Let's talk life insurance

Another one of those topics people do not like to talk about, much like the need for a will . For some reason, we just don't like to think of our own mortality...even though it is guaranteed. Whether from old age, or an accident at a young age, it WILL happen, and we need to prepare for it - especially if we have any family or loved ones. Part of this is some form of life insurance.

There are two basic types of life insurance, term and whole. There are other types, but for the most part, they are similar to whole (also called universal). First we need to define what each is, than we can look at which is best.

Whole is a type of insurance that can build cash value, that you can borrow against (and if you cancel the policy, what you get refunded). It is often promoted as an investment or retirement vehicle, as the amount of money you put into it grows. Sounds good, right? Not so fast...how can you be sure you know what the rate of return on them is, and never mind the high commission fees and costs of the "investment". Not to mention, often the commissions paid can eat up the first year or two's premiums (in other words, the money you pay every month for a year or two goes to pay the agent their commission, not in building any value in your policy). They're right when they say it is a retirement account...but whose? Yours or the insurance agent's?

Term is a type of insurance that only pays upon the death of the insured. It is usually set for a distinct period of time (hence the "term"), which can range from a few months to 20-30 years. The premiums are set (the younger and healthier you are when you start, the cheaper it is). You build no cash value to borrow against, but the premium savings are astronomical.

Here is an example I found from Smart Money :

To get a real sense of the value of term, let's compare a term policy and a universal life policy. Say a 40-year-old nonsmoking male has a choice between a $250,000 Met Life universal policy with a $3,000 annual premium and a same amount of renewable term coverage with a 20-year fixed premium of $350. At the end of one year, the universal policy, assuming it paid 5.7% per year, tax-deferred, would have a cash value of exactly zero (cash value is the amount you would get back if you canceled the policy). But say he had instead invested $2,650 (the difference between $3,000 and $350) in a no-load mutual fund that averaged a total return of 10% annually. At the end of the first year, he'd have $2,841, accounting for taxes on the earnings at a 28% rate. At the end of 10 years, he would have accumulated more than $46,000 in after-tax savings in the mutual fund. Over the same period, the cash value of the policy would have climbed only to $31,819.

See that? That right there...at the end. The difference is almost $14,000, in ten years! That number will only get bigger with each passing year, due to our best friend compounding interest! Why would you let someone else get that money that you worked so hard for, by paying high commissions and fees, when that money can work to make YOU more money?

Now what about when the term runs out, then what? Okay, so it runs out...if you planned correctly, and saved and invested, you should be fine. Over the 20, 30 or even 40 years, you have (or should have) been developing a nice retirement account. Life insurance is there to provide a cushion in the early years, mainly your working years. It is there to replace your income, in the event you pass away, and your family needs to continue to be provided for. A good rule of thumb is to get a term amount of ten times you annual salary. Say you make $50,000 a year, get $500,000. If you or your spouse dies, the interest you would receive off the payout would be close to the salary that partner made while alive. While nothing will replace the loss of a loved one, knowing the income level won't change much is one less thing the family needs to worry about. By the time of term ending though, with a properly funded retirement account, an income won't need to be replaced...the retirement funds should already be providing the income, so when one partner dies, the income won't disappear, because the income is no longer dependent on the work of the person who is gone, but it comes from the investments.

So, when considering insurance, first know, you NEED it. Then choose the best vehicle...namely term. Then with the difference you save between term and whole/universal insurance, invest that money, along with your other investment strategies, and prepare for when the term runs out. You'll be able to save more money, and make more money, when it is all said and done.

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It's all about the Benjamin's, Baby!!

That's right...it's a all about the Benjamin's...Benjamin Franklin, that is. Ben was pretty smart in his own right, and had many thoughts - often humorous - on a host of issues. Money was no exception. Check out some select quotes and thoughts from Ol' Ben, and you'll soon realize why he is on the $100 bill.


A penny saved is a penny earned. Any money saved, is money earned...but Ol' Ben was on the right track.

Beware of little expenses. A small leak will sink a great ship. Things like that coffee latte, cable tv, eating out for lunch, that new pair of shoes, etc...these are little expenses. The great ship is your financial life and freedom.

Buy what thou hast no need of and ere long thou shalt sell thy necessities. Keep buying stuff you do not NEED, when you do not have the cash in hand to buy it, after all other necessary expenses are met, and you'll be selling that stuff to make ends meet...either voluntarily, or at a sheriff's sale.

By failing to prepare, you are preparing to fail. This applies in all areas of life, but if you don't plan on how to make your money work for you...like having a budget, and "pre-spending it" through the budget...you will fail at being debt free, and financially free.

Content makes poor men rich; discontent makes rich men poor. Being content with what you have is the key...whether rich or poor. Desiring bigger and better things, is not bad in itself...it is when you want it so bad, you get those things when you can't truly afford them. Putting them on a loan doesn't count. This is why so many are in debt...they are not content with what they have now, and can't wait to save to buy what they want.

Creditors have better memories than debtors. Do I need to say more? Well, a little bit. Very true words, but when you do pay off a debt, keep a record of it. How long do you keep it? FOREVER!! Sometimes creditors have memories of things that haven't happen. Not to mention they forget sometimes, too.

He that can have patience can have what he will. PATIENCE...the key to saving and building wealth. If you can wait to save up the money to buy something, you can pretty much have what you want, without going into debt.

If you know how to spend less than you get, you have the philosopher's stone. Can't say it any better than that...spend less than you make, and you'll never be broke or in debt.

It is the eye of other people that ruin us. If I were blind I would want, neither fine clothes, fine houses or fine furniture. Keeping up with the Jones'...take a second to evaluate where you are in life right now, financially speaking. How much of your "stuff" and debt stem from things you bought, in order to impress other people. Be honest with yourself. I was, and I realized just how much I was letting what I thought other people would think of me, dictate what I bought. Funny thing is, most people are busy enough with their own lives, what you thought they were thinking about you, they weren't thinking, because they were worried about what other people were thinking about them. Ok, there is to much thinking going on right now...my head hurts.

Our necessities never equal our wants. The "wants" will keep you wanting, financially speaking.

Remember that credit is money. Just very expensive money, and money in the lender's pocket. Don't look at it as a way to get something now, and pay for it later. Look at credit as a more expensive way of buying things. Think about the interest, and how much extra you are paying over the term of paying off that item. Either way you are paying cash for it...either upfront for the actual cost, or long-term, to the lender...with interest.

The Constitution only guarantees the American people the right to pursue happiness. You have to catch it yourself. Not to get too political here, but I think this is a key point. many people here in the US have an entitlement mentality. They feel they "deserve" something, for which they have not worked. They think because they want it, they should have it...NOW! Sorry, folks, but we are not guaranteed happiness in any form...just the freedom to pursue it. Whether we catch it or not, is up to us.

The definition of insanity is doing the same thing over and over and expecting different results. Keep living the way you live, keep getting what you've got. Eat bad food, get bad health. Spend money foolishly, get in debt. If you do not like where you are in life, whether it is money, work, or anything else, it is up to YOU to change...no one else can do it for you. Complaining about it, or blaming other people for you problems will not solve your situation. Only you, can improve your life. Make a change...even a small one.

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The power of saving and discipline

I wanted to share two motivational stories today. I often hear that it is too hard to save, or that wealthy people get the breaks or are lucky. Some people tell me that no matter how hard they work, they can't seem to get ahead (while they are sipping a latte, as they get into the brand new fleeced...I mean leased...luxury car they just got. Well, these two stories show what you can accomplish, if you have the right mindset.

Our first one is the story of Adam Shepard. Adam decided to try an experiment after graduating college. He wanted to see if the "American Dream" was still alive. Adam moved to another city, with the clothes on his back, and $25 in his pocket. His goal was to have an apartment, a vehicle and some money in savings, all within 12 months. Part of his experiment included the restrictions of not using and friends or family or previous aquaintances for help, nor did he rely on his college education, as he purposely left it off any job application.

Adam lived in a shelter for over two months. He worked odd jobs, and worked his way into a steady full-time job. Two months before his twelve month deadline, he surpassed his goal...Adam had an apartment, a vehicle he owned, and several thousand dollars in his savings account. Adam showed that by living within your means, and saving, you can get ahead. The key, is living within your means, which means living on less then what you make.

Story two focuses on Lance Roberts, of Houston. Lance is worth several million dollars now, but he was homeless to begin with. He lived out of his pick-up truck for two years, parking behind a fitness gym at night to sleep. Now, he works as a radio talk show host and money manager. His advice is to pay yourself first, and save 40% of your income, and live off 60%. Strong advice, and not easy, but a worthy goal to shoot for. Lance actually lives on less than 40%, and saves 60% (but granted, it's easier to do, when your worth several million dollars). His next piece of advice is to get rid of credit cards...the debtor is slave to the lender. Can I get an amen? Lance also makes a great point, using watches as an example. As much money as he is worth, he says he will never buy a Rolex. Why? Sure, he can afford it, he says, but he doesn't need it...it is a waste of money. A $20 watch tells times just as well as a Rolex. Lance points out, most people, when they make more money, spend it. They buy bigger homes, nicer clothes, and newer,bigger cars. If you live the same way, you'll never make it, but if you keep and maintain a lifestyle within your means, and put that extra money into savings or paying off debt (while not creating more debt), you will get ahead.

So what can learn from these two examples? People who struggle with money, as a rule, are not held down by the government, some evil corporate entity, or a string of bad luck. No, the thing holding people back, is something closer to home...themselves.

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Well, which is it?

Today, I was checking out my homepage, which I have set to MSN, and noticed to headlines that really grabbed my attention. Both were under the "money" section. The first, "Why you'll never own a home" is kind of misleading. When you click on the link, the title of the article is actually "Why you MIGHT never own a home"...a bit different from never, but hey, they need a catchy headline, right? The second one,"Whats busting your budget?" focuses on "essential" indulgences. Funny how they don't see the solution to one problem in a published article is staring them right in the face in the next published article.


In a nutshell, the author of the first article claims you'll never own a home, because they are just priced out of reach for the average middle-class family. What the author fails to take into account is, that while prices are artificially high now, they will come back down to what people can afford. It is simple supply and demand...once you have enough homes that are not selling, the prices will keep dropping until they do sell...prices will come back into balance. My whole take on the article was all gloom and doom about how the current young generation will not be able to afford the "American Dream"...as if everyone will be living in apartments. And how it isn't the fault of people who can't afford the payments. One woman says she fears for her son (who is 29), that he won't be able to buy a home...but he has a nice car and an iPhone. Well, gee, get rid of the car payments and the iPhone, and you could save a nice down payment rather quickly. The article continues on, talking about how the mortgage industry helped push people into more home than they could afford, yet the author never really hits on the LIFESTYLE of the middle-class. The author seems to miss that little...well, actually, BIG...factor in why many people will not be able to buy a home.

But lo and behold, the same author, writes another piece on what is breaking the budgets of the middle class...the "essential" indulgences. These are items that are not necessities, like lattes, designer clothing, new cars, spa treatments, and such. While these things are nice to have, you don't need an iPhone, when the low end free phone you can get with your cell phone contract makes calls just as well. For that matter, you don't NEED a cell phone. Same with satellite and cable tv...they are nice to have, but you won't die without them...but go to a run down trailer park, and you'll be hard pressed to find one residence without a satellite dish. The author hits the nail on the head with this article...the modern standard of what we "need" has changed, and that is what is breaking our budgets. Getting a pedicure may feel great, but getting one every week is not a need. Buying "organic hand wipes" for $10, as the author admits to doing, is crazy, when you can buy a package for about a $1. If people would look at their lifestyle, and get rid of the indulgences they "need", then they would have no problem buying a house. Sure, a 5,000 square foot McMansion may not be what you can afford, but do you need a 5,000 square foot, 5 bedroom, 4 bath house? I didn't think so.

The reason the middle-class is having a hard time living like the middle-class, is because they are trying to live like the high upper-class. If the middle class would learn to stop being so self-indulgent, they would have more money to save and invest, which would allow them to start living like the upper-class, because they will BE the upper-class.

The author has the answer to her own concerns, between the two articles she wrote. So, which is it? Is the housing market outpacing the middle-class, or is the middle-class over-indulging itself? My vote is for the latter.

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The Slight Edge

Today is a review of a book that covers a concept that will propel you to advancement in whatever you choose to do, if you apply the principles. The book is, "The Slight Edge", by Jeff Olson. Jeff is a successful business owner and mentor in the direct sales industry. His theories are applicable across the board, and know no boundaries, regardless of what the reader does in life.

The slight edge is doing the little things that many people overlook or fail to do, and do them consistently over time. Take two people and have one eat an apple a day, and have the other eat a cheeseburger a day. You probably won't see any difference the first day, or maybe even the first few months, but over time, those small things we do, add up and compound overtime (like interest).

Another way to look at it, is reading a book. The average person, after high school, will read one book a year. What if you read one book a month? What about one book a week (my personal goal)? In a ten year span, who do you think has a slight edge, the person who has read 10 books, or the person who has read 120, or even 520 books? It is that small action, over time, done repeatedly, that will set you above others.

Whether at work, or in your finances, it is easy to set yourself apart from the average. You only have to do a little more than everyone else, and you will soon be far ahead of them. Whether it is doing a little more work for your employer, or saving and extra couple fo dollars a day, and investing them, you will soon be where many people only hope and dream they can be.

From personal experience, I can attest that it works. I have been applying the principles that Jeff has been teaching, for several years now, and I find I consistently excel and see growth in all areas of my life, where I focus on getting the slight edge. Remember, something that is easy to do, is also easy not to do, and many, many people easily choose not to do those small things...therefore it is easy for you, to set yourself apart from the masses.

Get the book, and get the edge!

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Assets or liabilities?

The key to financial freedom, and true wealth. What do you have? Do you even know the difference? Can something be both at the same time? Is your head starting to hurt from thinking that your about to get a lesson in accounting? Don't worry, it's not that bad.


Simply put, an asset is something that makes you money, while a liability is something that costs you money. That wasn't so bad, now was it?

The problem people have is they have more liabilities than they do assets...if they even have any assets. Sure, if you are a homeowner, you might think of your home as an asset, but rethink this...it probably will appreciate over time, but so do the costs of owning that home. You have taxes, lawn care, repairs, routine upkeep, and on and on. There is quite a bit of expense associated with owning a home. This does not mean I am telling you not to buy a home, as I own one myself, and frankly, we have to pay to live somewhere. I would rather pay for my own place, and have a pretty good chance I'll build some equity, versus renting, where I build equity as well...but for the landlord. This is one of those things that can be both an asset (through appreciation over the years) and a liability (expenses of owning a home). Just remember, that equity is not liquid (unless you sell the home), or you take out a line of credit against it - but then it becomes another liability.

Liabilities will always be a part of our lives...the wealthy and financially free, know how to reduce their liabilities. We have taxes, we have utilities, we have necessities like food, clothing, education, transportation and such. Some of these liabilities we just can not do without. Liabilities like credit cards, satellite tv, and Starbucks we can do without.

Assets on the other hand, will put money in your pocket. They are a vehicle that puts your money to work for you. They can be anything from a profitable business you own, paper investments (stocks, bonds, mutual funds, etc), interest bearing savings, rental real estate properties (I don't consider one's primary residence to be an investment, per se, as it is not liquid, nor is it throwing off cash every month, like a rental would), etc.

True wealth comes, as well as financial freedom, when you have assets throwing off more money than you are spending with liabilities. Let's look at Mike and Joe. Mike works for a very large company as a regional sales rep. He makes over $500,000 a year in commissions. Mike and his family live a very extravagant lifestyle...they have a huge house, the newest luxury cars. They wear the finest clothing and travel to the most luxurious vacation destinations. They also spend more than they earn, and are financing almost all of it. Joe on the other hand, has $500,000 in investments, and is averaging an annual return of 10%, or about $50,000 a year. Joe is also debt free, except for his home, which is nearly paid off. Joe does not live extravagantly, but neither does he live like a pauper. He has two very nice used vehicles, dresses well (but not name brands), and saves to go on vacations. He also saves for things he wants to purchase, instead of financing them. Joe's total yearly liabilities are approximately $30,000 a year (between food and other living expenses, taxes and mortgage, etc). So who is wealthy? Mike, making over $500,000 a year, or Joe, making about $50,000 a year.

Joe is the wealthy one. Why? He does not have to work, because his assets are making more money than he is spending on his liabilities. Wealth is not a dollar amount, it is a state of being. If most of us would stop trying to keep up with the Jones' lifestyle, more of us would be able to surpass the Jones' lifestyle.

Saving money can be hard at first, especially for spenders like me. But it gets easier as you go along. It actually becomes fun. A close friend once told me, "If you do today what other's won't, you'll have tomorrow what others don't". There is wisdom in those words.

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Kids' college or retirement? Retirement!

I'm sure I probably just lost a few readers with that one, but let me plead my case, please. A hot topic with any parent, is their kid's future, and I won't argue with that. As a new dad, I want only the best for my son, and any future children I'll have...but paying for my kid's college education is not one of them.

Before I lose anymore readers, and before someone reports me for being a bad parent, let me say I believe education and learning is vital to success. I went to college, and i paid my own way...my folks wanted to help out, but couldn't. I saved, and took out student loans. I worked three jobs. I drank pallet loads of Mountain Dew to stay awake. And while the experience was great, funny thing is, like most college grads, I'm not working in the field I got my degree in. Personally, I think a lot of employers just look at the fact that you graduated college, as opposed to what field you studied (unless it's a technical field, like engineering, medicine, etc). But, I'm heading down a rabbit trail, so back on topic.

Lately, in the news, there has been quite a few stories on grads moving back in with mom and dad (not a good idea). Probably kind of tough on everyone involved. But as a parent think about this...how would you feel about having to go to your kids when you retire, and say, "Hey, I need to move in, and have you support me...because I spent my money on your college education, instead of planning for my retirement!"

What do you think is going to be the outcome of that situation? Not a good one, I would wager. This is why when it comes to your retirement, or your kids' college education, you need to be selfish, and lookout for yourself. Your kids have a lot more time ahead of you to get financially stable. If they are young enough, teach them how to properly manage money and make it work for them...they can have a nice college fund of their own to start out with, by the time they reach college age. Teach them to save a portion of their allowances, money gifts, and wages as they get older, and they'll be fine.

Keep in mind, college tuition assistance will always be available, through programs like grants, scholarships, and low-cost loans (last choice). On the retirement end though, unless you plan for it, it won't be there, and if you believe Social Security will be there for you, I have some waterfront property to sell you in Arizona...
Seriously though, Social Security won't be there, and even if by some chance it is, it won't be enough to cover your living costs. And if your kids are following your example, and they are trying to save for THEIR kids' college funds, they probably aren't planning for their own retirement, and they sure as heck can't afford to pay to support you.

So, to recap, take care of yourself first! Make sure YOU have savings and investments for retirement, so you can live after you retire...without asking your kids if you can move into their basement!

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SAVING is not spelled S-C-A-M!

"A fool and his money are soon parted"

This may seem harsh, but it is a reality. But sometimes, the ignorant and their money are also soon parted. People will fall for pretty much anything, and it is either due to trusting someone too easily (the elderly are a good example of the ignorant types), while others are too greedy (want to make a fast buck with little effort...the fools). This often makes them easy prey for scammers. There is not much hope for the fools, but the ignorant can be helped. I don't mean ignorant in a demeaning way, either. I simply refer to those who are unaware of something, not informed or educated, not savvy to something. Savvy?


Now, before everyone gets all huffy with me, let me say, there are many folks who do innocently get scammed. With the huge rise in identity theft, phishing, and spyware, many people will inadvertantly become victims of scams, through no fault of their own.

One scam, that will catch many innocent people off guard, is already barreling down the highway. Clark Howard talked about this on Thursday. We have all heard about the rebates that are going to be sent out later this year, in an attempt to stimulate the economy (that is another topic in and of itself). Well, the scammers are already hitting people from this angle.

You are probably thinking, "Gee, they are going to try to get my rebate check? I won't fall for that!" Slow down a second...it's more nefarious than that. The scammer will contact the victim, and pretend to be from the IRS. They will advise the victim they need to verify the account number at the victims bank, so they can make sure the rebate gets electronically deposited. They verify that is the right account (duh!), and thank you for your time. And then nothing happens. Yet.

What they do then is watch your account...and watch it...and watch it. Not for the rebate check, though...they want bigger fish. They wait and see when you typically have the most money in your account. Basically, they are looking for that paycheck to deposit, or the social security check to credit, or that pension to drop in...then they nail you, and drain your account. Once they figure that out, say good-bye to your money, cause it's on a fast plane to someone else's wallet.

In a nutshell, be very wary of anyone asking for your soial security number, your checking or banking account information, or any credit/debit card account information...legit companies won't ask for them by phone or email.

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Super Emergency Fund

Recently, I have talked about having an emergency fund in place, and paying off your debt (minus the mortgage) as soon as possible. But what about after getting your debt paid off, and you have a fully funded emrgency fund? This where you create a SUPER EMERGENCY FUND (SEF).

An SEF is an emergency fund on steroids. It is there to protect you in the event of something catastrophic, such as a job loss, prlonged illness, or even a disability. Typically, most financial counselors will recommend saving 3-6 months worth of expenses, but I tend to be more conservative, so if possible, I say go for 6-9 months worth of expenses saved up, or better yet, a year.

I hear it now..."Whoa, wait a second! 6-9 months of saved expenses? I can barely make my payments now!". Keep in mind, this is after you pay off all debts except the mortgage. I'll use myself as an example...after paying all our debts off (minus the house), we will have a total of about $700 (as we pay off each debt, the extra goes to the next smallest debt balance, to pay it off faster). Our personal goal is to have $15,000 saved in a SEF, which would take us approximately 21 months to accomplish. Looking at that way, it won't really take that long to accumulate a nice SEF, for a REAL rainy day. Even better, having it in a MMA or mututal fund will help it grow faster, with interest. Using the MMA we use now for our regular emergency fund, we would have about $16,000 with the interest earned.

The peace of mind the SEF gives you, will do wonders for your relationship with your spouse, not to mention your overall quality of life. Not fighting over money, knowing if something happens, you'll more than likely be able to cover it financially without going back into debt is priceless. My wife cinfided to me how much more secure she felt, knowing we had an emergecny fund in place, for those "what-if's" (and fellas, if I had known what THAT would have done for our relationship, I would have had an emergency fund YEARS ago!). Knowing that if you lose a source of income through layoffs or worse, an injury or sickness, you will have enough time to replace that income, or receive disability (disability insurance is very cheap, and should be a part of your overall financial plan, even if not offered through your employer. The SEF will help you get through until your long-term disability kicks in), because of the foresight you had to plan for that big bump in the road we call life.

Go ahead and get that super rainy day fund saved up, for those monsoons life sooner or later is going to send your way.

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