Rapid Fire Questions With Rob and Scott

This week we had the bright idea to ask clients/prospects to send us a question that could be answered in 1-2 sentences. The problem was that everyone asked really good questions, and most of them simply could not be answered appropriately in 1-2 sentences, but we tried our best to be concise!

How much monthly should be set aside to debt repayment? (In terms of percentage of your income)

Scott: 10%-15% is a safe number, but depending on your situation, don’t let it constrain you so much that A) you just use other credit cards to cover monthly expenses or B) you forego important insurance if you have dependents. I like using a spending tracker app and throwing whatever is left at the end of the month towards debt (along with the minimum payment whenever it’s due monthly).
 

Rob: Each person’s debt servicing is individual depending on whether they have student loans, car loans, a mortgage, or consumer debt (credit cards). A key point here is that you should be able to service your debt and pay it down within a predetermined time period. Also, do not take on further debt until you can afford to. For example, if you are paying more than 40% of your income towards debt, you may have issues qualifying for a mortgage.

I sold a bunch of collectibles, should I invest or pay off credit card debt?

Scott: I’d pay off the credit card debt and look at what got you into that debt to avoid relying on the cards in the future. Paying off debt offers a guaranteed return equal to its interest rate.

Rob: It depends on your goals. If the debt is a high interest rate on credit cards, it may make sense to apply it there as long as you don’t plan to run up the balance again. Using a balanced approach may make more sense – pay off some debt and apply some to savings. This gets you into the habit of saving right away.

How do I know how much term life insurance I need, as a single mother with 2 kids?

Scott: You should have enough insurance to cover your final expenses (funeral, taxes), enough to provide an income to your children, enough to fund your children’s education, if desired. We have a Needs Analysis worksheet that we go through to determine the appropriate amount.

Rob: For anyone to determine how much life insurance they should have, a needs analysis should be done. How much debt do you have? What percent of income needs to be replaced? Do you want to pre-fund education? Bottom line, usually the answer is what you can afford. Having adequate term insurance is better than having higher priced permanent that has less coverage.  

Are segregated funds worth the higher fees (compared to other options)?

Scott: We have some clients that swear by them for the "sleep at night" guarantee and others who refuse to pay more for the downside protection. So it comes to preference in the end.

Rob: To some people they are worth it because they want guarantees that they won’t lose money and they also want the potential of doing better than a GIC investment. Higher fees are charged to deliver the guarantees if ever needed as they were 4-5 years ago and also to pay those who manage the funds. In 2010, we saw client’s accounts being topped up by 20%-30% above market value because of the guarantees. For them, it was worthwhile.

Please contact us for more information on any answer provided. These are very high level answers and may not be specific to your situation. Further information is needed in most cases to give a full answer.