Globe and Mail Financial Facelift 18 October 2014 Commentary

I love reading the Globe and Mail's Financial Facelift every Saturday. Although I have read so many, I rarely pick up any new ideas, I still like to peer into the financial world of others. I wish I could give them some of my own advice, but I was never asked. (Tut tut, mutter, mutter)

This Saturday's Financial Facelift seems like it's spot on advice for the client in question. Of course there is a "but" coming. The client in question is very anxious about her finances. Fear and anxiety, in most cases, are not useful unless there is something you can do. The good news, is that there are some more things that she can do that the advisor never pointed out:

Life Insurance $245 per month

My concern with life insurance is that many people seem to buy a product that is part life insurance and part lottery ticket. Let me explain... Insurance should be there to cover things that you could never do with your existing safety net (money, friends, family, etc). You should have insurance to cover these things catastrophes, but, in my option, many people buy life insurance way beyond this - a sort of grim lottery ticket. The advice that I give myself is to imagine that I or my wife were to die tomorrow, what would happen? Then ask, what would you absolutely not want to financially happen and then build up how much coverage you need, and do not go beyond!!! Anything beyond is comfort/guilt money - a form of grim lottery ticket. If you are over the age of 40 and have good savings, you may not even need life insurance. Remember that you will be needing your RRSP/401k anymore, your family can now use it.

Car & Home Insurance $400 & $100 per month

My advice, for the vast majorty of people, is to get the highest deductible possible and forgo any insurance extras. The money that you save by going this route should go into a TFSA/IRA. If you do, have an accident, you should have plenty of easily accessible cash to cover your deductible (thanks to your monthly saving).

Telecom/TV/Internet $215 per month

Wow, at $215 per month, this seems like a lot. Do you have 200 channels, but nothing is on? You could run an experiment for 6 months by canceling your cable subscription and only watching local TV or what is available for free on the Internet. Your local library probably also has loads of DVDs to borrow for free, or perhaps for $1 per week. Of course, the savings from this should go right into your TFSA. I bet after 6 months, you will wonder why you had't switched off the cable sooner.

Groceries $1,500 per month

For a family of four with two teenagers this does not seem unusually high, but if the client is really anxious about her finances, there is probably a goldmine of savings in here. My advice would be to start switching to lower cost brands for things that you family doesn't care much about anyhow eg bleach toilet paper, vinegar, dish soap, etc. If they don't moan too much, you can start moving up the chain to things like cookies and ketchup. If your family really cares about your anxiety, they should be able to live with store brand ketchup.

Cash in Bank $25,000

TWENTY FIVE THOUSAND DOLLARS IN CASH!!!!!!!????? Ok, maybe this is just moving through your bank account to tuition or something, but if you want to be on the road to stress free retirement, all your money needs to be working up a sweat for you. The only one benefiting from this cash is the bank - cash deposits are the cheapest source of financing for them. They should be sending you a Christmas card each year!

If the cash for an emergency, then it could go into an TFSA/IRA. If is for retirement, it could go into your RRSP/401k.