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We’ve Moved!

August 30, 2010
We've Moved

photo courtesy bredgur

We now have a new cyberspace home! I had separate sites for my blog and my main business site. I have now combined them into a self hosted WordPress site which you can reach by going to http://www.currentfinances.com .

Please update your bookmark, rss feed, or email subscription once you go to the new site. I would suggest you sign up via email or rss by using the buttons in the slider along the LH side of the page. The email subscribe button is also in the column on the RH side of the page.

Thank you for your interest in the information I provide, and I hope you will follow me to my new home!

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The Long and Short of Long Term Care Insurance

August 23, 2010
Nursing Home Care

photo courtesy Unlrich Joho

Have you given any thought to long term care insurance? As with any insurance product, the best time to think about it is when you DON’T need it.

You’re probably thinking, “Why should I need that kind of insurance? I’m nice and healthy and I’m never going to allow myself to be stuck into a nursing home.”. Well, statistics say that 60% of people over 65 years of age will require some form of long term care. The average annual cost of private nursing homes is now at $80,000 per year. Are you sure you are willing to take that gamble? Many people have seen their hard earned retirement savings waste away due to an extended nursing home stay.

Long term care insurance also can cover the cost of in home care, rehabilitation, and other costs associated with recovering from a major health incident, not just a nursing home stay. Being committed to a nursing home for the remainder of your life is not a requirement of payment.

Keep in mind that as with life insurance, your annual rates will be lower if you get insured earlier in life while you are still healthy. The closer you get to the age where most people have some health issues and are more likely to need the service, the more the cost goes up. In some cases you may not even be able to get coverage. The recommended age to get it is in your early 50’s, but that is not a hard and fast rule. Some people are even getting a policy in place while in their 30’s.

As with any insurance product, do your research. There are many different plans and policies out there to choose from. A few general recommendations are to make sure you get an adequate daily coverage amount which currently would be about $150 per day or more.

The cost of a policy also goes up depending on the length of time it will remain in force during a long term stay. Many policies are in the 3 to 5 year range with the cost increasing significantly the longer you are allowed to stay under care. If you are married, a good plan to look into is one that allows you both to get a certain time of coverage that can be shared between you. For instance some policies will allow both of you to receive 3 years of care, but one of you can could use 4 years of that, and one of you could use 2.

One of the biggest reasons to invest in Long Term Care insurance is for your family. Think of the impact on your spouse if you were to use up your nest egg prior to passing away. Additionally, your children may be impacted if they become involved in caring for and supporting you during this time. Long Term care can have severely negative financial impacts on those around you as well, so consider them in your decision as well.

To do more research and to get cost quotes, you can check out the American Association for Long Term Care Insurance . There is a lot of information on that site which will help you make an informed decision. Kiplinger also has a lot of good advice and information regarding this topic.

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Deja Vu All Over Again

August 19, 2010
Deja Vu

Photo courtesy Punkjr

On Monday I talked about the top 3 ways to prevent a financial setback. They were to get on a budget, reduce your debt and establish an emergency fund.

On Monday and Tuesday the subject of a series of classes I’m teaching was about ways to reduce your spending. After presenting about 100 different ways to reduce your spending, I ended the session with the three most important ways to cut your spending. They were to get on a budget, reduce your debt and establish an emergency fund.

I’ve also talked about how to begin saving more money for the future. Guess what? It’s to get on a budget, reduce your debt and establish and emergency fund. Are you beginning to see a pattern here?

I really wish there were some quick and easy magic formula that could help you suddenly become prosperous. The reality is it’s going to take a lot of work on your part. You need to get yourself on a budget so you know where every penny of your money is going and you have a plan for it. You need to eliminate debt so that you stop paying interest and start earning it. You need to establish an emergency fund so that you don’t rob your savings or drive yourself further into debt when emergencies arise, because they will. I guarantee it.

This is the foundation. There are many other tips and tricks and ideas to help you on the road to prosperity, but until you get these things in place, there’s really no use talking about the others. Do you agree or disagree?

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The Top Three Ways to Prevent Financial Setback

August 16, 2010
Downward Trend

Photo courtesy Andreas Levers

I use Outright.com to do my business accounting online. One of the added benefits, besides being free, is that they have a very active community. One user posted the question “How have you overcome a financial setback?”. That was an easy one for me. You can read the story here for more background on our “financial setback”.

First of all, you have to live on a budget. If you’re not on a budget making an adjustment to a reduced standard of living is going to be extremely difficult. It’s not necessarily easy even when you know how to live on a budget, but at least you have the tools you need in place.

Secondly, you’ve got to have minimal debt. If you’ve got car payments, and mortgages, and lines of credit and business property payments to be making each month, you’re going to struggle to make the bills each month. If you’ve been operating debt free both personally and professionally, you can keep your focus on the basics like putting food on the table and making the mortgage payment if necessary.

Finally, you’ve got to have an emergency fund in place for your personal expenses as well as for your basic business expenses. Three to six months worth of both living and operating expenses is recommended to smooth out the bumps.

If it weren’t for these items being in place when my factory closed, I would probably have had to take the first job that came along instead of launching my own business. I much prefer setting my own direction rather than being tied to the whims of a company or the economy. How about you?

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FICO Is an ‘F’ Word

August 13, 2010
Credit Repair Scam

Photo courtesy Thetruthabout

You’ll get a lot of advice these days on how to improve your FICO score. There are even companies out there that are happy to take your hard earned money in order to improve your FICO score. In my opinion however, it’s a huge waste of your time and money to focus on that. The biggest reason to have a good FICO score is to help yourself go further into debt. That doesn’t sound like a great idea to me.

First I’ll address the companies that claim to help you improve your FICO score. THEY’RE A SCAM!!!!! Was that clear enough for you? There is absolutely nothing they can legally do that you can’t do yourself. Do not throw your money away by giving them a single dime.

One of the reasons people claim the FICO system is a benefit is that it helps you get faster decisions on credit. This is supposed to be a benefit to you? I don’t think so. The one it benefits is the lender not the consumer. A fast credit decision gives you less time to think about your purchase and therefore benefits the high pressure sales tactic. Let’s say you went in to buy a new car and were told you needed to come back tomorrow after they’ve had a chance to review your credit. Don’t you think it would lower their conversion rate on sales? Score one for the sellers and lenders, not the consumer.

How about this one. You can improve your FICO score by having a low balance versus your total available credit (credit utilization). Doesn’t this encourage you to have more credit cards and lines of credit? Of course, if you have more available credit, there’s a good chance you’re going to make use of that. Score one for the sellers and lenders again!

Now, many of the things they recommend to help you improve your FICO score are actually good things. They’ll tell you to review your Credit Report to check for errors. Good thing. They’ll tell you to pay your bills on time. Good thing. They’ll tell you to reduce your balances and limit your credit applications. Good things.

Most of the things that will help you improve your credit score are actually good ideas, but I just don’t think the score itself is worthwhile. If you absolutely need credit for a mortgage let’s say, then work with a lender you have a long history with and request a manual underwriting. They’ll do things the old fashioned way and actually verify your history for themselves. No, it won’t be fast, but that’s a good thing.

In the future, if you hear someone use the ‘F’ word around you, tell them where they can go.

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More Money Doesn’t Solve Anything

August 2, 2010
Falling Money

Photo courtesy stuant63

Have you ever wished you had just a little more money, then you could make ends meet? Well, I hate to tell you this, but you’re wrong. Most likely, it’s not more money that you need. What you need is to know how to best use what you have. Once you have that figured out, there’s a good chance the “more money” will actually come.

Don’t believe me? Just take a look at the number of destitute “superstars” there are in the media and tabloids. It doesn’t matter how much money you make if you don’t manage it wisely. Just take a look at this article about NFL rookies for an example. The average NFL career is only 3 1/2 years. During that time though, they’ll make over a million dollars. The article states though that “according to a Sports Illustrated report published last year, 78% of NFL players will become bankrupt, divorced or unemployed within two years of retirement.” Why is that? They don’t know how to manage they’re money.

My advice to you is to first learn how to manage what you have wisely. Once you’ve got a decent handle on that, then go after ways to increase the amount. Your money will go a lot further and last a lot longer by taking things in that order.

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How To Become Self Insured

July 29, 2010
Insurance Salesman

Courtesy Butte-Silver Bow Public Library

It seems that whole life policies are a fairly popular option with people. I mean really, who wouldn’t want to actually get some money back after paying for a product for so many years?

The problem is, you’re trying to mix products. You are trying to mix a life insurance product with an investment product. What you end up with is not really accomplishing either very well.

An insurance company recently came to my wife’s place of employment to offer whole life policies to the employees. This gave me an opportunity to do a comparison between what I recommend and what they offer.

First of all, you can’t get enough coverage with their whole life policy. The maximum benefit a 35 year old could get would be about $66,000. If you are the primary bread winner for the family, after paying for all of the funeral expenses, there’s not even enough money left to pay a years worth of the family’s expenses. How do you replace the lost income once that runs out?

I recommend you have a policy worth 10 times the annual income of the insured person. So if they make $50,000/yr, you need a $500,000 policy. The $66,000 offered in whole life doesn’t even come close.

Let’s take a look at the investment side of the plan now. A 35 year old could get a 30 year term life policy for about $19 per month with $75,000 in coverage. The $66,000 in whole life coverage was priced at $65 per month and if you were to cash out that policy at 65 you would get $25,218 per their published schedule.

The difference between the two types of policies amounts to $46 per month. If you were to purchase the 30 yr. term life policy and invest that $46 per month in some mutual funds which were diversified as I would recommend, over time, you should easily average 10% which is what the stock market has averaged over time. Just to be safe though, let’s say you only averaged 8% because the stock market was down when you turned 65. When you turn 65, that $46 per month difference would gain you over $68,000 in funds as opposed to the $25,000 that the whole life policy was offering you. Now at this point, your 30 year term life policy has run out, but you now have $68,000 in investments, so you no longer really need the $75,000 insurance policy. You’ve just built your own insurance policy which will continue to grow!

So there you have it with real numbers. I recommend you get a term life policy for ten times your income and at least $300,000 for a non-employed spouse. In addition, you need to have a regular plan for investing so that when your term life finally expires, you’ll be self insured and won’t have to worry about a life insurance policy any longer.