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The no-pants guide to spending, saving, and thriving in the real world.

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Don’t Screw Future-You

Finance, Life

A conversation between me and my temporally displaced self.
Future Me: Excuse me, Jason?
Me: Yes?
FMe: <Slap!>
Me: May I ask what that was for?
FMe: Of course.
Me: What was that for, jerk?
FMe: That was payback for all of the hell you have put me through.
Me: What?!?  I’ve never even met you, before.
FMe: Of course you have.  I am future-you, and I’m sick of getting screwed by past-me, that is, you.
Me: Huh?
FMe: Listen close.  You’re not  the sharpest brick in the box and I don’t want to explain this twice.
Me: ???
FMe: A long time ago, when you first met our wife, you were dumb.
Me: I don’t appreciate….
FMe: Shut up.  I was dumb then, too.  Remember?  You…err…we bought a new truck, built an addition on our…err…your…err…whomever’s house, got married in the same year.  On top of many other expensive decisions.  Do your recall?
Me: Yes, I do.  So what?
FMe: If that wasn’t enough, you and your smoking-hot bride are still shopping like you’re rich. You drive a new car.  Your kids wear new clothes.  You’ve got a house full of new furniture.  How did you pay for all of that?
Me: Naturally, I charged it.  Zero payments, zero interest for a year!  Pretty smart, huh?
FMe: What happens in a year?
Me: I don’t know.  I’ve got a full year to figure that out.
FMe: <Slap!>  I’ll tell you what happens!  Future-you, that’s me, gets screwed!   Your raise didn’t come through.  You had a baby. The truck broke down.  Your wife took maternity leave.  A roommate moved out.  You took a loss in the stock market.  You didn’t plan!  You had no savings to cover any of those problems because you were too busy servicing debt to pay for your current life.
Me: How was I to know?
FMe: <Slap!>  Life happens!  You never know what is coming next.  You need to plan and save for what might happen.  Otherwise, you’ll just accumulate more debt to be serviced by yours-truly.  That is not acceptable.
Me:  So?  What are you going to do about it?
FMe: <Slap!>
Me: Really?  Again?
FMe: <Slap!>  I’m struggling to pay your debt. Your son starts college next year, but you’ve left me completely unable to help.  Your daughter wants to get married in a couple of years, but the Father-of-the-Bride can’t afford a tux.  My wife, your beatiful bride, wants a vacation that I can’t afford.   You’ve screwed me, dude.
Me: I’m sorry.  What can I do to fix it?
FMe: Buy me dinner, first.
Me: Huh?!?!?
FMe: Stop the excess spending. Spend less than you make, for a change.  No credit.
Me: None?
FMe: None.  Nada.  Zip.  Zilch.  Only spend what you can afford. Budget.  Pay off those nasty bills.  Don’t leave me hanging.
Me: So, what you’re saying is that, if I don’t have the money, I shouldn’t buy it?
FMe: Exactly.  That’s the path to wealth, freedom, and financial independence.  Live in the real world.
Me: Gee, thanks, Future-Me!  Now I know.
FMe: And knowing is half the battle.

What would your future-you have to say to you?

 

Karate Guess So

Finance, Life

琉球国唐手家・明増盛の「慈恩」(Ming Zengsheng, 1869 - 1945)
Image via Wikipedia

“Walk on road, hm? Walk left side, safe. Walk right side, safe. Walk middle, sooner or later, [makes squish gesture] get squish just like grape. Here, karate, same thing. Either you karate do “yes”, or karate do “no”. You karate do “guess so”, [makes squish gesture] just like grape. Understand?” -Mr. Miyagi

It occurred to me that lately, I’ve changed my day-to-day cash flow plans a couple of times.

A year ago, I was running on a fairly strict cash-only plan.

A month ago, I was running on a strict budget, but doing it entirely out of my checking account.

Now, I’m loosening the budget reins, and moving all of my payments and day-to-day spending to a credit card, including a new balance that I can’t immediately pay off.

The thing is, changing plans too often scares me. Like the quote at the beginning of this post, I start worrying about being squished like a grape.

The simple fact is that any plan will work.

If you want to get out of debt, just pick a plan and run with it. If that means you follow Dave Ramsey and do the low-balance-first debt snowball, good for you.  Do it.  If you follow Suze Ormann and do a high-interest first repayment plan, great. Do it. If you follow Bach and pay based on a complicated DOLP formula to repay in the quickest manner, wonderful!  Do it!

Just don’t switch plans every month. If you do that, you’ll lose momentum and motivation.  Squish like grape! Just pick a plan and go. It really, truly does not matter which plan you are following as long as you are following through.

This applies to other parts of your life, too.  For example, there are a thousand fad diets out there.  Here’s a secret: they all work. Every single one of them, whether it’s Weight Watchers, slow carb, or the beer-only diet. The only thing that matters is that you stick to the diet.  If you manage that, you will lose weight on any diet out there.  Except for the jelly bean and lard diet. That one will make you extra soft.

Another secret: the productivity gurus are right. Every single one of them. David Allen, Stephen Covey, Steve Pavlina, and the rest. They all have the One True Secret to getting the most out of your day.  Really.   Pick a guru and go! But don’t try to Get Things Done in the morning and do 7 Habits at night. Changing systems, changing plans, changing your mind will make you sabotage yourself.

The real secret to accomplishing great things, whether it’s paying off $100,000 of debt, dropping 40 pounds in 3 months, or tripling your productivity is to do it. Just get started and, once you’ve started, don’t stop. If you keep going and stay consistent, you’ll accomplish more than anyone who hops from system to system every few weeks.

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Money Problems – Day 8: Insurance

Finance

insurance
Image by alancleaver_2000 via Flickr

Today, I am continuing the  series, Money Problems: 30 Days to Perfect Finances.   The series will consist of 30 things you can do in one setting to perfect your finances.  It’s not a system to magically make your debt disappear.  Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not running the series in 30 consecutive days.  That’s not my schedule.  Also, I think that talking about the same thing for 30 days straight will bore both of us.   Instead, it will run roughly once a week.  To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

On this, Day 8, we’re going to talk about insurance.

What is insurance?  Insurance is, quite simply a bet with your insurance company.   You give them money on the assumption that something bad is going to happen to whatever you are insuring.  After all, if you pay $10,000 for a life insurance policy and fail to die, the insurance company wins.

A more traditional definition would be something along the line of giving money to your insurance company so they will pay for any bad things that happen to your stuff.   How do they make money paying to fix or replace anything that breaks, dies, or spontaneously combusts?  Actuary tables.  Huh?  The insurance company sets a price for to insure—for example—your car.  That price is based on the statistical likelihood of you mucking it up, based on your age, your gender, your driving history, and even the type of car you are insuring.  What happens if a meteor falls on your car?  That would shoot the actuary table to bits, but it doesn’t matter.   They spread the risk across all of their customers and—statistically—the price is right.

What kinds of insurance should you get?

Homeowner’s Insurance

For most people, their home is, by far, the largest single purchase they will ever make.  If your home is destroyed, by fire, tornado, or angry leprechauns, it’s gone, unless you have it insured.   Without insurance, that $100, or  200, or 500 thousand dollars will be lost, and that’s not even counting the contents of your home.

Homeowner’s insurance can be expensive.  One way to keep the cost down is to raise your deductible.  If you’ve got a $1500 emergency fund, you can afford to have a $1000 deductible.  That’s the part of your claim that the insurance company won’t cover.  It also means that if you have less than $1000 worth of damage, the insurance company won’t pay anything.

You can get optional riders on your homeowner’s insurance, if you have special circumstances.  You can get additional coverage for jewelry, firearms, computer equipment, furs, among other things.  You base policy will cover some of this, but if you have a lot of any of that, you should look into the extra coverage.

Auto Insurance

Car insurance is required in most states.  That’s because the kind caretakers in our governments, don’t want anyone able to hit you car without being able to pay for the damage they caused.  To my mind, I think it would be more effective to just make whacking someone’s car without paying for it a felony.  If someone is a careful driver or has the money to self-insure, more power to them.

Auto insurance comes with options like separate glass coverage, collision, total coverage (comprehensive), or just liability.  Liability insurance is what you put on cheap, crappy cars.   It will only pay for the damage you do to someone else.

Rental

I’ve never had rental insurance.  The last time I rented, I could fit everything I owned in the back of a pickup truck with a small trailer, and it could all be replaced for $100.   Heck, I had the couch I was conceived on.  Err.  Ignore that bit.

Almost everything you can get homeowner’s insurance to cover will also cover renter’s insurance, except for the building.  It’s not your building, so it’s not your job to replace it.

Life Insurance

If you care about your family, you need life insurance.   This is the money that will be used to replace your income if you die.   I am insured to about 5 times my annual salary.   If that money gets used to pay off the last of the debt, it will be enough to supplement my wife’s income and support my family  almost until the kids are in college. You should be sure to have enough to cover any family debt, and bridge the gap between your surviving family’s income and their expenses.  At a minimum.  Better, you’ll have enough to pay for college and a comfortable living.

Life insurance comes in two varieties: whole and term.  Whole life…sucks.  It’s expensive and overrated.     The sales-weasels pushing it will tell you that it builds value over time, but it’s usually only about 2%.  It’s a lousy investment.  You’re far better off to get a term life policy and sock the price difference in a mutual fund that’s earning a 5-6% return.

Term life is insurance that is only good for 5, 10, or 20 years, then the policy evaporates.  If you live, the money was wasted at the end of the term.  The fact that it’s a bad bet makes it far more affordable than whole life.  It doesn’t pretend to be an investment; it’s just insurance.  Pure and simple

Personal Liability Umbrella

An umbrella policy is lawsuit insurance.  If someone trips and hurts themselves in your yard, and decides to sue, this will pay your legal bills.  If you get sued for almost anything that was not deliberate(by you!) or business related, this policy can be used to cover the bill.

If you call your insurance company to get an umbrella policy, they will force you to raise the limits on your homeowner’s and auto insurance.  Generally, those limits will be raised to $500,000, and the umbrella coverage will be there to pick up any costs beyond the new limit.

A little-known secret about umbrella policies:  They set the practical limit of a lawsuit against you.  Most ambulance chasers know better than to sue you for 10 million dollars if you only have a policy to cover 1 million.   They will never see the other 9 million, so why bother?  They’ll go for what they know they can get.

The flipside to that is that you should not talk about your umbrella policy.   Having a million dollars in insurance is a sign of “deep pockets”.  It’s a sign that it’s worthwhile to sue you.  You don’t want to look extra sue-able, so keep it quiet.

Insurance is a great way to protect yourself if something bad happens.   Today, you should take a look at your policies and see where you may have gaps in coverage, or where you may be paying too much.

 

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First 3 Things to Do in the New Year

Finance

April 6 - Now
Image by iowa_spirit_walker via Flickr

With the new year looming, it’s the perfect time to review the things that may not have gone as well as planned in the current year, and plan ahead for the coming year, to make sure things go well from now on.

To get a good start in the new year, you should focus on three things.

1.  Budget.

A good budget is the basis of every successful financial plan.   If you don’t have a budget, you have now way of knowing how much money you have to spend on your necessities or you luxuries.  Do you really want to guess about whether or not you can afford to get your car fixed, or braces for your kid?   I’ve gone over all of the essentials to make a budget before.  Now is the perfect time to review that series and make sure your own budget is functional and ready for the new year.

At the same time, spend some time thinking about how your what has gone wrong with your budget over the previous year.   In my case, when we got back from vacation in August, our mindset had changed a bit about spending money, and we got out of the habit of staying strictly on budget.   By the time we got back on track, it was Christmas and our plans got shot, again.   If it weren’t for my side hustles–money that I don’t track in the budget because the money isn’t consistent, yet–we would have had some serious problems this fall.   Where have you gone wrong, and what could you do to improve next year?

2.  Credit Cards and New Debt.

In the new year, if you haven’t already done so, make sure you throw your credit cards away.   The most basic law of debt reduction is, “If you don’t stop using debt, you’ll never be out of debt.”   That’s why you need to set up your budget first.  Make sure that your expenses are less than your income, so you can make ends meet without having to charge the difference.

How has your debt use worked out over the last year?  Have you used it at all, or have you eliminated the desire to pay interest?   What have you used your credit cards for?  How much of that could you have done without?

3.  Estate Planning.

Now is the time to make sure that all affairs are in order, if the worst should happen.   If you die, what happens to your money?  Your kids?   I’ve gone over everything you need in an estate plan before, so I won’t beat that horse again.    You owe it to your family to make sure they are taken care of if something should happen to you.   At a bare minimum, write a will and get it notarized.

Have you putting off writing your will?   You know you need one, but it’s a morbid thought, so it’s easy to put off, right?  Get over it.  If you love your family, you’ll do better and get your affairs together next year.

That’s a good financial start for 2011.   What are you missing in your financial life?

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6 Questions to Financially Get to Know Each Other

Finance

This topic has been blatantly stolen from Budgets are Sexy.

1) How do you spend: cash, debit or credit? I use cash almost exclusively.  I live in Minnesota and have two small children, so bundling the brats up to go inside the gas station to pay is nuts.  Gas stations get the debit card.   Online shopping, or automatic payments set up in the payee’s system are done on a credit card that gets paid off every month.

[ad name=”inlineright”]2) Do you bank online? How about use a financial aggregator (Mint, Wesabe, Yodlee, etc.)?  I bank online.  I use USBank for my daily cash flow, INGDirect for savings management and Wells Fargo for business.  I used Mint strictly as a net worth calculator and alerting system.  I use Quicken to manage my money and a spreadsheet for my budget, but I really like the quick, hands-off way that Mint gathers my account information and emails low balance alerts.

3) What recurring bills do you have set on autopay? Absolutely everything except daycare, 2 annual payments, and 1 quarterly payment.

4) How are your finances automated? I use USBank’s billpay system, instead of setting up autopayments at every possible payee.   This gives me instant total control and reminders before each payment.   The exceptions are  my mortgage, netflix, and Dish.  My mortgage company takes the money automatically from my checking.  The other two hit a credit card automatically.  Our paychecks are direct-deposited and automatically transferred to the different accounts and banks, as necessary.

5) Do you write checks? If so, how often? Once per week, for daycare.  Occasionally for school fundraisers.

6) Where do you stash your short-term savings? I have quite a few savings accounts with INGDirect to meet all of my savings goals.  For the truly short term, I add a line item in Quicken and just leave the money in my checking account.

Who’s next?