Ten years ago, Camille and Calvin had a $25,000 car loan and a $200,000 mortgage. The couple had turned down insuring these loans because it would have cost about $80 a month – close to $1,000 a year. They thought it was a waste of money because they weren’t sure they would ever need the insurance.
Instead, they saved an equal amount in an emergency fund. They figured that if they never had to use these savings, they could use the money after retirement. After 10 years, they had saved about $12,400.
That’s when it happened: Camille was laid off. Suddenly, she went from making $4,000 a month before tax, to less than $1,700 a month from Employment Insurance. With their debt still high, Camille and Calvin need to draw $1,000 a month from their emergency fund. How long will their money last?
Lesson learned: If Camille gets a new job within a year, she and Calvin will be able to get by. If it takes longer, they may run out of savings. Now they wish they had put some of their money into insurance. It would have made it a lot easier to get through this tough time.
- Step 1:What are the five ways I can Keep Money Coming In?
1. Workplace and government plans
These may help you replace income if you lose your job, or if you get hurt or sick and can’t work. They may also provide money if you take time off work to care for a new baby or a sick family member.
Tip: You may also be able to draw on unpaid salary or vacation pay. If you become very ill, or injured, and are never going to be able to work again, you may be able to draw on your
pension savings.
2. Insurance
This may pay your monthly debts if you get sick or hurt, and can’t work. For example, you can buy insurance to pay your mortgage, a car loan, or your credit card payments until you get back to work. Disability insurance provides income each month if you get sick or hurt.
Tip: It’s cheaper if you can buy disability insurance through work.
3. Savings
Use emergency funds first, if you have them, to pay your bills. Avoid taking money from your retirement savings.
Tip: The experts say that everyone should have an emergency fund for times when your income stops. How much you save is up to you.
4. Loans
You may be able to borrow money from friends, or family, or from the bank.
You may also be able to borrow back some of the money you have put into your home.
Loans make sense only if you have a way to pay back the money, and the interest, on time.
Tip: Using credit cards is one of the most costly ways to borrow. Avoid this if you can.
5. Your home or other property
You may sell your home or other property for cash, then buy or rent another home for less.
You may sell your car or boat and buy a smaller, cheaper model.
Another choice is to keep your home or cottage, but rent it out to bring in extra money.
