Sixty-one percent of Canadians between the ages of 45 and 64 don't have a formal financial strategy. In The BAPKIN Plan, author and financial planner Gerard Hass provides simple yet effective guidance for creating a financial plan to help yo

The BAPKIN Plan

A Back-of-the-Napkin Approach to Financial EmpowermentBy Gerard Hass

iUniverse, Inc.

Copyright © 2012 Gerard P. Hass
All right reserved.
ISBN: 978-1-4759-4204-0

Contents

Acknowledgments...................................................................................................IXDisclaimer........................................................................................................XIntroduction......................................................................................................XIPart I: The Back of the Napkin....................................................................................1Step 1: A Better Life.............................................................................................3Step 2: Live within Your Means....................................................................................12Step 3: Time to Take Inventory....................................................................................21Step 4: Protect Yourself: Savings and Insurance...................................................................26Step 5: Protect Your Loved Ones—Estate Planning.............................................................37Step 6: Understand Tax Matters....................................................................................51Step 7: Have a Personal Pension Plan Strategy.....................................................................64Step 8: Have a Disciplined Investment Strategy....................................................................84Step 9: Your Financial Adviser Is Here To Help You................................................................99Conclusion to Part I..............................................................................................107Part II: The Whole Tablecloth.....................................................................................111Step 1: Beyond the Napkin—A Better Life.....................................................................113Step 5: Beyond the Napkin—Protect Your Loved Ones...........................................................118Step 7: Beyond the Napkin—Have a Personal Pension Plan Strategy.............................................127Step 8: Beyond the Napkin—Have a Disciplined Investment Strategy............................................148Part III: Dessert (Appendices)....................................................................................211Appendix 1: Strategies—Academic and Professional Influences.................................................213Appendix 2: The Balanced Diet—A Framework for Financial Decision Making and Empowerment.....................220Bibliography......................................................................................................227

Chapter One

STEP 1: A BETTER LIFE

You know you want it! The Dalai Lama says so.

My friend Michele looked up at the people gathered on the overpass along Highway 401, now appropriately named the Highway of Heroes on its stretch from Trenton to Toronto, and asked, "Why do you suppose they do it?"

I looked up as I always did, at each successive overpass, to nod my respects to the scores of people who had dedicated this Sunday afternoon to standing along the highway, some with Canadian flags waving, others with signs, and yet others with just themselves but all with a sense of purpose. Firemen in full dress uniform from each community along the route stood on fire trucks, providing colour guards with flags flying, as did some Ontario Provincial Police officers. They were here, as they always are, to pay their respects to the most recent Canadian soldier who had been killed while on duty in Afghanistan.

"I suppose they are here to pay their respects to the deceased and show love and support to his family."

"I understand that," Michele commented. "I mean, why do you think the soldiers become soldiers?"

Good question. Having spent five and a half years in the Royal Hamilton Light Infantry, I felt somewhat qualified to provide an answer. "Various reasons, I would imagine. Speaking for myself, I felt a sense of duty to serve my country and help others, I craved the adventure that the military provides, and I thought maybe I could make a difference in ensuring that democracy and freedom remained entrenched in our daily lives. I also got $18.25 a day."

Okay. So the money I got paid was very little incentive considering I made more than three times that amount as a student employee at Stelco. Michele did pose a good question though. Why would people be willing to sacrifice their lives for people they don't even know? It also got me to thinking further. What motivates us to take chances or make sacrifices for what seems to be little reward? What core needs are we trying to satisfy?

Core Desires

I know that when I ask clients what their core desires are, a common answer is that they want to reduce stress and simplify their lives. But as I question them further and we drill down to why each need is important, a common theme develops—most people express themselves as wanting to enjoy life and/or wanting to help others.

These are our core desires, and they lead to the conclusion that we are looking for our lives to have meaning. We want to feel like our existence matters. We want to feel a sense of accomplishment. We want to justify our life. We want to understand our purpose. We want to feel inner peace and have peace of mind.

Having a sense of purpose is the root of our desires, and this leads us to want a better life. That's what we are seeking. The Dalai Lama has expressed that our life's purpose is to seek happiness and that our journey is that of seeking something better. I happen to think he's right, and perhaps, upon reflection, so will you.

If we are seeking a better life, the next step is to understand the importance of our health in contributing to that goal. Oh, I'm not just talking about our physical and mental health, although these are very important components of our overall health. But you should recognize that many different facets of your life are integrated. I like to think in terms of five different facets of health—I've already mentioned mental or emotional health and your physical health—but there is also the health of your relationships, your spiritual health, and your financial health.

You may not think so, but these are all integrated, like pieces of a puzzle. If one of these components is doing poorly, it can have negative effects on the other aspects of your health.

Let me give you an example. Years ago while working as an investment adviser, I came across a couple, Diane and Henry, who had made some terrible financial choices. Henry was working for steel manufacturer Stelco Inc. and had seen the stock rise out of the recession in the early '90s from $1 a share to $9. Henry was convinced that this was only the beginning of something big, so he and his wife invested their entire retirement savings, amounting to several hundred thousand dollars, into the stock. Not very prudent. As well, Diane had power of attorney on a family member's money, and they invested all that money into Stelco stock as well.

By the time I had met the couple, the damage was done. They had several months where they could have undone their financial folly, but they wanted to score big so they sat on their investment and hoped for the best. Unfortunately the best didn't happen. Stelco stock went down significantly, and they saw more than half...