A Personal Finance Blog for Regular Folks
Life insurance, in general, is not a subject many people want to talk about.
After all, its more about death than it is about life. But it is a necessary part of financial planning and a form of insurance many people should have! The two main forms of life insurance are Term Life Insurance and Whole Life Insurance.
Let’s take a look at term life insurance versus whole life insurance:
[Read more…] about Term Life Insurance Versus Whole Life Insurance
You always hear from people how they saved money on this or that. That’s great and all but sometimes I wonder – Did you really save? I mean, what did you save? Did you put money into your savings? Did your wealth grow?
[Read more…] about When You Save Are You Really Saving?
We already know the importance of adequate savings don’t we? Well here’s an additional benefit for having savings – You can save on your car insurance!
You know about your car insurance deductible? This is the amount you have to pay on an insurance claim before your insurance kicks in to pick up the repairs. Say you have a $500 deductible. You get into a fender bender and file a claim to have your bumper repaired. An estimate for the repairs is $1500. You have to pay $500 and insurance picks up the $1000. If your deductible were $1000 then you pay $1000 and insurance covers $500. Get it?
So why not make the deductible as low as possible?
Sounds reasonable. You would rather your insurance pay more and you pay less. Things is though, the lower your deductible the higher your premium is! You pay more on your plan when your deductible is low. This is the insurance company’s way of getting that extra cash layout back before an accident. The opposite is true too. The higher you make your deductible the lower your premium payments are. [find out more about saving on car insurance]
Some years ago we got into a car accident.
Fortunately I called the police and had the officer file a car accident report. As a result, a full report of the accident was on file for my insurance company to use in their case against the person who hit us. If we didn’t have a report on what caused the accident, the other driver, then we would have been responsible for the deductible.
Not calling the police would have cost us $1000!
How is that possible? The other driver rear ended us putting the fault of the accident on him. Without that police report stating what happened, and that the other driver got a summons for driving too close, then we would have shared the blame in the accident. That would have meant we’d have to pay our $1,000 deductible.
A little while after we repaired the car from the accident we got a check in the mail from the car insurance company for $1,000.
Whew! Everything worked as it was supposed to and we got our insurance deductible back.
Our insurance company paid for all of the repairs but we had to pay $1,000 of the repairs out of pocket. I was afraid everything would drag out and it would take even longer to get the deductible back. Or even worse, something would happen and we wouldn’t get it back. In fact the collision company that fixed our car stressed that we should firmly follow up with our insurance since some companies keep the deductible. You always hear about some paperwork SNAFU that causes you to not get your insurance money. Thankfully our insurance was great and they paid us back without any problems.
So you understand, our insurance takes all of the information about the accident and basically sues the other driver’s insurance company for the damages. The success of the case determined whether we got our deductible back. If our insurance couldn’t win it back then we wouldn’t get it back either. Fortunately that wasn’t the case. A big part of that was having a police report saying the other driver rear-ended us.
Some of you might wonder why our deductible was so high?
I set it up that way with my insurance so I would have lower payments. Since we had the $1,000 socked away we could afford to have a high deductible. A higher insurance deductible is a great way to save on your car insurance.
This is a great example of why it’s important to have adequate savings! If I couldn’t back up the deductible I’d be paying higher insurance OR I might have to find the money somewhere else such as a credit card. That would not have been good.
If you are going the higher deductible route to save on your car insurance make sure you have that deductible handy in savings.
So to recap: Make sure you have the police at a car accident. And raise your car insurance deductible as much as you can afford in order to get lower car insurance payments. Also have enough savings to cover your deductible should you ever need to pay it.
photo credit: curly_exp( l)osure
We’ve heard it all before haven’t we?
The simple way to build wealth is to spend less than you earn. Let me demonstrate this as a simple equation:
That’s it in a nutshell.
Take what you earn. Now look at what you spend. If what you spend is less than what you earn then what is left over is savings. Let that grow and invest it properly and you will build wealth. You only need two numbers to figure out that math!
Let’s use dollar figures. You earn $3000 a month. If you spend $2999 you have a dollar left over for savings. What’s a dollar you ask? In today’s economic climate one dollar of savings will put you in better shape than corporate giants like Lehman Brothers, which is declaring bankruptcy, Enron, Worldcom, or Merrill Lynch, which was bought by Bank of America. And that dollar will have friends joining it every month as long as your spending is less than your earnings.
Now imagine if you could increase that savings amount either by spending less or earning more? The savings will build up faster!
Let’s change the equation slightly now:
Spend more than you earn and you are in debt. You have to be. Where else could the money come from unless it’s borrowed?
Back to the numbers… You still earn $3000 a month but now you spend $3001. You’re in debt. Where do you get that extra dollar to get out of debt? Maybe you borrow it from a friend? Maybe you put it on a credit card (another name for debt)? Either way it won’t materialize from out of nowhere.
And what happens the next month?
Either you lower your spending by a dollar (assuming no interest) or you increase your earnings so you can pay back the debt. If you don’t then your debt increases! Just like our savings example that debt will keep growing until you find a way to pay it off. If you let it grow too long then you get to be in the same boat as some financial institutions as you either have to declare bankruptcy or find someone to bail you out (and really if someone bails you out you will probably still be in some sort of debt).
As complex as personal finance can be sometimes it still boils down to a simple equation. Plug in your spending and earnings.
Too often we over-complicate the ideas that make up personal finance. In reality the concepts are pretty simple, aren’t they. Sure, you can go nuts poring over the different ways you can invest your money but the simple concept is clear — spend less than you earn and you can save. That savings can help you build wealth.
Are you saving or in debt?
