back.

Planning is fine, but all plans change, due to unforeseen circumstances or just “life in general” (i.e. “… until you get hit”), your plan must either be flexible enough to deal with this, or you must be flexible enough in you financial planning to reconsider things, and change your plans.

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A Financial Plan B Revisited

About 4 years ago I wrote asking What is Your Financial Plan B ? This queried whether you were ready for when life hands you a ton of feces. I meant financial feces, of course, but what is your plan? As Iron Mike Tyson points out, everyone has a plan, until they get hit.

My definition of Plan B from the original post was:

What is your financial plan B? Plan B, typically is the name given to the steps you must take if your first plan fails, or is in someway derailed. Everyone should at least have a generic Plan B for their finances.

Having a Plan B, and knowing that you need to jump to it, are important parts of your financial life.

What should Plan B include?

everybody's got plans, but you need a plan B too
Very True Iron Mike
  • A Will, and Power of Attorney(s) for financial and health decisions, if you don’t have that you really are asking for a mess should the final “change in plans” happens. Yes, it will cost money to get done, but it will make the lives of your loved ones simpler.
  • Two to three months of net pay in savings and/or No Debt. If you don’t have debt, then, OK, you don’t need a big “Holy Crap the Sky is Falling” fund, but if you have debts, you had better have a “Holy Sh*t Fund” (I don’t like calling it an Emergency Fund).
  • An up to date Resume, with a list of folks that you can use as references, and contact names to send it to, if you need to. Lay offs and such happen a great deal faster than you think they do.
  • A list of all financial accounts, including insurance policies, for those who survive you, or who have to take care of your life for a while.
  • Not really part of “Plan B” exactly, but, hopefully you had Insurance to make Plan B a little more workable. Life Insurance for the final “change in plans” at least (if you are married and have kids).

Any other Plan B things I am missing?

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