Be Brave Not Safe

This continues our discussion on Mind the Finances, as a key step in creating a life of effortless abundance for ourselves, our families and others!

In this post we’ll cover the topic of using protection.

There are many risks to our financial standing that we can protect against. This includes unanticipated costs associated with:

• Healthcare
• Accidents and the resulting liability to others
• Disability
• Death

Let’s briefly cover each…

Healthcare

We all need it at some point in time. And, you will now be fined if you don’t have adequate health insurance coverage.

The primary objective, in my mind, is knowing and controlling EXACTLY what the TOTAL out-of-pocket expenses “could be” in a worse-case scenario. This includes the cost of the insurance, any deductibles and exclusions.

Too many plans, promoted front and center, and subscribed to by many, simply do NOT provide this. Check your policy to confirm…While the plan may provide “adequate” coverage, it is often not possible to lock-in the total out-of-pocket expenses that we may be required to pay.

It does not have to be this way…

We subscribe to a plan offered by Blue Cross Blue Shield, called Lumenos. In a nutshell, we chose a high deductible (the out-of-pocket expenses) that we’ll pay up-front (regardless of whether it all happens at once, or over the course of multiple healthcare-related transactions). Then, once this out-of-pocket is met any additional healthcare-related expenses are “all in” for the year.

For individuals (or families) willing to take on more of the up-front risk, insurance providers offer lower rates. The result: a lower cost insurance plan that covers us against the catastrophic healthcare-related expenses that could have a significant impact on the state of our finances.

Other plans charge a higher fee for healthcare that may not be needed in a given year, and they don’t provide a cap on the maximum out-of-pocket expenses that we may be required to pay.

Bottom-line: Do some research to ensure you aren’t paying for more than what is needed in a policy? And, determine if you can lock-in the “maximum” out-of-pocket expenses.

Auto Insurance

Do you know how much a telephone pole costs? We do 🙂

A few years ago one of our sons used his car as a missile and clipped one completely off! Thankfully there were no “major” injuries AND we were completely covered.

Moral of the story: Do NOT skimp on auto insurance. While some companies offer “name your price” insurance, the result does NOT guarantee that you have adequate coverage. At a high-level, there are 2 types of coverage available in an auto policy:

• Liability – Coverage for what we may do to someone else and/or their property, with our car.
• Collision – Covering the cost of repairing our own vehicle.

The most important portion is liability. Mistakes happen. And, they can become quite costly (in the 10’s if not 100’s of thousands of dollars). Check your policy. If you are not covered for “at least” $100k, your finances are at risk of significant / long-term impact.

If you are looking to save money on your auto policy consider a high deductible for collision. Then, if you are the cause of an accident you can tap your emergency fund (discussed in a prior post) to pay for the repair of your car.

Disability

At some point during our “working years” there may come a time when we simply cannot work due to injury or illness. And, just because work has stopped (including the associated income) does not mean the expenses stop. In fact, they may grow as a result of needing to pay for the related healthcare. As such, it is important to acquire disability insurance.

This is often offered by our employers. If so, subscribe. If not, contact an insurance company and obtain quotes.

If you are like me, in my younger years, I thought I was indestructible. I had a rude awakening when my motorcycle ride was abruptly interrupted by a driver not paying attention while making a u-turn – right in front of me. My velocity may have played just a “small” part in this 🙂

When I came to, me and parts of my motorcycle were strewn all about the street. The result: I was laid-up for over 3-months. Thankfully, I had subscribed to my employer’s disability insurance, which helped me to continue to float the boat (make my rent, car and motorcycle payments). Phew…

Death

I really don’t know why it is called life insurance. We are actually insuring for the handling of our financial obligations after we pass to the other side.

Do you have ANY debt? Who is going to pay off that debt when (not if) you expire? A co-signing parent, spouse or significant other? Not fair!

Do you have children, who you are planning to help through college? Who is going to pay for that education if you were to evaporate?

Anyone can obtain SIGNIFICANT life insurance at a LOW COST. Example: a 25-year old can acquire a $100,000 term life policy for around $12 a month. As we grow older the costs do creep up, a bit, but until we reach our mid to late 50’s it is still very reasonable. And, at that point, when the kids are on their own and our debt is paid off we really need very little (if any) life insurance…

If you have any debt, or children, it is your responsibility to acquire sufficient life insurance to handle YOUR financial obligations that will remain after you are gone.

We are all going to leave this place (for a better one 🙂 ). When we go, let’s leave behind good memories, untarnished by a pile of financial obligations that we didn’t handle while we were still able to fog a mirror.

More to come!

This post continues the series on Mind the Finances, as a necessary step to creating a life of effortless abundance.

We will now cover the topic of paying ourselves first.

This begins with putting aside funding for the inevitable emergencies in life. The rule-of-thumb is to have 3-6 months of our take-home pay tucked away and available for immediate access. Since we’ll want this money guaranteed to be available, the best place to keep it is in a savings account that is not touched until / unless there is an absolute emergency. Becoming twitterpated over a bright, shiny new object does NOT qualify 🙂

Examples of what does qualify, for the use of our emergency funds, would be paying for normal living expenses during a (temporary / short) period of job loss, disability and/or an unanticipated bill (auto repair, healthcare expense). An emergency fund let’s us absorb the “majority” of these situations without compromising our long-term financial plan, including having to take on debt or selling assets at a discount, when under duress.

If we should have to consume some or all of our emergency fund the first priority is to then replenish this as quickly as possible.

Once we’ve established our emergency fund we can now begin putting money away for the longer-term. The goal is to save “at least” 10% of everything we earn. The higher we can make this percentage the sooner we will become financially independent. When we get started we may only be able to put away 5% because of other obligations we’ve made for our income (living expenses, debt payoff, etc.). Several months later we may receive a raise. When this happens we have a couple of choices:

• Immediate gratification, which could increase our ongoing financial obligations  (thus consuming the raise)
• Shortening the timeline to our financial independence

At this point it may be time to reward ourselves. And, this is encouraged. However, if we do so, let’s try to avoid increasing our ongoing obligations, thus consuming the increased income, we have worked so hard to earn. Instead, we can decide to splurge on something “with cash” (e.g., a new toy, vacation, etc.), then use the increased funding on an ongoing basis to accelerate the payoff of debt and increase the amount we save for the long-term. The result, we are shortening the timeline to our financial independence.

By consistently taking this approach, while balancing the realities in life (yes, there will be times when we’ll want to increase the obligations for our income to move into a larger home as our family expands, etc.) we can absolutely achieve financial independence WAY BEFORE normal retirement age.

The alternative, which many in our society take, is that of paying expenses first and then saving / investing anything that “may” be left over. Taking this approach, quite simply, continuously delays (if not prevents) the realization of our goal of becoming financially independent.

Finally, if all we do is store-up extra funds for ourselves we are stopping the flow in the universe. Consider the Dead Sea. Know why it is dead? While the Jordan River is the source of water in, there are no outlets. The water is stagnant and cannot support life. Not the result we want from our finances 🙂

As such, do not forget to contribute to worthy causes. This could be giving at your place of worship and/or funding a cause that will make a real difference in the world. Have you ever given a SIGNIFICANT tip to a waitress who you just learned is a single mother, struggling to get by? I don’t mean 20% vs. the customary 15%. What about slipping her a $100 bill, on a $25 lunch? Trust me, the transaction is just as good for you as it is for the recipient. You, your significant other, the recipient and their family will remember it for years – and feel really good about it!

In closing, paying ourselves first does not suggest that we should be stingy with our money. Far from it!

It means consciously directing our income towards paths that will improve the quality of life for ourselves, our family and others, prior to it being consumed by frivolous expenses that have little, if any, long-term value.

More to come!

In prior posts we began covering steps to Mind the Finances.

In this post we’ll focus on paying our expenses on-time, every time…

Why is this so important? This is CRUCIALLY important, because not paying our expenses on time EVERY time results in:

1. Increased costs in the form of late fees and/or interest payments
2. A black mark on our financial reputation (a.k.a. credit score). This then places a limiting factor on our life which can manifest itself in many forms, including:
   • Paying higher interest rates on any line of credit that we attempt to establish, or worse, we may be outright refused!
   • We may have a more difficult time renting an apartment (landlords want their money on time every time).
   • We may not get that job. Many employers now check our credit before making a hiring decision.

So, missing ANY payment is a reason to think: my hair is on fire!

There are simple steps we can take to ensure we don’t EVER miss a payment, including:

• When we receive a bill in the mail (email or snail mail) handle it IMMEDIATELY. Don’t let it pile up in a stack of papers or in an out-of-control email inbox.
• Set it and forget it – For many of the services we receive we can ask the provider to automatically deduct the payment from our account each cycle. And, for the more disciplined (who like free money) we can have our service providers hit our credit card (which offers cash back) and we don’t need to worry about the balance in the account – because we pay it off EVERY month!
• Manage our payments as rigorously (even more-so) as we manage our tasks and appointments. As covered in a prior post, we can setup payment reminders for ALL our financial obligations in Mint.com. Then, as we periodically check the status of our accounts we are reminded of upcoming payments and can ensure the required funding is available in the necessary account.

Bottom-line: To eliminate noise in our mind and the resulting stress associated with the handling of our expenses, we only need to take a few very simple measures to manage the process. These habits are absolutely foundational to achieve Mind Like Water in our quest to create a life of effortless abundance.

More to come!