MONEY MATTERS
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A note to readers: Please use the site as another resource in how you handle your personal finances. As good stewards of what has been entrusted to us by God, we are to act wisely, discerningly and lovingly in all financial or monetary matters. We all must remember, of past decisions (or non-decisions) that we made that currently impact our lives to this very day! I am not an expert or independently wealthy but instead like you struggling with the day-to day decisions. It is one thing to know what to do and a whole other story of doing it!
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Insurance: It is what it is!
What if someone tried to convince you to
spend more money on your auto insurance in the hopes of improving
on your investments for retirement?? Here in New Jersey where auto
insurance costs are among the highest in the nation, it wouldn't be long
before that person went flying out the window! How 'bout your homeowners
insurance? Then why would it be any different for your life insurance?
Don't trust anyone, (including your insurance agent) when it comes to
investing money! Term vs. Whole-Life
As a young man of 24 -Life Insurance is income replacement and not necessarily needed for everyone, your situation may be unique. -Discuss your finances with your spouse first and be very, very selective on who else you share information with. If you must share information, make sure it is someone who is really looking out for your best interest because there are plenty of people trying to get your money! -Don't be wooed by big corporate names or the agent that has been "in the family for years". He might be there because he has been milking your name for decades. READ YOUR POLICY and ask questions! |
Basic Helpful Fundamentals:
The Rule of 72 is a basic equation / financial principle that we must all understand if we are to get money to work for us instead of us working for it! However, we must be careful that the love or obsession of money does not cloud our judgment and life priorities of God, Family, Friends!
It revolves around the principle of getting interest rates to work on our behalf. In order to do this, we must understand the power of compounding interest. Once this is done, we will want to get interest rates to work for us instead of against us! The Rule of 72 was something I learned about in 1992 and I was in awe in that I was never taught about it in high school or college. Interestingly, in many institutions, it never will be taught. The Rule says this: Divide the number 72 by the % rate you are getting on your investment in order to determine how many years it will take for your investment to double. Let's look at the table below: Let's review the following interest rates and see what happens to a one-time $2000 investment without any other contributions : 72 / interest rate % = number of years money will double In the example below, 22-year old Joe Jones received a $2000 gift from his granddad upon his college graduation. If he left it alone at 3%, his money would double every 24 years (applying above formula). It is obvious then at 18%, Joe's money would double every 4 years.
Have you noticed the
higher the rate of return, the quicker Joe's money doubled so that he
had more as a younger man? You may be asking where in the world would
someone get rates of return in the 12% range? Now, imagine having what
we just learned work against us in the form of credit cards. Credit
cards are not evil or bad, its just that they are totally
Money "Down the John"
Department
1) Credit card companies even try to convince us that they will give us cash back if we use it. In most circumstances with those deals, we are in essence, prepaying the company so that they can give us money that was ours later on during the year! 2) Be weary of those "counseling" services that offer to get you out of debt or consolidate your bills. Several go under the banner of "non-profit", but make sure there are no hidden fees and that your debt has not been extended until the end of time in lieu of lower monthly payments! 3) Lastly, during tax season you may want to rethink why you are getting back so much money back from the IRS. While many people brag about the thousands of dollars they are getting back in the form an IRS refund check, they have basically given the government and interest free loan for the entire year! Why not review your finances and keep that money. If the average return is $5,000 that's roughly $400 a month that you can invest....
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Whenever someone tries to convince you to wrap up an investment or
retirement plan in an insurance policy especially life), be on guard.
Keep your life insurance as your "family's security insurance" in the
event that you die a pre-mature death. Typically, it is good to have
10 x the amount of your yearly income as the death benefit for your
survivors. If my yearly salary is $50k per year, then the appropriate
payout for my family if I should die would be $500k. Just make sure you
sleep with one eye open at night! If this seems like too much, ask
yourself the question: "What bill would my wife and kids not
want to pay if there was no income coming into the house?"
Obviously, all bills would need to be paid! The logic here is if your
family took the death benefit and invested it in mutual funds or real
estate (typically 10% + gains over the long term) they would be able to
live off of the interest without cutting into the principal.
years old, I was approached by a friend to consider a whole life product
from an agent who was a brother of a friend, etc. etc.... I
paid $110 dollars a month to a major carrier, but I can't tell you who
they were, some company in the Northwestern area, a quiet company. I was
shown (on a bogus fact sheet) that I would retire with $350,000 at age
62 based on these "projections". About a few years later another friend
(thanks Sully) bailed me out when he informed me that this was a poor
choice of investment vehicles. After close to $5,000 out the window with
no cash value, I stopped payments. The agent, (like most would) tried to
convince me that you need to "build up some steam" to reap the future
benefits. Later on after selling term insurance myself on a part
time basis I learned that most whole-life products have an average rate
of return of 1-2%! Many proponents will teach that we should buy
term insurance which is 1/3 rd the cost and invest the difference
in the vehicle of choice. In summary I recommend the following:
The
Rule of 72
The average rate of return for mutual funds since their inception in the
1920's have been 10-12%! However, the average working person hasn't been
aware of this investment option until recently. Real Estate has also
been regarded as another investment option but critics will always argue
over investment vehicles. The main thing is that we understand that it
is more profitable for us to have money working for us than us working
for money! 
misused
today. However, using the table above, we can see how quickly debt
can accumulate and the frequency our debt doubles! Although several
folks may disagree due to the fact that more inquiries on your credit
report may cause creditors to "raise an eyebrow", I work hard at taking
advantage of lower rates and balance transfers (just
be careful of transactions fees which are nothing more than another
pre-payment scheme milking innocent people..) with discernment!
After all, don't we have the opportunity to explain such movements?
