Should I Be Saving Money If I Won’t Be Living Long Enough to Retire?

Posted on by in personal finance.

What if I won’t be living long enough to retire?

 

On one of the forums I check out from time to time, somebody asked a question:

” - My brother-in-law puts very little thought into retirement savings. He has a tiny amount being funneled to a 401k and a small emergency fund. He isn’t a spendthrift, but isn’t interested in making a bigger effort. When I brought up my own plans, he told me he isn’t going to live long enough to retire.”

 

Is there a point to saving money then?

 

Well, here’s my personal opinion.

To me, saving money, improving your financial situation, and slowly building up your estate (portfolio, assets, whatever you want to call it) is not about living long enough to retire. The whole retirement thing as presented most of the time isn’t appealing to me at all - working hard all your life, saving up money, just to play golf all day and go on cruises once in a while? That’s just depressing if you ask me.

Living Long Enough to Retire

Living Long Enough to Retire

To me, having money is not about retirement. Heck, I don’t think I will ever retire. I think I will always work on something - if it’s not me working with my two hands, it might be an online business. If it’s not working on my own gig, it might be helping somebody with their company. Bottom line, the way retirement is portrayed most of the time is not something I am looking forward to, and it’s not why we’re working so hard on improving our finances.

 

What if I won’t be living long enough to retire?

 

Will everything I will do to that point be pointless? Of course not. If I do die early, my family won’t have to worry about money. My kids’ education will be taken care of so they can obtain their degrees. My wife won’t be forced to re-marry just because she can’t make it on her own - she will have enough money to make wise choices, not forced choice.

Having money will allow us take care of our parents and relatives - so we can always help them and not just find them a cheap retirement home where they won’t be treated right.

Having money is about freedom to do whatever you want to do - without worrying about your bi-weekly paycheck. There are things, I’m sure, you’ve always wanted to do but couldn’t because it would mean an end to your income. For example, I always wanted to cross Canada on a motorcycle. What if you didn’t have to worry about working 50 hours/week and bringing that paycheck? What if you could focus on your own personal interests for a while - money can make it possible.

Living Long Enough to Retire

Living Long Enough to Retire

Money is about helping others and sharing your wealth - and if you have plenty of money you can share it with a lot of people, and help a lot of people. You don’t have to retire to do that, and you can enjoy doing it way before that gray “near retirement” age.

And lastly, money is about being independent from circumstances. All of a sudden, you don’t have to worry about your car transmission. If it goes out, you just go ahead and fix it - or buy a new car altogether. You don’t have to put up with bad treatment at work - cause you can’t quit anytime, and take your time finding a better place to work for yourself.

None of these things have anything to do with living long enough to retire. And it’s not about being able to buy luxury cars or other “toys”. All of them mean comfort to your family, being able to take care of them, and just enjoying your life in general. Even if you don’t live long enough to retire in a traditional sense, money can greatly benefit your life. And that’s why I focus on working hard, managing money wisely, and investing for the future.

Have you ever asked yourself what money means to you?

Debt Pushers - They’re not your friends, they’re making money off of you

Posted on by in credit cardfs, personal finance.

Just a little episode with debt pushers

 

Debt Pushers

Debt Pushers

 

We have a credit card account. Yes, despite all the talk about how bad they are for your personal finance, I do have one credit card. We mostly use it for online purchases (because debit credit cards are not very common in Canada yet as opposed to US) and paying monthly fees at YMCA. So, the balance always gets paid off, we never pay interest, and overall are more than responsible with it.

It just so happens that I had to put a business expense on my Visa. Now, usually it’s a fairly simple transaction - I put it in, and before paying the Visa bill, I cut myself a check for the expense amount, and deposit the check into my account. This way I don’t end up paying any interest or fees, business ultimately pays for the expense, and there’s enough paper trail for bookkeeping to be fairly simple. No big whoop. Now, this time around, the business expense was rather large. While usually our Visa bill is around $150 or so, the business expense sent it way over $3,000. Still, no big deal because I’ll just cut myself a check and pay it without any delays.

But what do I get in the mail along with my Visa bill?

 

” Dear Mr. Financial Underdog,

We are writing to you about your credit account and pleased to advise you that because you effectively managed your account, we would like to offer you a credit card increase. “

Nicely done, debt pushers. I can almost see your software ref flagging my account. ” - Hey, this guy usually spends only this amount on average, but this time around he went into stratosphere! Hey, may be he needs more credit? May be he’s in trouble and now paying his bills with his credit card, I wonder how much more business we can get from him? If we’re lucky, he lost his job, and we’ll hook him up with all the product he needs, just need to make it easier for him to access it. Let’s give him all he wants right now!”

Debt pushers are just like street gangs dealing drugs

 

Debt Pushers

Debt Pushers

 

There isn’t much difference between drug dealers and debt pushers. Same approach. A troubled customer is the best customer! Just a different product. And I especially like the part how they complimented me on effective management of my account! When people start putting on huge amounts on credit cards - that’s not effective.  Sure, my case is an anomaly, but in most cases it means people are out of control with their credit cards - and those are the best customers for banks, credit cards, and other debt pushers.

I’m not trying to say that banks are bad and credit cards companies are evil. They do what they do, and have a place in our economy. But at all times, you have to understand why they are doing what they’re doing. An increase in spending limit on your Visa benefits them, not you. Beware of snakes when you’re playing outside. Beware of gangs pushing their products on troubled customers - even if this product happens to be debt.

Secrets To Financial Fitness - Some similarities between financial and physical fitness and what we can learn from them!

Posted on by in personal finance, silly.

A little intro to secrets to financial fitness…

 

Secrets to financial fitness - do they exist? Is there a set of things you can do that will turn you into a wealthy individual over a short period of time? Ever thought there might be one little thing you’re missing that will help you achieve financial independence?

I’d like to draw a parallel between personal and financial fitness. Once I’ve started thinking about it, I was shocked how similar these two areas are - and how similar are the struggles people face in each area. Ironically, I used to struggle greatly in both, but currently working really hard on improving these two areas of my life. Just like I used to live paycheck to paycheck and owed more money than I actually had - I’ve struggled physically by being out of shape, and almost having a heart attack when climbing stairs.

Eight months ago (33 years old and 55 lbs. overweight), I signed up for a gym membership. I walked into a gym and felt completely lost. I didn’t know what to do, I was afraid people will laugh at me if I ask them for help, and I wasn’t sure where to begin. But little by little, I’ve made some progress. I’m far from being in the shape of my dreams (if there’s such a thing), but I’m proud of the progress I’ve made so far.

Here’s some of my discoveries when it comes to secrets to personal fitness - and how they relate to secrets to financial fitness.

Secrets to financial fitness

Secrets to financial fitness

Nothing happens overnight - and there is no silver bullet

 

Despite what late-night commercials will tell you, you can never get into great shape by working out 8 minutes per day. In fact, it’s scientifically impossible! Getting into shape requires hard work, and constant improvements in your workout routine, diet, and lifestyle in general.

What about financial fitness? Same thing applies! You can’t just do one little thing and turn your paycheck-to-paycheck lifestyle into a life of luxury and prosperity. There’s no software program that will show you all the secrets stocks about to double - if there was one, nobody would be selling it. While I greatly respect Robert Kiyosaki, I’m very leery of his personal finance lessons. You can’t become a Ferrari-driving real estate tycoon after reading a couple of his books. It might be possible, but don’t read his books think you’ll implement his system and be on the way to riches in a matter of months. Won’t happen.

Simplicity makes great sense

 

When I need a good laugh, I pick up a magazine on personal fitness and read a couple of articles. Good god, how many workout programs are out there - and why are they so different? It seems to me that every single fitness writer came up with his own program. In reality, all these programs and approaches do nothing but confuse new members. But if you talk to an experienced coach or trainer, they’ll tell you right away - most of the results can be achieved by doing a number of exercises over and over, again and again. Here’s a barbell, you can squat with it, you can bench press it, you can dead lift it. Do eight or ten exercises for 12-24 months, do them repeatedly and really well, and you’ll be in great shape. Maybe then it will make sense to target some obscure muscle by doing an exotic exercise, but most people shouldn’t be thinking about it.

Financially, it’s exactly the same. Yes, there are some tricks and creative accounting techniques - The Smith Maneuver, flow-through shares investments, etc. But for most average people most of the results will come from a set of simple rules that need to be followed day after day to achieve great results - and they are very simple too. Live on less than you make, invest part of your paycheck wisely, don’t spend money on stupid things, and keep track of your spendings. Yes, it’s hard to do it, especially in the beginning. But it ain’t complicated.

Pay attention to yourself, not the guy next to you

 

Want to completely confuse yourself about working out? Start paying attention to what other people doing more than to what you’re doing. I had to force myself to stop trying following other people at the gym (figuratively speaking). You see a guy slightly smaller than you bench press 180 lbs. and you automatically think - “- Oh, I should be able to do it no problem.” Wrong. What you don’t know is that he might have been doing this for months. Start with what you’re comfortable with, and go from there. Trying to chase other people will only cause you pain (emotional and physical).

On the personal finance side, chasing other people will get you in trouble too. Ever heard of “keeping up with the Joneses?”. It’s not productive to say the least. You don’t know financial situation of everybody, and looks can be very deceiving. Just because your neighbors or friends have nice luxury cars and big houses, doesn’t mean you should follow suite - they might be actually be able to afford those things or they’re deeply in debt. The only thing matters to you is your financial health, not your neighbors’. Don’t pay attention to them, follow your financial plan.

Start small

 

Secrets to financial fitness

Secrets to financial fitness

Things won’t turn around overnight, so there’s no need to go “all in” when you step into the gym for the very first time. You won’t be Mr. Universe (rather ironic title considering there’s only one planet involved) after a month of exercising, so start small. Start going once or twice a week - no need to promise yourself a rigorous 5 days/week schedule. No need to go on a “fruit-only” diet for a month hoping to shock your system into submission - just add an apple or a salad to your normal way of eating and go from there.

When it comes to your money, secrets to financial fitness are just as simple as personal fitness. Start small - try to pay off some of your debts to see how awesome it feels to be less in debt. Instead of promising yourself to eat nothing but cheese and crackers and invest 50% of your paycheck to retire early - try doing 2 or 5% first! Once you work out an appetite for financial fitness - then increase your workload.

Beware of the industry

 

When you start paying attention to your health, you’ll notice how huge the industry of personal fitness is. There are magazines, TV channels, countless websites, and late-night infomercials that are designed to do nothing but take money from you. I love Chuck Norris movies, but after going to a gym for a few months, I’m quite sure that Total Gym endorsed by him (along with other products) is total garbage. There are countless products appear out of thin air every year that are targeting novice gym members - or more like targeting their wallets.

On the financial fitness side things are just the same the same - there is a huge industry and everybody is trying to sell you a product. Educational classes, exotic types of insurance, personal finance software, and personal finance books - all whispering in your ear that these are essential products and you can’t live without them. Some are excellent products, and some are total garbage. You have to be aware of the fact that there’s a small army of salesmen out there trying to sell you something - and this industry is very good at marketing their products. Be aware and beware.

 And the most important “secret”:

 

Never ever ever ever give up.

Secrets to financial fitness

Secrets to financial fitness

 

My name is Financial Underdog, and I’m currently rewarding myself with a nice smoothie for a very exhausting visit to a gym.

Happy Friday!

Posted on by in personal finance, silly.

Somethings good things just happen. Sometimes you tell yourself : “- I can do anything!”. Sometimes you kick ass all day at work, and grab some tasty beer on the way home. And sometimes, when you get home you check your mail and pull out an unexpected check!

We made an investment in this company just couple of months ago - they acquire and operate apartment buildings in United States. On top of capital appreciation (prices of apartment buildings going up), they send out quarterly dividends. Not much, but I’ll take it!

002

It feels great to have money working for you - as opposed to working for money. While I have no problems with work - in fact, I’ll be working this weekend because it’s been so dang busy - but to have money produce money without moving a finger? That’s like free money!

Happy Friday! I’m The Financial Underdog, and I like unexpected surprises!

Family Money - Combined accounts vs. Separate accounts

Posted on by in family, personal finance.

From my experience after talking with people or reading about personal finance online, there are basically two approaches to how people run family finances when it comes to family money.

Disclaimer: I`m talking about management of family money - if you`re in a boyfriend/girlfriend situation, or just recently started living together this doesn’t necessarily applies to you. I’m talking about people who live together as a family, in a serious relationship, and who may or may not have kids together.

Combined Finances - when family has a number of joint accounts (checking, savings, credit, etc.) and run their affairs (financial that is) accordingly. They pay expenses out of joint account, deposit paychecks into their joint account, buy things with that money, and save for the future by putting money aside into their joint savings account.

Separate Finances - each partner has a separate checking account where they deposit their paychecks and pay for their things out of it. Sometimes they have a joint account for family expenses such as car payments or house payments where they transfer portions of their paychecks. Most likely they have their own separate debts (school loans or credit cards) which they pay with their own money. They might also have a joint savings account where they deposit agreed-upon amounts every month. I’ve seen some extreme examples when people run their financial lives completely separate even though they’ve been living as a family for years.

Family Money

Family Money

Now, personally I don’t understand how people live together as a family and don’t combine their finances. There are huge upsides to combining your finances and very little downside.

Benefits of running combined accounts:

 

  • Clarity. Having all accounts as joint accounts provides clarity to your finances. At any given point, you’ll know exactly how much you have, how much you owe, and what is your current cash flow. Doubling the number of accounts only muddies up the water and makes things difficult to see, let alone follow some sort of plan. Family money is complicated enough - why make it even more complicated by doubling number of accounts.
  • Ease of access. If my wife calls me and tells me that our Visa account is due tomorrow and I need to pay it, I have instant access to our account. If there was a problem with one of the transactions, call center folks wouldn’t even talk to me - because my name isn’t on the account.
  • Single plan of attack. When your family money are combined, it’s very easy to work out a plan of attack. How much do we want to have in the future when we retire (as opposed to how much I have to have and how much you have to have)? How much debt we have vs. how much you have and how much I have? The plan of attack becomes very simple - as opposed to doubling every single task and mudding the water.
  • Commitment. I think this is by far the largest benefit - when people combine their finances and become a family, they commit to certain goals (saving, investing, etc.), agree to specific rules (how much to spend and on what items), and become one unit of the society. I completely miss the point of starting a family and living separate lives financially - with separate goals and plans of attack. What, you miss feeling independent? Hate to break it to you, but that’s what being married is - commitment to your family. Family isn’t a joint partnership with independent partners.
  • Accountability. My wife and I are accountable to each other for our finances. If we agree to a certain spending pattern, we make sure we stick to it. Having family money separate would destroy any type of accountability we have - I’d have to be accountable to myself only. That’s what makes joint accounts great - sense of accountability for your family finances.

 What is the downside of combined finances?

 

Basically, after living with my wife for almost seven years, I can honestly say there’s only one downside - buying presents for each other. If few days before her birthday she looks at our online budget on her phone or computer, she might see something that will give away the nature of the gift I’m buying - and same for me. Simple solution? We just tell each other before we buy any presents and promise not to check accounts online prior to gift giving. Easy as that.

So, call me old-fashioned (even though I’m in my 30’s), but I don’t believe in keeping family money separate. From family dynamics, from financial perspective - it makes sense. Combine it all, what’s yours is mine, and what’s mine is yours - there’s no other way in my opinion. I mean, there are - but they don’t make sense to me.

I’m The Financial Underdog, and I like clarity and simplicity.

Emergency Fund

Posted on by in personal finance.

I think one of the most important accounts anybody should have is an emergency fund. Emergency fund isn’t an investment - it’s just a pile of money sitting in your savings account - far away from you - in case you need it. We’ve had it for the last 5 or 6 years, and let me tell you - not a lot of things give you the same peace of mind as fully funded emergency fund will give you. My wife repeatedly told me that she feels in peace when she knows that most major problems we might have down the road can be solved by simply accessing our emergency fund.

2013-05-27-Rainy-DayWhat is it for?

Emergency fund is your old-fashioned rainy day fund. Let’s face it, things happen. You want to be prepared for it - and money makes a lot of issues go away without too much stress. For example:

  • You lose your job and need to find another one - in the mean time you have means to pay the bills.
  • Transmission on your car goes out and it needs to be towed - your emergency fund will cover the repairs.
  • Your car gets stolen and you need to cover the deductible.
  • Hot water tank goes out and needs to be replaced as soon as possible.

What do average people do? Pull out their credit cards if they don’t have enough money or borrow money from pay-day loan scam artists. What is the proper way to handle emergencies? Using your own money and tapping into your emergency fund.

What is NOT an emergency?

  • Being short on cash during Christmas shopping. Seriously, everybody knows when Christmas comes - plan for those expenses in advance, and if you don’t have enough money - well, suck it up.
  • Emergency furniture replacement. Just because your in-laws are coming and your couch looks like it was used for target practice by Somalia’s militia - doesn’t matter. Don’t dare touching it for frivolous expenses.
  • Kids need new clothes for school - once again, not exactly an emergency.

How can emergency fund help your financial life?

Having emergency fund has multiple benefits which would help an average family to get ahead. First of all, if you use your own money for emergencies, you don’t pay interest associated with it. If you were to pay for new transmission with your Visa, you’re paying 19%+ in interest or even more with pay-day loans. Second, emergency fund will help you save money - if you have an emergency fund, you can increase deductibles on your car or home owner insurance - which will bring down your premiums considerably.

How do you set one up?

  1. Decide how much you need. It’s usually recommended to have 3 to 6 months of expenses. If you’re a bit paranoid, bump it up to a year. In our house, it’s 4 months - roughly $10,000 dollars. We only used it two times so far - once our car broke down and needed a new alternator (along with tow all the way from Merritt to Kelowna), second time our dryer broke down and needed repairs.
  2. Decide the rules around using it. If you’re married, get your partner involved in this discussion - what it’s for, what is it not for, etc.
  3. Set it up as a savings account - I recommend ING Direct as you can transfer money between your main checking account with ease, and you can also write checks out of it. The interest paid to you will be minimal, but once again, it’s not an investment, it’s an insurance against future rainy days.
  4. Start small - put a few hundred in your emergency fund, and see how it feels. Set a goal to fully fund it by certain date, and keep putting money away into it. Once you have it fully funded - enjoy life with less stress about your financials.
  5. Evaluate your fund every 6 or 12 months - what if your expenses went up? Might need to beef it up.

Well, enjoy your race towards the weekend (only 2 days left!), and see you later. I’m The Financial Underdog, and I’m in need of some sort of sandwich…

Life insurance

Posted on by in insurance, personal finance.

Well, this is exciting! We now have life insurance!

policy

What kind of policy did we get?

We’ve decided to go with a simple term life insurance (term = 10 years) with a bonus critical illness insurance. We can decide to renew the insurance once the term is up (although it will be considerably more expensive as we age), but at the moment it serves all our needs. While we’re in the accumulating wealth stage, we’d like to be insured against major events in life that will put us at risk – such as critical illness or death.

The life insurance policy pays out in case of mine or my wife’s death (trust me, it was a very weird conversation about death – people usually try not to think about it let alone planning for it). We’ve chosen $750,000 as a payout – that amount would cover the complete repayment of our mortgage – currently around $200,000 and the balance would provide income replacement for either of us when invested conservatively. So, if I drop dead tomorrow, my wife will be able to pay off the mortgage, and not alter her lifestyle in any way because the income will still be there.

The critical illness insurance covers a list of conditions that would trigger a payout. For example stroke, hearth attack, cancer, etc. This insurance would make sure we’re perfectly able to weather the short term storm of troubles such illness would bring – we wouldn’t have to choose between recovering from cancer or going to work to provide the paycheck. We could put money in the bank, stop working for a while and make sure we’re fully recovered before going back to work.

Why did we get it?

The idea behind term life insurance is to protect us while we’re accumulating our wealth. Before being insured, if I dropped dead, my wife wouldn’t probably be able to maintain the lifestyle as is. She would probably would have to sell our house to get into something smaller as carrying our mortgage on one income would be hard. Ten years from now, we’re hoping to be completely self-insured – meaning with wealth accumulated and our mortgage paid off, my family would be just fine without my income. But right now it’s not the case – and that’s why insurance is critical. Also, we’re talking about having kids at near future – protecting them is also part of our plan.

How much does it cost?

Surprisingly, not a whole lot. Our combined monthly bill for both of us is 132.34. That’s it! And what is $130 these days? A meal at a restaurant and may be a lunch together. By giving up an occasional meal, we’re gaining financial peace for our family knowing that we’re protected if the unthinkable happens. Sure, it’s still a $100 a month in added expenses, but it protects us from a world of financial hurt. Personally, I sleep better at night! Family is everything to me, and knowing that my family will be just fine if I get hit by a bus tomorrow – it’s money well spent.

Interestingly enough, if you look at the breakdown of premiums, the life insurance part is less than half of the amount. Critical illness insurance is slightly more than half – simply because people are more likely to suffer from a critical illness than to die – especially in our age (early 30′s). One of the clauses in our policy actually specifies the repayment of our premiums if we don’t trigger the critical illness clause – so if we don’t use that part of the insurance, the insurance company will repay all of our critical illness premiums. Neat, eh?

What life insurance doesn’t cover?

Some conditions in our life insurance are not covered (and understandably so) – such as suicide, acts of war, dying in the process or result of illegal activity, and driving drunk. So, if I was to kill myself after having a few too many at dinner or jumped off the bridge – no payout. Makes sense, if you think about it.

What was the process of getting it?

Our financial advisor recommended we get it to protect ourselves. After doing some research on my own, and consulting with other people, we’ve settled on the specific amount, insurance company, and other details. It was a great relief for me that our advisor didn’t recommend us a whole life or universal life policies. The commission they get from them is much higher, but they’re terrible financial products. It’s good to know that our financial advisor has utmost integrity and chooses products that are good for us, and not for him.

Once we’ve settled on details, we’ve been issued a temporary insurance that would cover us while we’re in the process of signing the documents. Your premiums depend on your health and family history, so the insurance company actually sent a nurse to our house one day to conduct a series of tests. A local nurse who is a contractor for life insurance company measured our blood pressured, asked questions about family history, took a pee sample (yes, you’ll have to pee in a cup), and some other tests. After they analyzed the results, they approved us at normal rate, and issued insurance policies.

Now, if they were to find traces of drugs in our urine or find signs of tobacco smoking, our premiums would be astronomical – because the chances of getting seriously sick or dying are much higher in that case. Good thing neither me or my wife do any drugs. She never smoked in her life, and I quit about 4 years ago.

Some interesting facts:
- Life insurance for women is cheaper than it is for men. Because men are more likely to die earlier.
- 41% of people in US do not have life insurance of any kind.
- Recommended life insurance amount is usually 10 times your income. So, if you make $40,000/year, pick $400,000 as your payout at the minimum. We’ve also chosen to add mortgage balance into consideration – and the increase in premiums was quite minimal.

That’s it for today. Feel free to ask me any questions about our process of getting life insurance.

I’m The Financial Underdog, and I approve this message!