Protect Your Assets with Insurance- Part 1

Every day, people are exposed to risks which can cause a financial loss. Accidents, property damage, illness, disability, and even death are risks they need to consider. Without a risk management plan, people often have to go into debt or use funds set aside for other financial goals in the event of a financial loss. Below are four insurance recommendations:

• Insure Against Large Potential Losses- Purchase insurance for large financial risks that could deplete your savings or future earnings. This includes at least $300,000 ($500,000 is better) of liability coverage on property insurance policies to cover the risk of court judgments resulting from an accident at your home or with your car and disability insurance to protect against the loss of income due to illness or injury.

• Consider Life Insurance- Purchase life insurance if you have dependents who would suffer financially if you died. Another good candidate for life insurance is a young adult without dependents whose parents co-signed private student loans which are not forgiven in the event of death. An online life insurance calculator or worksheet can be used to determine the amount of life insurance coverage that is needed.

• Protect Real and Personal Property- Purchase property insurance with a replacement cost rider on personal property to replace items at their current cost up to the policy limit. Otherwise, only the actual cash value after depreciation will be reimbursed in the event of a loss.

• Build Relationships- Establish an ongoing relationship with one or more insurance professionals who can provide a periodic review of coverage and information about available cost-saving options such as discounts for military service and short commutes and “bundling” of auto and homeowners insurance.

Miscellaneous Nuggets from a Professional Conference (AAFCS)

I recently attended the annual conference of the American Association of Family and Consumer Sciences. Below are some ideas that resonated with me from this meeting:

• People often learn from stories. When you hear others’ stories, you realize that they are human just like you.
   
• There are 300,000 items in an average American home and 10% of Americans rent offsite storage space.
   
• Some digital assets are under a user license that expires at the time of a user’s death.
   
• People can identify their own financial “rules of thumb” instead of using established ones (e.g., 3 to 6 months of savings for emergencies).
   
• When doing strategic planning, people should use the SOAR (Strengths, Opportunities Aspirations, Results) method instead of SWOT (Strengths, Weaknesses, Opportunities, Threats) for a more positive focus.
   
• A good activity to use for financial education classes is “Six Word Story” (summarize a topic with a photo or graphic image and exactly six words).
   
• Workers need social and emotional intelligence to succeed at their jobs. Employees are often hired for their “hard skills” (e.g., subject matter knowledge) and fired for a lack of “soft skills” (e.g., working in teams).
   
• People need to understand the emotions and previous life experiences that drive their financial decisions.

Money Talk: A Financial Guide for Women

These words above were uttered by one of America’s most prominent women’s rights leaders 110 years ago.  Yet they are as appropriate today as they were during the late 19^th century.  For a variety of reasons, some women have not had experience making financial and/or investment decisions. For men and women alike, financial knowledge and economic self-sufficiency are important life skills to develop.

Lack of financial savvy can put women (and men) at a substantial disadvantage.  Statistics say it is only a matter of time before 85% to 90% of women will be on their own financially.  Some will never marry, some will see their marriages end in divorce, and many will outlive their husbands. Women also have lower average earnings than men, more gaps in their employment history due to child rearing and/or care of elderly parents, and more severe impacts resulting from life events like widowhood and divorce.

The 192-page workbook Money Talk: A Financial Guide For Women was developed to teach basic financial topics with an emphasis on women’s unique financial needs. There are five chapters: Financial Basics, Insurance Basics, Investing Basics, Investing for Retirement, and Planning for Future Life Events. The book is available for free downloading online or print copies can be purchased from the publisher.

Simply reading printed material or attending a seminar will not change anyone’s financial situation, however.  You need to take action (e.g., starting an IRA) to achieve your financial goals.  A more contemporary twist on Ms. Stanton’s quote is “If it is to be, it is up to me.”  Today is the first day of the rest of your financial life.  Make the most of it.

How to Manage Credit Wisely

Managing credit wisely is a key factor in achieving financial security. Below are seven recommended practices:

¨      Shop Around for Credit- Compare at least three different lenders for loan and credit card terms (e.g., APR (interest) and penalty APR, late fees, grace periods, rewards programs).

¨      Negotiate a Discount- Ask lenders for a lower interest rate (e.g., 12% credit card APR instead of 18%) or transfer balances to cards with lower interest rates and fees if the savings exceeds the balance transfer fee.

¨      Pay Credit Card Bills Promptly- Do this to avoid interest and late fees and to reduce the average daily balance on which interest is charged.

¨      Pay More than the Minimum Payment- Double the minimum payment, at the very least, and, ideally, pay credit card bills in full. Doing this can save hundreds (even thousands!) of dollars of interest on outstanding balances and years of payments.

¨      Match Credit Cards to Debt Repayment Style- Select low-interest credit cards for a revolving balance with partial payments and no-annual fee cards with grace periods for balances that are paid in full.

¨      Know Your Ratio- Keep consumer debt-to-income ratios at or below 10% to 15% of take-home pay. For example, if a service member owes $300 a month for a car loan and $150 for credit card bills and take-home pay is $3,000, the debt-to-income ratio is 15% ($450 divided by $3,000) and further debt should be avoided.

¨      Check Credit Reports Annually- Request reports from the “Big Three” credit bureaus (Experian, Equifax, and TransUnion) and look for errors and evidence of identity theft. Credit reports are free once a year to consumers upon request. Check the Web site www.annualcreditreport.com for details.

For additional tips, Rutgers Cooperative Extension has a downloadable Wise Credit Management Quiz.

Savings is the Key to Financial Success

Do you want to save money? Below are six action steps to build a base of savings:

Save a Dollar a Day- Put a dollar a day, plus pocket change, into a can or jar. At the end of each month, there will be about $50 to deposit into a savings account. Financial planners advise saving 3 to 6 months expenses for emergencies but any amount of savings is better than none.

 

Live Below Your Means- Track expenses for a month or two to identify spending leaks and to “find” money to save. David Bach, author of The Automatic Millionaire, calls these expenses the “Latte Factor™” because many people spend $5 (or more) a day on fancy coffees, fast food, and similar “impulse” items. This calculator can help you identify personal “lattes” so you can save this money instead.

 

Make Savings Automatic- Automate savings because people are less tempted to spend money if they don’t see it. Automated strategies include: transferring a set amount from a checking to a savings account, making payroll deposits to a credit union, and transferring a set amount directly each month from a bank account to a mutual fund or stock dividend reinvestment plan (DRIP).

 

Complete a Savings Challenge- Aim to finish savings challenges, like the 30-Day $100 Savings Challenge, 15-Week Savings Challenge, 52-Week Money Challenge, and 50-week $2,500 Savings Challenge. Challenges provide a savings goal, a designated time frame, and suggested daily or weekly savings deposits.

Contribute to Tax-Deferred Retirement Plans- Save as much as possible in a tax-deferred employer retirement plan and/or open an Individual Retirement Account (IRA). The earlier you save for retirement, the more time your money has to grow, even if it is a small sum. Tax-deductible traditional IRA deposits and earnings are taxed upon withdrawal. Roth IRAs have no up-front tax deduction but earnings are tax-free after age 59 ½ for accounts open at least 5 years.

Earn “Free Money”- Try to save at least the maximum amount of money that can be matched. This is “free money” that should not be passed up. Dollar for dollar matched savings is like getting a 100% return on an investment. When pay increases, raise your retirement plan contribution, which can raise matched savings.  Savings plans offer four benefits: employer matching, a federal income tax write-off, ongoing tax-deferral, and automatic deposits via payroll deduction.