Category Archives: Personal Finance

Long-Term Disability Income and Long-Term Care Insurance Apps

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This is the eighth exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the disability income exercise HERE and the long-term care exercise HERE, or just jump right in with the instructions given below:

This exercise is a three-step process.  Step One is to determine what you need.  This is accomplished by writing out a Disability Plan if you are in your 30s, 40s or 50s.  If in your 50s, 60s, or beyond, you need to articulate your Long-Term Care Plan.  Start the process by writing out a paragraph beginning with the following sentence: “If I became disabled [suffered a long-term health care incident], here’s how I would handle that financially…”  We’ve provided space to do so in our online exercises for this chapter.

Step Two is to establish what you already have.  The online exercise includes a template with spaces to fill in for the primary features mentioned in this two-part blog series.  Once you have completed the template, you’ll better understand the coverage you have.  Step Three is to determine what you actually need and want in a policy and create a template to retrieve quotes and find the best coverage.  You’ll be better prepared for the engagement with the insurance agents because your template will ensure you’re comparing apples-to-apples, a very difficult thing to do with long-term disability income insurance and long-term care insurance.

Click HERE to access the long-term disability income app and HERE to access the long-term care app!

Home and Auto Insurance App

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This is the seventh exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

In order to know if your home and auto insurance policies are providing you with the appropriate levels of coverage, you’ll want to collect the declaration pages for all of your home, auto, condo, and renter policies.  The Application Exercise online will provide a chart to fill in your various coverage limits next to our recommended minimum limits.

After you’ve tailored your desired limits with the help of an independent planner who does not accept commissions or referral fees for the sale of insurance, you can use the Application Exercise to shop your coverage with several carriers.

Click HERE to access the app!

A Financial Emergency

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by Jim Stovall

We have all heard and read a lot recently about the financial crisis or monetary emergency that we are facing.  These reports, most often, define the looming disaster in terms of billions or even trillions of dollars.  While we are certainly facing some difficult economic times around the world, the most critical financial emergency we are facing, individually and collectively, is represented by $1,000.

A recent survey showed the staggering reality that 64% of Americans don’t have $1,000 set aside as an emergency fund.  This is an alarming statistic because, with the cost of all the complex devices that make our world possible, a non-functioning refrigerator, broken transmission, or even a leaky roof can use up a $1,000 emergency fund and more.

It’s not a matter of if you’re going to have a $1,000 emergency.  It’s a matter of when.

These 64% of respondents to the survey were asked what they would do if they had an emergency since they don’t even have $1,000 set aside.

  • 9% of them said they would take out a loan;
  • 17% declared they would borrow from friends or family;
  • 9% replied they would get a cash advance on a credit card;
  • 17% replied they would simply disregard other monthly expenses to cover the cost of the emergency; and
  • 12% actually said they would have to sell or pawn some of their personal possessions.

In my latest book, The Ultimate Financial Plan, my co-author Tim Maurer and I explore every aspect of the financial decisions that are faced by you and your family; but it all starts with an emergency fund.

There is a tremendous benefit to having an emergency fund that goes far beyond covering the cost of an emergency.  It could commonly be defined as a good night’s sleep.  If you are one of the majority of Americans that don’t have even a minimal $1,000 emergency fund, you need to declare your own emergency now, and begin compiling reserve funds for that next inevitable bump in the road.  You can turn a broken air conditioner, a visit to the minor emergency medical center, or an unanticipated tax bill into an annoyance instead of living with these realities as a looming emergency.

The number one cause of divorce, depression, and dissatisfaction in our society is reported to be worry over money matters.  I’ve got to believe that the majority of the worry is not about retirement, college education, or paying off the house.  Most worries are about those routine, daily matters that come to us unexpectedly and can only be resolved with money.  Money is far from the most important thing in life; however, with respect to the problems that money solves, there is simply no substitute.

As you go through your day today, realize that relaxation and peace of mind may be only $1,000 away.

Today’s the day!

Life Insurance Needs Analysis App

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This is the sixth exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

This app is designed to help you determine what your life insurance needs are for final expenses, debts and mortgages, education, and income replacement.  If you conclude that you have policies you don’t need or want, and you’ve confirmed your research with an independent planner who does not accept commissions on the sale of life insurance, then you should have several options for terminating your policies.  These will differ from policy-to-policy, so check with your insurer.  But don’t make those decisions hastily.  Even if you shouldn’t have purchased the whole life insurance policy you bought 15 years ago and don’t need or want it now, in some instances it will make sense to keep it.

Requesting an “In-force Life Insurance Illustration” and a “Policy Cost Basis Report” from your agent (or the insurance company’s home office) will help you and your independent planner determine whether the policy should be kept or surrendered based on the investment value, future prospects for growth, stability of the insurer and tax consequences of liquidating.

Additionally, if you are considering replacing a current policy with a new policy that is more appropriate or economical, it is very important that you do NOT cancel any existing policies until you have received and paid for the new policy.  This is to ensure that no issues arise throughout the course of your underwriting that would disqualify you from receiving the new insurance policy.

Especially in these economic times, it is important to ensure that every dollar of yours is working hard for you, and that includes the dollars channeled toward life insurance.

Click HERE to access the app!

Risk Management Matrix App

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This is the fifth exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

The best way to see activities through a risk management lens is to go through some ideas of your own, like the example of my car accident, and discuss or jot down the ways in which that risk could have been managed with each of the four methods.  It doesn’t have to be something as dramatic or painful.  It could easily be a risk management success story that you can now better understand.

Examine both the personal and the financial risk using all four of the risk management techniques.  After doing that exercise, discipline yourself to analyze a few other examples throughout the course of your days.  If you’re bold enough, teach the technique to a friend or family member (there’s no better way to learn something than to teach it).  Eventually, it won’t be work, and you’ll see your options more clearly.  Then, when you examine your existing insurance products or new offerings, look for ways you can reasonably avoid, reduce, or assume the risk before paying someone else to do it for you.

Click HERE to access the app!

The Three Guarantees In Financial Planning

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Not much in the realm of financial planning can be guaranteed.  Even the best projections and technical analyses are filled with disclaimers noting, among other things, that “Past performance is no indicator of future results.”  You can lose money.  The company you’re counting on could go out of business.  But of this you can be sure:  Three sure-fire guarantees in financial planning are SURPRISES, CHANGE and FAILURE.

Reassured?  I was afraid not.

But fear not, these three guarantees do come with counter-agents that we can systematize in our financial planning to minimize any negative impact:

Surprises require MARGIN.  Change requires FLEXIBILITY.  And failure requires GRACE.

Margin is a lost art and missing in nearly all phases of life in our all-too-hurried, uber-productive, stressed-out lives.  We don’t leave enough empty space on our calendars, so if we get stuck in traffic or stop to help a stranded motorist, we’re likely to be late for something else.  We can’t do anything spontaneous because every minute is already filled.  And because all of our time is spoken for, we also don’t have much in the way of blank canvas in our, and all too often our hearts.  And this is especially true of our finances—because every dollar is already spent or pledged, often even small emergencies or organic opportunities can’t be absorbed or funded.  There’s no margin for error.

Our lack of margin feeds our inflexibility.  We often don’t even consider the possibility of change because we don’t have the time.  Change, therefore, is inevitably also a surprise, compounding the discomfort.  But we often struggle to accommodate even predictable change.   Can your finances adapt to another child—even if the pregnancy was planned—or the reduction of income in an industry-wide change that was anticipated?  That which doesn’t bend, breaks.

For most of us, so much of our life is spent protecting ourselves from failure that it can be devastating when it arrives.  And it will.  Failure is simply a natural byproduct of our human imperfection.  And if you’re unable to view it as the most successful people often do—as an opportunity for invaluable education and personal growth—please consider diminishing failure’s grip, if only for pragmatic purposes.  Remember the major-leaguer who qualifies for the all-star team when he only succeeds a third of the time (a .333 average in Major League Baseball isn’t bad).  That’s where grace comes in.  Grace isn’t for the guiltless; that’s called vindication or acquittal.  Grace is being forgiven—or forgiving ourselves—when we’ve screwed up, slouched, squandered or slandered.  You don’t have to deserve it to receive it.

So what on Earth could this possibly have to do with Roth IRAs?

I love the tax-free growth and retirement distributions available with Roth IRAs.  I love that you’re not forced to take Required Minimum Distributions after age 70 ½, and I think there’s no better gift you could give your heirs than a Roth.  But my very favorite element of the Roth IRA is its LIQUIDITY, and liquidity is the key to navigating the three guarantees of financial planning.

In case you’re not following me, Roth IRAs are unlike any other retirement investment bucket, for lack of a better term, as you’re allowed to back money out of the account for any reason at any time at any age and without any tax consequences or penalties.  There’s only one caveat: you can only take back your principal—what you contributed to the account—unconditionally.  Your growth is subject to all those typical conditions (taxes and penalties) you’re accustomed to in the realm of retirement accounts.  But if you put $10,000 into a Roth and it grows to $12,000, you can take back your $10,000 whenever you please and for whatever reason.

I’m not encouraging you to take the money out, forfeiting a lifetime (and maybe multiple lifetimes if you pass it to heirs) of tax-free growth and distributions.  But hey, “stuff” happens.  LIFE HAPPENS.

So allow a Roth IRA to become part of your strategy.  Use it as an extension (not the primary source) of your MARGIN, the foundation of which should be pure cash reserves in a bank savings account.  Allow it to facilitate your FLEXIBILITY to change, if and when it’s necessary.  And if you have to dip into it, give yourself GRACE.  Learn from the experience so that you’re better prepared for the next surprise and the inevitable change to come.

Your Path To Financial Freedom: Debt Elimination App

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This is the fourth exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

If you refer back to the Personal Balance Sheet you created, you will have already compiled your debt information in the liabilities section.  Next to each liability, put an “X” next to bad debt and a check mark next to better debt.[i]  Then, transfer the bad debt to the Debt Elimination App available on our web site and customize your Debt Elimination Plan.  List the debts in the order in which you will pay them off.  If you want to get that ball rolling faster emotionally, take Dave Ramsey’s advice and pay your cards off in order of smallest to largest balances.  If you want to save the most in interest payments, list the debts from the largest interest rate to the smallest.

When you make that last payment, celebrate!  Take your next month’s payment—a significant chunk of cash flow that you’ll now be able to plough into more generous budget categories and investment for the future—and throw yourself a party.  Invite family and close friends who’ve supported you throughout, and enjoy the peace of mind that comes with being debt free.

If you don’t have any Xs on your Debt Audit because you only have better debt, you need not put yourself through a financial boot camp, but deliberate over the debt you do have and consider whether or not a debt repayment acceleration plan may be right for you.  If so, use the Debt Elimination App to plan your course of action.

Click HERE to access the app!

[i] There is no “Good Debt”—just “Bad Debt” and “Better Debt.”  Bad debt is debt on ANY depreciating assets, including automobiles, but especially things like furniture, appliances and unsecured credit card debt.  Better debt is debt on appreciating assets, like homes, education and businesses…within reason.  If you’re curious how to differentiate between the two in your specific situation, email me at tim[at]timmaurer[dot]com.

Complete Your Personal Financial Statements

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This is the third exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

Cash Flow Statement

Through the online banking systems of most banks, you can now view a history of your expenditures for specific periods of time in seconds.  If you prefer to do things the old fashioned way, your recent bank statements will also show you your spending past. Seeing what you’ve spent is step one in creating a cash flow statement.  Step two is categorizing your spending—where exactly have you spent your money?  This can be an eye-opening experience.

Balance Sheet

Collect all of the statements (online or paper) for every bank account, investment account, 401k, IRA, and so on, along with every statement detailing your debts—mortgages, auto loans, college loans, credit cards and such.  Add up your assets and your liabilities and then subtract the latter from the former.  The resulting balance is your net worth.

Budget

Every dollar that you expect to receive in the coming month should be allocated to a budgetary category.  Your fixed expenses are the easiest to plan for, but you must also estimate what your variable expenses are going to be.  You also can’t forget about those expenses that come quarterly, semiannually, or annually.  This should include things like your water bill or insurance premiums that you pay on an interval other than monthly, but it should also include those personal expenses like vacations.

Click HERE to access an online exercise to complete all three!

Financial Fact and Fiction

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by Jim Stovall

It is difficult to make good financial decisions even under the best of circumstances.  There are a myriad of tools and an endless supply of information available to us, but it’s difficult to sift through the debris and get to the true treasures that lie underneath.

In listening to one of the recent political debates, one candidate who felt his opponent was bending the truth was heard to say, “My opponent is certainly entitled to his own opinion, but he is not entitled to his own facts.”

As we try to boil down financial news into information we can utilize, we must separate the fact from the fiction.  Here are a few examples.

If you follow the news reports and talk shows, you might think that rich people don’t pay enough taxes or don’t pay their fair share.  This fiction would paint a picture of idle rich people frivolously spending hoards of money without contributing to the tax burden.  The facts are that the wealthiest few percent of people in America pay the majority of taxes while over half of working adults pay virtually no tax at all.

The fiction one might derive from the media would tell us that most U.S. consumers buy and consume goods that were made in China.  While China has a robust, thriving economy and will certainly play a significant part in global financial matters for the foreseeable future, the financial facts are that only 2.7% of goods purchased by Americans were made in China.  Over 88% of American money is spent on goods and services provided in America by American companies.

Another Chinese fiction would have us believe that China owns virtually all of our government debt which they might refuse to refinance at any point in time, putting the American economy into a tailspin.  The financial facts are that China owns 7.6% of our U.S. Treasury debt.  Our own government owns three or four times more than China, and state governments, municipal governments, and private investors like you and me own more than anyone else.  Our growing national debt is a concern, and once again, China is a factor, but when we’re evaluating the situation we must deal with fact, not fiction.

An alarming fiction tells us that the majority of the energy that the United States uses to keep our economy and defense going is imported from unstable or unfriendly governments in the Middle East.  While the amount of oil imports is certainly a concern and we can all agree that energy independence would put the United States in a more stable position, the fact is that currently the United States imports 9.8% of its oil from the Middle East.  This is down nearly a third over the last decade.  Almost half of our energy is produced right here in the United States with twice as much coming from Canada and Mexico as comes from the Middle East.  This means that approximately three-quarters of the oil consumed each day by the United States comes from right here in North America.

There are plenty of facts to be worried about without creating anxiety over fiction.

As you go through your day today, make good financial decisions based on facts, and eliminate the fiction from your thinking.

Today’s the day!

Personal Principles and Goals

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This is the second exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

Deliberate over that which you want to mark your life.  Write down a word or phrase that will be your Personal Principle—your value—and then give a sentence or two of explanation.  These are yours, but I encourage you to share them with a good friend and your spouse, if applicable.  (One of the nuanced difficulties and benefits of marriage is the necessity of allowing your Personal Principles to be folded into those of your spouse.  If your spouse is a willing participant, encourage him or her to complete this exercise as well to develop a set of Unifying Principles for your family.)

You might benefit from reviewing Ben Franklin’s list of personal principles—his “Thirteen Virtues.”  The goal is not to make Franklin’s your own, but to be informed by his intellect, entertained by his wit and inspired by his wisdom:

Your GOALS—especially your financial goals—may be better informed when you complete this entire process, but practice now writing down a few goals that meet the specific, measurable, attainable, and meaningful criteria, then come back to them after completing the full plan series.  Financial goals will then be broken down into specific steps to meet those goals in your Action Plan in the final step.