Beyond Paycheck to Paycheck

at October 31, 2007 in Media. 0 Comments

Moments ago, the Federal Reserve cut interest rates by a quarter point to 4.5%.

You: Is this a big deal?

Sure, to some people.

You: I don’t care about “some people.” Is this a big deal for me?

Nope.

You: How do you know?

Because if you have to ask, it’s not a big deal for you. Truth is, for the average consumer, the only thing special about today is that it is Halloween. That’s it. And that’s what I told CNN Money.com when they asked what I thought.

I hope you enjoy the article. More importantly, keep focused on your long term financial goals. Short-term interest rate changes don’t matter as you create and live your long-term financial plan. One that will have you living Beyond Paycheck to Paycheck.“personal finance” “financial education”

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Saving Social Security Through Private Accounts?

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at October 30, 2007 in Retirement and Tax. 0 Comments

“What do you think about private savings accounts for Social Security? Will they happen?”

Recently, I was asked those questions, both in an environment where it was smart to remain apolitical (kind of like this blog). Still, after explaining that such a topic was inherently political, I shared my thoughts:

I have no idea what will happen.

You: There’s someone being honest.

Total Candor all the way, my friend. What we should feel confident in is that something will happen. But even that is uncertain. Our government has known of the coming problem (briefly, that soon we won’t have as much Social Security money coming in as going out) for decades. Short of a few cosmetic patches, nothing has been done. Based on simply reading the newspapers, here are some of the more widely discussed possibilities:

Raise taxes. Currently, the Social Security tax rate is 12.4%. You pay half and your employer pays half. Unless, of course, you’re self-employed. Then you get to pay both halves. (Personal note: this doesn’t feel like much of a reward for starting a business.) So, one possibility is to increase these tax rates on the theory that doing so would bring in more money to support retirees.

Get rid of the cap. During 2007, the Social Security tax is paid on the first $97,500 of wages. After that, you pay nothing until 2008. One possibility is to remove or raise the cap. Again, the thought is that this would bring in more money to support retirees.

Lower Social Security benefits or reduce the amount of the annual increase. Just changing the formula would likely mean less money would go out to retirees.

Increase the retirement age. For anyone born after 1960, full retirement age is 67. By changing the retirement age to 68 (or even older), retirees would either receive less money, receive it later, or both, theoretically prolonging the existence of the fund.

Establish private savings accounts. You could save part of your money that would otherwise go to current retirees in an account with your name on it. This would (likely) help the rate of return you get for your retirement. But then this money isn’t available for current retirees.

Which of these changes are selected and to what extent is an excercie best left to those who can read tea leaves or pick the NCAA Final 4 correctly without knowing that basketball is involved. My best guess is that nothing happens until the next election cycle–at least. At that point, all the items listed above would be possible, as would something else not listed. Unfortunately, doing nothing remains a distinct possible outcome, as it is the easiest to accomplish.

All the more reason to begin living Beyond Paycheck to Paycheck today. I’d rather do everything possible today to ensure my retirement isn’t completely dependent on what the government does to the Social Security program. Or doesn’t do.

What do you think will happen? What would you like to see happen?“personal finance” “financial education”

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Strategy # 39: Financial planning can be fun

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at October 26, 2007 in Investing and Top 40 Introductory Strategies. 0 Comments

You: Okay now I know you’re crazy.

No, it’s not a joke – financial planning can absolutely be an enjoyable experience. When you are confident with the plan you have in place, you get to enjoy the results. The sense of ownership and control over your own financial destiny can become mildly addictive.

You: Since right now I’m kind turned off by the concept of financial planning, “addictive” seems like a strong word.

Fair enough. But it’s addictive in a good way. For example, I enjoy watching my net worth fluctuate. Like everyone else I know, my net worth goes up or down whenever I check it. When it goes up, I am happy because I am wealthier.

You: Yes, that part is easy to follow. But when it goes down?

When my net worth goes down, I know that–for me–the cause is a drop in the value of my investments. (The other possible cause is that I spent more than I made. But I don’t do that, so I know that, for me, it’s from the results of my investments). Anyway, since I am always only a little ways away from another investment in the stock market, the recent stock price drop which caused my net worth to fall means I will soon be buying more shares at their new, cheaper price.

With my long-term horizon, I am comfortable with the expected hiccups in market performance. And so should you. These fluctuations provide us with a great long-term opportunity to “buy low.” Later on, you’ll learn how to “sell high” without ever having to time the market.

Now see why financial planning can be fun?

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They may be rich . . . but should you envy them?

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at October 24, 2007 in Balance. 0 Comments

Jonathan Clements wrote a column two days ago that remains one of the most popular at WSJ.com. The column, “You’re Not Super Rich? You Lucked Out,” is Mr. Clement’s reflection on his children’s reaction to seeing the material display of wealth by others. Like most children, they are impressed at the big house and the fancy car. But he is not. In fact, Mr. Clements is outright concerned about how his children interpret OPS (other people’s stuff).

His two main points are right on. Readers of this blog and Beyond Paycheck to Paycheck will recognize one of them right away. Just because someone is flaunting expensive things does not mean they have any real wealth. In the 2000s, odds are that the fancy new car has a loan on it that exceeds its resale value and there is very little (if any) equity in the McMansion.

Truth is, unless you open the bank and billing statements of those who you envy, you have no idea as to their wealth. (Tips on identity theft are coming soon.) My experience has shown that material displays of wealth are among the worst indicators of a household’s true net worth.

Mr. Clement’s other main point is that wealth alone should never cause one to overly respect, let alone be in awe of, another. His example: Paris Hilton. I’m in no position to disagree. In my previous life as an advisor to high net worth individuals, I can tell you that they are no different that normal people. Most are okay, some are a ton of fun, and a few you’d be happy if you never saw again.

You may already be aware that The Wall Street Journal’s readership is among the most affluent of any publication. It’s very interesting that this article should prove so popular among the affluent crowd.

The lesson?

The desire and the difficulty of keeping up with the Jones’ doesn’t stop as you move up financially. Seems like many rich people understand that.

Do you?
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Seinfeld Meets Oprah

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at October 22, 2007 in Media. 0 Comments

Last Friday’s The Wall Street Journal featured an article titled “How Another Seinfeld Scored Her Own Big Hit.” Although Beyond Paycheck to Paycheck sold an entire print run in just three months, we’re always looking to learn.

So what is Jessica Seinfeld’s secret? Let’s just say it has a lot to do with Oprah. Read the article, then read my response below. As you see, I love The Wall Street Journal, Seinfelds and Winfreys. Who knows? Maybe one day we’ll all have lunch. We’ll go out to Chinese of course.

Or maybe some place just called “Restaurant.”

Actually, I kind of feel like some really good soup.

Here’s my response:

Publishers have long known that a single appearance by an author on “The Oprah Winfrey Show” dramatically changes the sales results of the book and, for that matter, the author’s career. Heck, if HarperCollins knew Jessica Seinfeld would definitely appear on the program, I’m sure they would have printed more books and avoided the shortfall in the first place.

Ultimately, the key to creating a mega hit—even for someone already owning the celebrity status the Seinfeld name provides—is getting on Oprah. Collins tells us that they turned down at least one similar book at about the same time they were accepting Seinfeld’s book. Collins also tells us that they took Seinfeld’s book because of her celebrity status. Why did that matter to the publisher? Collins doesn’t tell us the answer to that one, because they don’t need to. It’s obvious: Jerry Seinfeld’s wife has a much better chance of getting on Oprah.

Not that there’s anything wrong with that! Celebrity status is just leveraging your network, albeit at a higher level. Furthermore, Oprah has every right to bring on her show those who please her audience (and has plenty of guests who are non-celebrities—well, before their appearances, anyway). But in this story, it’s safe to say that the only true master of her domain is Oprah.

And, no, the irony of a letter to the editor as publicity isn’t lost on me. I’d love to get the title of my book in your paper anyway I can. Maybe Oprah will see it.

Michael B. Rubin
Author Beyond Paycheck to Paycheck
Portsmouth, NH
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Don’t PassOver: The Four Questions of Life Insurance

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at October 18, 2007 in Insurance. 3 Comments

Doesn’t it seem like most life insurance conversations are related to the motivation of the accused killer in a syndicated Law and Order episode? Yet life insurance is a critical concern deserving of your limited time. Given an unfortunate circumstance, missing just this one element of an otherwise solid financial plan can add financial ruin to the lives of your survivors.

What appear to be the natural complexities of life insurance prevent many of us from making a wise choice to purchase an appropriate type and amount of life insurance. But when you get down to it, life insurance can be boiled down into answering four relatively straightforward questions. Take one at a time and before long you’ll be checking life insurance off of your “to-do” list.

Question # 1: Do I need life insurance?

It’s completely possible to answer “no” to this question. Think about who will be harmed financially by your untimely demise. If it’s only your stylist, you don’t need life insurance. Don’t worry about Bruce; he’ll find other clients. But if you’ve got children, or have a significant other or parent who depends on your income, life insurance is critical.

It is not only those making an income who need to be insured. Even if you work full-time in the home and receive no salary, there is a tremendous financial cost to the survivors resulting from your early death. As you told your spouse during your last argument, it would cost big bucks to replace the childcare, cleaning, and personal chef responsibilities—in addition to everything else you do.

How would your surviving spouse be able to keep his job and perform all your responsibilities if you were gone? Quite likely, it would be impossible. It is life insurance on the homemaker spouse which would enable the surviving spouse to keep the job he has and afford to hire others to help with the tasks you formerly performed.

Question # 2: How much life insurance do I need?

The basic goal is to satisfy your family’s needs for a specific period of time after you are gone. For example, you might purchase

enough insurance so that your spouse would not have to work for the rest of the time your children were expected to live in the home.

You might further choose to purchase enough to pay for your children’s expected college expenses.

If you also purchased enough insurance so that your spouse would never have to work again and could afford to purchase the Yankees, you’ve probably purchased too much insurance.

Take advantage of the tools available to assist you to estimate an appropriate amount of insurance to purchase at various web sites, including Total Candor’s life insurance needs calculator.

Question # 3: What kind of life insurance should I buy?

Although can’t tell you exactly what to do, I can provide you key considerations and inform you what to be most cautious of. With that information, you will probably know what makes the most sense for your situation.

Broadly speaking, there are two types of life insurance: whole life insurance and term life insurance. Whole life insurance is further divided into other types of policies with buzzwords such as universal, variable, and single premium.

Whole life insurance features an investment component that salespeople love to talk about. It also pays a much higher sales commission, which is less likely to come up in conversation.

Gary: Ahem.

While there are, of course, circumstances where whole life insurance policies make sense, most young families with limited budgets need to maximize their protection per dollar spent and a whole life insurance policy is typically not the best way to do so.

On the other hand, term insurance is the purest kind of insurance. You pay premiums for the specific length of time (the term) the policy covers. If you pay your premiums and you die during the term of the policy, your beneficiary receives the life insurance proceeds. If you do not die during the term of the policy, you get nothing. It’s quite simple.

You: That is simple.

Partly due to this simplicity, it is relatively easy to compare policies among the various companies selling term life insurance. There just aren’t as many numbers (especially when compared to the many variations of whole life insurance policies) to confuse you. Plus, you’ll see you can afford much more protection for the same dollar amount buying a term policy compared to a whole life policy.

Question # 4: Where do I buy life insurance?

Even if your employer offers you a life insurance benefit at work, you owe it to yourself to get a quote for a private policy. Especially if you are young, healthy, and a non-smoker, you’ll likely find that a privately purchased policy will be less expensive than the one offered to you at work.

In addition, life insurance you purchase privately does not depend on your continued employment at your current job. When you go to work for another company or take some time out of the workforce, you can keep your privately purchased life insurance. This advantage is known as portability. Life insurance purchased through your employer is typically not portable, since it is usually not available to you should you leave your job. In most cases, this is true regardless of the reason you leave: quit, layoff, or disability.

I know that talking about death isn’t fun. But failing to put life insurance in place is among the riskiest things you could do to your child. You’d never leave your son alone on a bridge. You’d never look the other way while with your daughter on a boat. Life insurance is much more that just the safety railing or the life raft. Life insurance is you looking after them, just in case, some day, you’re not.

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Strategy # 38: You can do this

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at October 16, 2007 in Top 40 Introductory Strategies. 0 Comments

If you’re like most people, your financial inactivity is somewhat driven by the fear that personal finance is complicated. As I see it, this fear is primarily caused by two factors:

You were never taught the basics about money during school.
So far, the financial professionals you have been exposed to have been more interested in landing you as clients (and thereby selling you something) than teaching you the basics.

Both of these things are unfortunate, because the truth is:

Personal finance is easy.

When I first meet with folks who want to get a handle on their financial affairs, they are blatantly doubtful when I tell them that understanding money is easy. When I explain to them that their day jobs are far more complicated than managing their monetary affairs, they stare at me in disbelief. Yet, as readers of Beyond Paycheck to Paycheck already know, if you can handle subtraction, you can handle personal finance. After all, the most important rule in personal finance is to spend less than you make. You don’t need to know calculate pi or how to take a first derivative.

Now as you get more established financially (I am not talking about just getting started) certain, more advanced, parts of financial planning can be challenging. But so were parts of high school. Specific monetary issues can even become frustrating, but your job can be frustrating too. Yet most people get through high school and deal with their work-related frustrations admirably. (no post office jokes please)

Simply treat financial planning as if it must get done, and you will succeed.

You have already accomplished more challenging goals. But for many of those, you had a mentor, a teacher, or some kind of roadmap. Use this web site, blog, and Beyond Paycheck to Paycheck as your introduction and start by biting off a little at a time. You just might find, shockingly . . it can be fun.

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Total Candor articles at Divine Caroline

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at October 11, 2007 in Insurance, Media and Saving Strategies. 0 Comments

To further spread the availability of a truly unbiased financial planning education, Total Candor recently began to provide content to Divine Caroline. (DivineCaroline is the flagship site of Real Girls Media Network, Inc, which combines real voices with guided editorial and the dynamism of an online community.)

If you’re a parent (or even if you’re not), you’ll probably learn quite a bit from these articles which were recently posted at Divine Caroline:

If you Are a Parent, You Probably Need Life Insurance

Five Tips for Saving for Your Child’s Education

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Strategy # 37: How much matters more

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at October 10, 2007 in Investing and Saving Strategies. 0 Comments

Many people are unable to invest because they are intimidated by the prospect of making investment choices. Whether they have an exceptionally low risk tolerance or a general fear of making a mistake, their emotions prevent them from either saving in the first place or properly investing the savings they have.

Yet nothing–not your specific investment selections, not the types of investment categories you choose, not your market timing–has the impact on your future net worth as much as the amount you save and invest in the first place. So focus there.

Channel your energies into generating as much savings as you can, invest them to the best of your abilities, and sleep well at night. The odds are in your favor. It is not how well you invest, it is how much you invest that makes the difference.

Plus. when you’re saving, you’re living Beyond Paycheck to Paycheck. It’s definitional.

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Top 5 Ways to Save - From AOL Money and Finance

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at October 8, 2007 in Media and Saving Strategies. 0 Comments

SmartMoney.com and AOL recently posted their Top 5 Ways to Save. I was quoted in Saving Tip # 3. Here’s their complete list:

Open an Online Savings Account
Use Debit Card Programs
Make the Most of Your 401(k)
Save with a 529 Plan
Cut Your Tax Bill

All good suggestions, of course. Remember a critical ingredient is not so much how to save more but how to spend less. Don’t be discouraged, as there are many ways to be fiscally responsible, without being cheap. It’s the forefront of living Beyond Paycheck to Paycheck.