In a previous blog post, I shared how the movie The Godfather influenced my life. Another film that shaped my thinking is Wall Street (1987) with Michael Douglas. Two lines from the movie are particularly memorable:
“There is no nobility in poverty dad, one day you are going to be proud of me.”
“The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms—greed for life, money, love, knowledge—has marked the upward surge of mankind.”
After watching Wall Street, I decided that if I wanted to become wealthy, finance was the way to go. So, I made it a point to study finance in Montreal and learn as much as possible about personal finance. Spoiler’s alert. I haven’t become wealthy yet.
Since I didn’t have much money, I had to pinch pennies wherever I could. Every dollar was precious, so I ended up cutting a few corners, including insurance. As an international student, I had to buy health insurance, but I got the cheapest in the market. My priorities were food, housing, and tuition; Everything else was too much of a luxury.
Frugality became my way of life. I always looked for ways to optimize what I had, whether it was time or physical possessions. One of the expenses I cut down drastically was insurance. Any extra dollar that I saved I put into a bank account called it “Money for Self-Insurance.”
Some insurance are mandatory, like car insurance. I opted to pay the maximum deductible to get the lowest possible premium, of course, my car was not expensive and I didn’t mind a few fender-benders. In the 15 years I owned a car, I never had an accident and never had to pay that deductible.
When I became a Canadian resident, I contributed to the Quebec Health Plan and felt protected. Health insurance is essential because a sudden illness can lead to bankruptcy. However, I believe the best health insurance is to exercise for 20 minutes every day, avoid junk food, not smoke, and not use drugs.
When I became a condo owner, I took a significant risk by not buying home insurance. I relied on the condominium insurance to cover me in case the building burned down. It was a gamble, but fortunately, nothing happened, and I was able to pay off the mortgage a few years early.
Now, I live in a rented apartment, and none of my possessions are worth insuring, so I don’t pay for home insurance.
I also choose to forgo life insurance. I don’t have any dependents, and my family members are financially stable.
As for employment insurance, I haven’t had a regular job. I’ve always been a freelancer with multiple side hustles and different clients, so I’ve never feared losing a job because I’ve never had one. I see people’s paychecks, and a big chunk goes to Employment Insurance. I never had that expense.
What did I do with all those insurance savings? I put it all into my retirement account, which helped me retire after only 20 years in the labor force.
One of my financial heroes, Charlie Munger, is a big proponent of self-insurance. He once said, “In my own life, I’m a big self-insurer, and so is Warren. It’s ridiculous to carry fire insurance on my houses because I can easily rebuild a house that would burn down. So why would I want to bother with the claims process and all kinds of things?”
Munger emphasized the practicality of self-insuring for those who can afford it, noting, “You should insure against things you can’t afford to pay for yourself. But if you can afford to take the bumps, some unusual expense coming along doesn’t really hurt you that much. Why would you want to fool around with some insurance company?”
According to Munger, intelligent people should consider self-insurance. He said, “There should be way more self-insurance in life. There’s a lot of waste you’re paying when you buy insurance for the other fellow’s frauds, and there’s a lot of fraud in life.”
I don’t consider myself overly intelligent, but I agree with Charlie. I believe that when you pay for insurance, you’re not just paying for protection. You’re also covering the profit margin of the insurance shareholders, the marketing of the insurance company, taxes, the commission of the insurance salesperson, and the fixed expenses of the insurance company, such as real estate and employees. In general, insured people get back about 60 cents for every dollar they spend, which is not a great deal.
In conclusion, I believe everyone should try to self-insure as much as possible. The more you self-insure and accumulate money, the more control you have over your financial life.