October 2014 - WiseDollar

Archive for October 2014

The Type and Amount of Life Insurance You Need – Factors That Affect Your Rates

October 31, 2014 John Schmoll Insurance 2 comments

The following is a contribution from my blogging friend Gary at Gajizmo. If you?d like to contribute to Wise Dollar, please contact us.

Like any financial or estate planning decision, life insurance has many moving parts. It?s not just the type of policy you buy (term vs whole), but the amount of coverage, the length of time, the attached riders, the company you choose, etc. As you can see, it can get complicated and not all of us have the time to become life insurance agents to figure it all out.

This complexity may be the reason for some of these alarming statistics from research group LIMRA:

30% of U.S. households, or about 35 million, have no life insurance at all.
50% of U.S. households, or about 58 million, believe they have inadequate coverage.
Of the consumers who believe they need life insurance, 86% haven?t bought a policy because they think it is too expensive.

Now granted, not everyone needs life insurance. If you?re a young adult with no financial dependents and no co-signors on debt (think student loans and parents), you likely don?t need life insurance. Remember, the purpose of life insurance is to insure the financial security of those who depend on you as a provider.

Below, we will discuss how to analyze and think through two important factors affecting your life insurance policy ? the type of coverage and death benefit amount.

Term vs. Permanent Coverage ? It?s Not A Hard Decision

There are two main types of life insurance ? term versus permanent. But to make matters more confusing, within each type of category, there are dozens of different kinds of coverage. The most popular term policy is a traditional 20 year policy, whereas whole life insurance is the most common kind of permanent protection. Let?s make this simple ? chances are you need term life insurance. Let me explain why.

A traditional term life insurance policy features:

guaranteed fixed rates.
a fixed death benefit.
temporary coverage between 5 and 30 years.
no investment component.

One of the reasons term is better than whole life is that whole life costs 5 to 10 times more than term. The average cost of term life insurance for a 35 year old, non-smoker is approximately $30/month or $360/year, maybe even cheaper from the best life insurance companies.

Now imagine that you are instead paying $1,800 to $3,600/year for the rest of your life for a whole life policy. And for what ? lifetime coverage and a measly 4% guaranteed interest rate on a cash value, after fees and expenses? This may be why the Society of Actuaries (SOA.org) reported that 39% of whole life policies are canceled within 10 years of issuance.

You may be enticed by the ?guaranteed interest? part of this equation due to the volatility in the stock market lately, but don?t be fooled. After adjusting for inflation (which your 4% whole policy doesn?t account for), the stock market has returned an average 8.54% in the last 100 years.

This is the main reason any true and honest CFP? or financial advisor looking out for your best interests will easily recommend a term life insurance policy and passive mutual fund investments.

Calculating How Much Life Insurance To Buy

The other big factor affecting your life insurance policy and rates is the amount of coverage you purchase, also known as the death benefit or face value. The amount you purchase determines the payout your family will receive in the unfortunate event of your death.

Calculating your need for life insurance protection can be difficult and costly if you don?t know what factors to consider. Over-insuring yourself or your spouse can result in straining your existing budget and shortchanging your retirement planning, while under-insuring can leave your family in dire straits.

While LifeHappens.org has a great life insurance calculator, the primary contributors to the question ?how much life insurance should I have?? are the following:

Final Expenses ? burial and funeral expenses average between $10,000 and $15,000, depending on the state you live in.
Mortgage ? your outstanding mortgage is probably your largest financial burden, but is also arguably the most necessary. You?ll probably want to pay that off.
Other Debts ? this includes your car, student, business, and personal loans.
Future Education Costs ? you may want to provide assistance for your kids when they go to college.
Living Expenses ? consider the daily living expenses your family will incur, including basic necessities, food, utility, credit card bills, etc.

The above are essentially your family?s cost of living. Not cheap, huh? Sometimes, I think about every little thing we pay for in America, from the cell phone bill to car insurance to basic vacations, and it?s no wonder middle-class families are struggling to get ahead. But I digress?

You will compare this need for income replacement against your existing assets, such as your savings/checking accounts, IRA, 401K, pension, and other investments as well as your spouse?s annual income, if applicable. The difference will be your life insurance need.

In the end, the amount of life insurance you ?should? buy is contingent on your lifestyle and how much financial security you want to provide for your family after you pass.

Final Word

Treat life insurance like you would any other product or service ? compare term life insurance quotes to find the best company, coverage options, benefits, and premiums.

However, when buying life insurance, please keep in mind that the policy or company with the lowest premiums is not always the best choice for you and your family. As we mentioned, each life policy has its own pros and cons and whether a specific type caters to your needs depends on your life situation and circumstances.

What do you consider when you?re looking for life insurance? If you don?t have life insurance coverage, how do you plan for your heirs to take care of your final needs? Do you prefer term or whole life?

4 Simple Ways to Save on Pet Expenses

October 27, 2014 Kayla Sloan Lifestyle 24 comments

It?s not a secret that I?m in debt. I?ve got just under $18,000 of consumer debt and student loans, plus a mortgage of about $117,000. In order to help me pay off my debts as quickly as possible, I?ve been cutting lots of unnecessary expenses like eating out, shopping, and the majority of my entertainment budget.

Despite all these cuts, one category that some see as ?unnecessary? that I?ve decided to keep in my budget is pet expenses. Even though I?m keeping my pets, there are a few things I?m doing to help cut down on the financial cost of owning a pet.

Don?t Overfeed

Buying high quality food and paying a bit more for it is something I?m not willing to cut from my budget. The better quality the food, the longer and healthier your pets? lives will be. But with that said, one way you can save on pet expenses is by making sure you are not over feeding them. You can follow the feeding guidelines on your pet food?s packaging, or ask your veterinarian for suggestions, to make sure you are feeding the proper amount.

Pets, especially dogs, can be beggars and will try everything they can to get you feed them more food and treats. But if you give in, you are costing yourself unnecessary money in both food costs today and future veterinary expenses when your pet becomes overweight.

Save on Pet Expenses By Buying in Bulk

Another way I save on pet expenses and supplies is by buying in bulk. I buy dry food for my dogs and cat in bulk with coupons and sales whenever they are available. By paying close attention to sale prices on the basic pet supplies I know I?ll eventually use, I can buy them at rock-bottom prices and store them until they?re needed. Just be careful not to build up too big of stockpile that you can?t use all the perishable goods before they expire, otherwise you?ll be wasting money instead of saving it.

Skip the Groomer

Another way I save money is by grooming my own pets. My dogs get regular baths and haircuts, and my cat allows me to brush out her fur to prevent shedding from time to time. The best thing about doing this grooming myself is that I get to save money and spending time bonding with my pets. Plus, by doing these things myself, I know how my pets are being treated, ensuring that they receive proper care and are not unnecessarily stressed out by the experience of being groomed.

Invest in Training

Spending money on obedience training books, supplies, or even classes for your pets may not seem like a money saving measure, but it can pay off in the long run. When my dogs were puppies, I spent a lot of time training them basic commands, skills, and lessons. They know how to behave in public and at home, and I never have to worry about them chewing anything they shouldn?t. By ensuring they have proper manners, I can rest assured I won?t have to replace any furniture or belongings because of pet damage. Replacing things that are chewed or otherwise destroyed can be very costly compared to the time and money investment needed for training most pets.

Though pets can be a major financial expense, especially if you?re trying to get out of debt or increase your savings, pets are worth their weight in how many benefits they can bring to your life. Plus, there are plenty of ways to make pet ownership more frugal than the typical pet owner might realize.

How to do you cut down on pet costs? What kind of pets do you have? What is one thing you’re not willing to skimp on with regards to your pets?

Photo courtesy of: Jerry

Invest or Pay off Debt? 5 Things to Consider

October 27, 2014 John Schmoll Debt, Investing No comments

It?s a rare moment when you find yourself with a little extra money these days isn?t it? You may have sold a few things online or picked up a number of side hustles and found yourself with some extra cash in your budget. Now, what to do? You want to be smart about it, so you don’t end up regretting your decision in the end. If you don?t have a financial advisor to consult, someone like My Wealth Solutions?or one of the others out there, here are five things to consider that might help you make your decision.

Are You Carrying Bad Debt?

Bad debt is any debt that is not attached to an asset. A mortgage for example, is secured by property that has relative value. This is why it is considered ?good debt?. Credit card debt, secured by nothing more than buying stuff you?re still paying off from Christmas 2013, is bad debt.

Credit card debt should be killed as fast as possible. The interest charges alone are enough to keep you from increasing your net worth until it’s paid off. If funneling your windfall in this direction frees your from the credit card debt treadmill, it really is an investment of sorts; in your financial stability as much as in your peace of mind.

Consider The Returns

This one is about simple mathematics. If you have a mortgage, and you?re paying an interest rate of, say 5%, and you put your spare funds into your loan, your return is what you?re saving in interest; i.e. 5%, and with no tax liability to speak of. However, if you invest your money, will your return be greater than 5%? Even after you?ve been taxed on it (tax counts)? Unless you really want to scroll the tax department websites yourself, these are questions you may want to ask your financial advisor ? and remember to ask about the tax. Tax rates are ever changing. Investing in someone else to keep track of these shifting sands for you is a major headache-saver.

Long, Medium or Short Term Goals?

Consider which of your goals you?d like to make the largest leap towards. That will help you decide how and where to place your money. Perhaps you have a long-term goal of buying a home; in that case, you may be best served in putting your funds towards this. If you have a short-term focus of taking an overseas vacation in a few months, you can place the funds in that direction. It depends on your focus and how your money can best serve you.

Check Your Budget

If you have a budget or any kind of savings plan, check your progress. Have you had any unplanned expenses lately? Are there any holes that need to be plugged? How urgent are they? Looking at your finances regularly helps improve your financial intelligence, and you?ll soon find it easier to make smarter decisions about your money.

Remember Risk

Never forget that every investment carries an inherent amount of risk, no matter how small. This is not the case with paying down debt. Consider where you?re at and what?s going on for you. If you think you really don?t want to be stressing about a new deal right now, then paying down your debt may just be the most effective investment you can make ? and there?s nothing wrong with doing something safe and sensible every now and again. Especially when it comes to money.

If you?ve scored a bonus at work, or your tax return just came through, you may be wondering what you can do with your windfall. There are really only ever two options for what you could do with spare cash; invest it somehow, or pay down debt.

Photo courtesy of: Winnifredxoxo

How Do You and Your Partner Divide Your Money?

October 22, 2014 John Schmoll Lifestyle, Random Musings 23 comments

Money and relationships is always an interesting topic to discuss. I think there are a number of reasons why, but mainly I think it has to do with the fact that there is no real ?right? way for two people in a relationship to divide their money.

Personally speaking, my wife and I combined our finances shortly before marriage, and haven?t looked back. We view marriage as being teammates so it only makes sense to have combined finances. However, what is going to work for us isn?t necessarily going to be the best thing for your given situation and vice versa. The key, in my opinion, is to find what works best for you and your situation and communicate. In fact, I?d say communication is the overall key regardless of how you and your partner divide your money.

With all that being said, I always find it interesting to learn how other couples share their financial resources which is what brought me to this infographic from Visual.ly. The infographic, as you can see, compares younger couples (aged 30 and under, college educated and making more than $50,000 per year) and those they consider affluent (making more than $100,000 per year) to what is considered the general population.

What I found interesting was that that the younger population tended to be somewhat higher in terms of dividing their money, generally speaking, than the general population. What I also found intriguing was the number of couples who would classify their financial communication as good or excellent ? 77%, especially considering money matters are a huge factor when it comes to divorce.

What I did like was seeing couples recommend joint decision making. Other things, like emergency funds?and retirement planning?were covered, so it spans a wide spectrum. Ultimately, I just think this infographic points back to the fact that how you manage your money is largely personal and that you need to apply it to your given situation.

by Mint.com.

How do you and your partner divide your money? Has it changed since being married or will it change once you do get married? How much can you spend without clearing it with your partner?

Photo courtesy of: Fylkesarkivet

Pay Off Your Debt AND Keep Your Social Life – Here’s How!

October 22, 2014 John Schmoll Lifestyle One comment

Despite what you may have heard about having, and keeping to, ?a household budget, it is possible to pay off your debt and keep your social life alive. It can even be fun if you’re creative with it. You can find even more information on how to manage debt and still have a social life by doing a little online research. Many financial advisory companies?have different tips on how you can balance having a social life while paying off debt.

Rethink Dining Options

How do you meet your friends for dinner? Do you book a place and split the bill? Consider some wiser options for entertaining. Can you have everyone over to your place, and they each bring a course? If that doesn’t work then you can also consider things like ordering dinner out as opposed to dining in the restaurant. That’ll allow you to save on drinks and tip and you can bring it back to your place or a friends place. If you enjoy dining at the restaurant you can also do things like getting only an appetizer or splitting meal. Not only will that allow you to save money on dining costs but you can also eat healthier because you’re eating less.

Work Out For Free

Do you have a gym membership? Do you really need it? If you visit the gym more for social reasons than fitness (you?ll know if you?re doing this; do you work out and go, or work out and meet for muffins at the juice bar? Guess who?s there to socialize?), you can probably find a less expensive alternative, especially in the warmer months. Walking is free; not to mention a great way to workout and get some time outside.

Bike paths, park trails, and walking tracks are all options that cost less than the gym, and you can arrange to meet your friends there. There are even clubs meeting in most cities to run up staircases – and then go for breakfast and coffee; no membership fee required. Most of these local groups can be found via social media sites, or start one of your own.

Be Honest With Your Friends

Talk about your financial goals. Tell your friends and family that you?re working towards certain financial goals and you?d appreciate any support they can offer. This way, when you back out of expensive arrangements, they?ll understand. They may even help you by adjusting their activities to suit your slimmer budget. The more you talk about what you?re aiming to achieve financially, the better it is for your own self-discipline. No one is better at holding you to account than your inner circle.

Most people balk at the ?B? word, but sensibly orchestrated budgets are not supposed to mean the end of having a life. It is important to ensure that any sound financial plan (which is, really, all a budget is), incorporates a level of flexibility. This way, your budget becomes a part of your life rather than the massive social handicap so many people experience.

Photo courtesy of: Jason Rogers

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