How Much Life Insurance is Right for You?

I realize this topic is not as stimulating as a Harry Potter movie, but it has the potential to alter the course of your life. By better understanding the various types of insurance choices that we make in our life-times, a person can save way more than $120 per month. Believe it or not, that modest amount can add up to over $330,000 (compounded at 7%) over the working life of an adult. And Harry Potter can’t do that.

To begin with, do not automatically assume that an insurance salesperson knows how much insurance someone should have. They can easily be biased or even dishonest. Most of them have been trained by insurance companies which abide by the basic philosophy, “The more, the better.” Therefore they are not trying to fast-talk you because they genuinely believe what they have been taught. A smaller group of them are simply out to make the most commissions possible. But regardless of whether their motives are nefarious or not you ought to at least consult with an unbiased, but informed person (such as me) before you determine what makes the most sense for you.

As far as I am concerned, the primary purpose of life insurance is to provide for dependents in the event a breadwinner should pass away. (Wholesale Insurance has a few other ideas) A secondary purpose is to provide for burial services and final expenses. An average funeral is about $8,000 which includes a casket, plus some viewing-time in the mortuary and a memorial service. But one can be buried for as little as $3000 if there is only a casket and a burial. Cremation costs begin at $1000, and just a little bit more for any special services. It probably won’t surprise you to learn that Walmart now offers caskets, starting at $1,200 (that really is one-stop shopping). Therefore, if a person has enough resources to cover these costs, and has no dependants, he or she probably does not need any life insurance at all.

Our less fortunate citizens, who cannot pay for their services, are usually covered by a county agency in which they live (meaning their neighbors pay the bills). The families of Veterans can get some help from the Feds, but not usually more than a few hundred dollars.

The rest of us have some thinking to do. How many people depend on us? Is our spouse likely to remarry? Do the survivors need to stay in their present home? Are there children who need to go to college? So, each person should take an appraisal of their circumstances, beginning with their spouse. Here are some possibilities and what goes into the thought process

• If you have 4 young children, your spouse’s chances of getting remarried might be fairly low, because there are only so many people who would want to take on so much responsibility. It is probably going to take a fairly high amount of money to provide for the spouse until those dynamics change.
• For somebody else, there will be no youngsters to consider. In that case, a second partner is more likely to enter the picture, perhaps within 7 years. So how much does it cost to replace the income of the deceased person for that period of time?
• In still other cases, survivors are content to remain widows or widowers for the remainder of their days. Do they have enough resources to do that?
• Does the survivor have any special medical needs that ought to be considered?
• Is the housing situation stable? Can the spouse move into smaller facilities and use the money saved to provide some of his or her necessities?

A similar thought process should be used to review the remainder of the survivors:

• Are there any necessary considerations regarding pets?
• Are there children? How long before they graduate?
• Do you want to provide for their college or are they better-suited to the military or job markets?
• Do they have any special needs?

Finally, a few other thoughts need to be considered:

• Can the family move into smaller and less expensive housing?
• Is transportation covered in some way?
• Are there any special circumstances that might change in the next year or so? Like your daughter will get married, or you will retire, get promoted or move.

Once you have considered the above items you will have a fairly good idea what is needed for each spouse. Then you have one more exercise: Identify other assets that can help with some of the obligations.

• Do you have a stock portfolio or a real estate portfolio.
• Do the survivors have a job, a career, an inheritance or a trust?
• Do you have any other life insurance, perhaps from work or a union?

After you have reviewed what you need and what you already have, the difference can be covered with life insurance. You will have a custom-made plan, just for you.

The last thing you need to consider is the two types of life insurance. There are two primary choices, whole life and term. Term insurance is life insurance in its purest form. There are no extras and the premiums are the lowest. Since that is all you want in the first place, this is usually your best choice.

Whole life insurance has more bells and whistles. The insurance company will add on some benefits and charge a higher premium to cover their risk and make additional profit. I am sure there are folks who are glad they bought whole life insurance but I have never met them.

Finally, life insurance should not be treated as a way to make your heirs wealthy or to prove that you love them. There are usually better ways to do that. I suggest plenty of hugs while you are still alive.

By making smart insurance choices, consumers can use their money for other more important things like saving and investing. Now you know how to decide if life insurance is for you, how much and what type. Congratulations.

Smart Money offers great worksheets, including one to determine how much life insurance you need. You can compare it to what you learned by working through the steps we identified.

Next up: Auto insurance.

Questions or comments are welcomed.

Drop by my other blog for some goo human interest stories.

Extended Warranties

You will probably never meet anybody who is more hostile to Extended Warranties than I am. To begin with, we see the same deception that we have been talking about in our previous discussions. They give the product a special name that hides the fact that we are really selling insurance: They are “offering an Extended Warranty”.

By now you know what we have to do to determine if this insurance is a good deal. Compare the sum of all of the premiums you pay, over the years, to the claims that you make. I am sure you already know who is the net-winner, and who is the net loser.

It might amuse you to learn that two and a half years ago, I went against my better judgment and bought a TV and just such a policy from Best Buy. My story will prove to be another fine example of why these policies do not justify their cost. For one thing, I should have considered getting my insurance from somebody other than the retailer. One option is DTV Express.

At the time, flat-screen plasma TV’s were the rage. My sons were well-informed on the product and my wife liked the bigger screen, so I swallowed hard and removed the padlock from my pocket. I dug DEEP DOWN, past the security guards and the cobwebs to the lint-level and begrudgingly summoned $1,700 for a brand new 42-inch Panasonic. Fortunately, it was “on sale”.

As we were attending the paper work, the clerk asked the inevitable question: “Would you like an Extended Warranty?” My sons previously pointed out that plasma products were fairly new, and expensive to replace, so if there ever was a time for an Extended Warranty, this was it. (Plasma TV problems) I looked over my shoulder to be sure there were no bad guys watching, and I called the hot-line to the Brinks Truck to summon up an extra $400 for a four-year extended warranty (It hurts my finger tips just to type it).

I have to admit that a big screen changes the dynamics of watching television. Now, all of the action is so close and personal that when Patty and I sneak a kiss in the TV room, the actors on the screen all stop what they are doing and turn their heads to watch us old people smooch. YECH!

Well anyway, a couple of weeks ago, “it” happened. The picture disappeared and I have to admit I missed it. I immediately launched into crisis mode. One of my sons, Justin, helped diagnose the problem. We needed a new SC board, whatever the heck that is. I called two repairmen to determine the likely damage. The lower estimate came in at $275. He told me he could get the part and complete the job in 72 hours.
About that time Patty remembered that we actually bought that Extended Warranty. I mentally noted the irony. The one guy who hates Extended Warranties is actually in a position to benefit from one. “YIPEE, YAHOO, HORRAY, Call ‘em up!!”

After a half hour of verifications and well-planned runarounds an appointment was set for the repair…eleven days later!!! The nice person on the phone advised me that the warranty saved me $400. I spared him the obvious rebuttal. “Oh yeah, I found a local guy who would do the job in 3 days for $275.”

I don’t see how a consumer could expect to get more out of an Extended Warranty than we did, but as you can tell, we are still net-losers. I paid $400 for insurance but it would have been cheaper and faster to just pay the repairman myself. And there was a very real chance that I would have never filed a claim at all and ended up paying for both

Now I am backed into a weird corner. I am in the ridiculous position of hoping my TV breaks down again so I can file another claim and get the full value out of the insurance premium; or, I can hope the TV holds up and I just lose the remainder of the money. Either one is stupid.
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In the end, Extended Warranties are just one way consumers can flush their money away. That is because the cards are ALWAYS, ALWAYS, ALWAYS in the house’s favor.

WEIRD UPDATE: All of the above was written two days ago. Today the same thing happened again. It appears I may get my money’s worth after all… eleven days from now!

Leave comments below.

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Insurance Scams: Auto Clubs

The average person can save and accumulate literally HUNDREDS OF THOUSANDS OF DOLLARS over a lifetime just by understanding insurance better. We will discuss the big-ticket items, such as health insurance and auto insurance, in later articles; but for now, there are some other sneaky insurance scams that are worth noting. One of the reasons I refer to them as “sneaky” is because they give their products creative names to hide the fact that they are really just offering insurance under other names.

Auto Clubs Towing Services
Auto Clubs have developed a couple of secondary services to disguise the fact that they are really just selling towing insurance. For example they will tell you the fastest route to take on a road trip, or where the hotels are. But nearly everybody knows about MapQuest, where we can obtain essentially identical information for free, at the snap of our fingers.

After we brush away the façade, the primary product that Auto Clubs offer is Towing Service. In essence they will tow your car for free if it should break down. They also offer to fix a flat tire or jump-start your car if you should need those services. The annual fee for “Towing Insurance” is around $100.

Insurance policies always come with plenty of fine print and there is plenty of it in a towing policy. For example the insurer decides who the towing company will be and they have limits on how far they will tow you. So if your favorite mechanic is 30 miles away but they have a repair shop in their network that is only 3 miles away, they may only tow you to there. You have to pay any additional costs to get your vehicle to your friend’s shop.

If you are like me, you do not trust repairmen you do not know. If the mechanic over charges you, you could lose all of the money you paid for the towing insurance or more, so the Auto Club was a net-problem, not a net-benefit. Other times you have to pay the tow truck driver up front, and then send in copies of the bills for reimbursement. Obviously that leaves you vulnerable to the whims of the Auto Company if you failed to dot an I or cross a T somewhere,

These policies are especially dubious if you have a fairly new car. For starters, your vehicle is simply less likely to break down. And, in some cases, the manufacturer offers the same free service (yeah, right!) as an incentive to buy the vehicle in the first place. Or you might already have a Roadside Assistance program with somebody like OnStar. Therefore, the customer already has towing insurance, whether they know it or not.

There are a couple of cases where towing insurance is nearly justifiable. 1) If you own a large motor home, changing a flat tire can be a major undertaking. Furthermore, the towing cost to you, should you need it, and not have towing insurance, is much higher because it takes bigger tow trucks to complete the task. Therefore, consumers in this category get more bang for their buck when they do file a claim. 2) Older vehicles (more than 10 years old) and high mileage vehicles (over 75,000 miles) simply have a higher probability of something going wrong.

However, people in either of those two categories will still be net-losers over a lifetime of paying for this insurance; but, I can appreciate the fact that some people are willing to accept that loss, in exchange for knowing they have a workable solution when they need it most. For the rest of us paying for this service is simply enriching the insurance company.

If you still want to look into some of the possibilities, Amoco, AAA and Allstate are among the more well-known companies offering this service but there are dozens more. Index of the Web offers a very good list of options and The Dollar Stretcher has some specific recommendations.

The bottom line is insurance companies do not continue to offer services like these because they lose money on them. On the contrary; they are very profitable programs. That is because very few consumers get back as much as they pay in.

What say you?

Drop by my other blog, currently observing hoarders

By the way. I am inviting some guest articles. Let me know if you know somebody who would be interested in writing one.

Sneaky Insurance Scams

Very few people really understand the financial implications of insurance. I even include insurance agents in my generalization. I am not saying that they lack knowledge of their products, because that would be ridiculous. Of course they can tell you what happens if you don’t have comprehensive coverage and your car gets damaged in a hail storm; and they can look a daddy in the eye and encourage him to get lots of life insurance so he can provide for his children if he is suddenly wiped out; but, certain people should have neither of those policies, even if they drive a luxury car and have several children.

In my upcoming book, Stop Flushing Your Money Down the Drain, insurance is one of a dozen major categories we discuss. I understand that most of us would rather watch reruns of the Simpsons than have an in-depth discussion about (yawn!) insurance, but it is that very attitude that leads us to flush HUNDREDS OF THOUSANDS OF DOLLARS DOWN THE DRAIN over our life time (see article about compound interest),

In a future article we will discuss the major insurance matters such as home-owners, auto, life and health insurance, but for today I want to discuss some of the “sneaky insurance”.

To begin, insurance companies and other businesses have figured out that the average person does not like the word “Insurance” so they have devised some aliases or nick-names for their products. Have you ever heard of “Protection Services” or "Replacement Plans" or “Extended Warranty?” These are all code-words for insurance.

Here is one of the clever programs: There is a strong likelihood that when you obtained your last credit card, the bank immediately sent an “Insurance Agent” after you. The nice person on the phone let you know that “as a favor to new customers” the bank was giving away a 90-day FREE service. The friendly caller went on to explain that if you should become suddenly ill or lose your job, the bank was willing to forgive your credit card payments until you get back on your feet - for up to one full year.

After the 90-day trial period, the service would continue at a cost of “just pennies per day”. For a mere ninety-seven cents per one-hundred dollars of your unpaid credit card balance, you could sleep well knowing that the bank is “watching your back”…another code word.

The caller continues, “So all I need to GIVE you this FREE service is to verify your address. Do you still live at …?” If you hesitate or resist, the caller says, “Naturally, you can change your mind at any time.” WOW! What a great bank!!! Sounds great, right? Who could resist such a great deal?

Well, common sense tells us there must be a catch, and there usually is. There is a lot more to this “free” offer. Before we go on, ask yourself why a bank would be so nice to you. I bet you have figured it out. The bank’s cleverly designed program is counting on the fact that the monthly fee will kick in without you noticing it. Card Ratings tells us that customers pay six-billion dollars per year for this service.

The first 90 days goes smoothly. Then you start using your card a little more and you might even carry an average balance of around $4,000 (The national average is twice that amount). You probably don’t scrutinize your statement that closely and even if you do, you may have even forgotten what it is or you just don’t want the aggravation of dealing with it.

Someday, if you ever do lose your job or take ill, there is a good chance you will forget you have the service anyway, and never collect a dime. And, even if you do file a claim, all they pay is the minimum payment. They do not pay off your balance. In the mean time, $40.00 per month comes out of your account, forever and you get little or nothing out of it. Geoff Williams of WalletPop points out it can even be higher than that.

Therefore, my recommendation is to just say, “No thank you” when somebody offers you FREE credit card insurance, regardless of what the bank calls it, unless you have some reason to believe that you are more likely to lose your job or take ill than the average person. The folks at Wisebread also think “Balance Protection” is a bad idea.

Another insurance agent is camouflaged as a service representative at your local retail tire stores. Their insurance of choice is called “Road Hazard Protection” or the more creative name, “Tire Reimbursement Plan”. The idea is, if your tire should become defective due to a pot-hole or a big nail or some other road conditions, they will replace the tire at a prorated amount, based on how much tread-life remains in the tire. (They have several other add-on gimmicks to pull dollars out of you pockets, but we can discuss those some other day.) The insurance premium is about $5 per tire. Once again, you should ask your self why they would offer such a program. Well, keep reading.

Even if you ruin a tire that very day and get a brand new one this is not a good investment. Here is why. I have been driving for 46 years. I would estimate I had to get a new set of tires once every 3 years. That means I have purchased over 60 tires. If the insurance for each one of those tires cost me $5, I would have paid approximately $300 altogether.

In all of that time, I can only think of one tire that would qualify as damaged by the road in some way (boucing off of curbs does not qualify). Therefore I would have collected $75 or so on that one occasion and I am still a net loser. However, there are mitigating factors that further diminish the value of the claim. For example, some tire defects would be covered for a while on a standard warranty, so during that period the customer has double coverage.

Next, tires are well-built and don’t have a lot of problems like that (otherwise the retailer would not offer to replace them). Next, if the tire should only have 10,000 remaining miles on it when the damage occurs, the customer does not get a new tire. You get a prorated discount off of the cost of your next tire. That might mean just $15 or so. If you pay a little attention, there are always sales that will afford that much of a discount. Another question is, “What happens if they don’t make that particular tire any more?” Answer: They will probably try to sell you five new tires. Finally, this is one of the reasons you carry a spare tire. Perhaps you can just use that.

Earlier, I pointed out that plenty of the people who sell various types of insurance don’t even know what they are talking about. Gene Grant is a perfect example. He has 25 years in the auto industry, and thinks that these plans are a good idea. But he only tells you about the one time you file a claim. He never mentions all of the lost dollars that I noted in the previous paragraphs or the aggravation to get your refunds when you do file a claim. Oh by the way, guys like Gene frequently get a nice bonus commission when they sell “Tire Reimbursement Plans” so they have no benefit to discourage such purchases.

So you see, there is practically no justification for anybody to pay for Road Hazard Protection. The retailer wins even if you have claims, which in my case only happened to one tire out of sixty anyway. Therefore, just say no thank you to Road Hazard Insurance unless you drive on a lot of broken glass, dirt roads or other substandard roads.

Come back soon and we will talk about more sneaky insurance, including one of my own mistakes with sneaky insurance.

Also, drop by my Human Interest Blog. The current topic is Hoarding and Pack Rats. See you then.

Your Budget and the Power of Fives

Do you feel like you are always out of money? If so, you are a lot like nearly everybody else. Interestingly there is one thing you can do that will practically guarantee you more spending money: Make a simple budget and stick to it. I will share with you some simple steps in a moment, but first let me assure you that this is the best time of the year to talk to you about budgeting. There are several reasons for that.

For starters, most of us are feeling more financial pressure right now because of the holidays. The bills are headed your way and you may not be able to pay everything in-full and on-time. Just as damning, the IRS is counting the days until April 15th, and waiting for us to help pay the country’s bills. And you are probably thinking about the warmer days of summer on the horizon and considering upgrading a car or some home improvements or a vacation. Throw in a few uncertainties about the economy in general and most of us are a bit weary of our financial woes. A simple, but solid budget can go a long way toward improving your lifestyle.

Here are some good steps to take for budgeters of all sizes

1) Do some homework – You are undoubtedly going to scan your checkbook and credit card statements for tax deductions very soon, so take this opportunity to double your purpose. Look at each and every expenditure of the past year and list them all in some basic categories: A dozen of the more common ones would be: Tithing, Saving, Home mortgage and maintenance, Utilities, Fixed payments such as auto loan, Auto gas and maintenance, Insurance, Vacation, Groceries, Medical, Entertainment, and Miscellaneous. If you find this last category to include quite a few things, you can break it down further. Additional categories might be cable TV packages, the kid’s allowance, lawn care and the like.
2) Don’t Forget The Cash - Do you pull out some spending money when you deposit your check? Do you drop by the ATM to get some operating capital? Tmason does. When you write a check at the grocery store, do you write it for a little over the purchase amount and pocket the difference? Do you cash the smaller checks that you get from time to time rather than depositing them into your account? No budget would be accurate without identifying these items. In fact there is a good chance that these dollars are just floating off into the cosmos somewhere. We will fix that in a moment. For now, swallow hard and write down you best guess of how much this category equals in a year.
3) Income - How much income do you earn each year? Consider all of the income from reliable sources.
4) Reconcile - Okay, it is the moment of truth. Do the math. Are your expenses more than your income or is it the other way around?
5) The Outcome - If you have more income than you spend, then you live within your means, and you deserve a pat on the back. That is good, but it may not be good enough. I know people in this group who waste incredible amounts of money. Those people can also benefit from prudent budgeting, then they can save and invest the residuals. The rest of us are unable to pay off credit card bills each month. That lifestyle carries with it a very heavy financial burden. The interest consumers pay for those cards (and any other debt such as car loans) is money they could be spending or saving and investing. Either one will enhance their life styles.

Once you have an accurate handle on your situation, it is time to find out where you can make improvements that will improve your lifestyle – in the long run. Here are 5 things “To do”.

1) Make a plan – Write down how much money you really NEED for your bills. Then add the items that you don’t particularly need, but are fairly important to you. i.e. one dinner out every 10 days, an upgraded cell phone package, a boat, etc. x Allow for some, but not all, of the things you would like. You should have a spending allowance and some money for an emergency fund. By allowing yourself certain regular but structured indulgences, they become something to look forward to rather than one fleeting impulse after the other, which collectively carry costly long-term consequences.
2) Keep score – You cannot be sure how you are doing unless you keep score. It is important to know what you are trying to do and what you are trying not to do. It is not overly difficult. Once every month after you pay your bills, repeat the exercise we did earlier: Write down all of your income and expenses then compare to see how you are doing. If adjustments are needed, it is a lot easier to do it sooner rather than later.
3) Start trimming some fat – when you have a good overview of your finances, it is fairly common for some glaring problems to hit you in the face. For example, one fellow I know was shocked to find out how much he spent in bars. He immediately cut back on buying so many drinks for his friends. You might find that you go to dinner quite a bit, or you buy tools that you don’t need or you spend $2,000 per year on fancy TV cable packages. All of these offer changes you can make to hang on to more of your money.
4) Cut down on impulsive cash purchases – By using your check book or credit cards for all of your purchases, you will not have missing money. If you have an absolute need for carrying around cash, get some envelopes and put a weekly allowance in them. Once the envelopes are empty, do not run over to the ATM or anywhere else to resolve your liquidity problem. It is okay to take a small amount from you “emergency” envelope, but do not sneak out and get new cash. At first you may be tempted to subsidize your impulsive purchases with your checkbook or credit card, but this will be obvious the next month when you review your budget so you will have an opportunity to notice and modify your behavior; but, if you just keep throwing cash in the wind it is nearly impossible to get an idea just how serious the problem is, let alone fix it. You are at a critical crossroad. Take the correct path now and you will have enormous rewards later, when you are out of debt.
5) Swallow your pride – If it is necessary to sell your boat or buy a smaller home, then go do it without concern for what others might think. If you don’t make smart adjustments on your own, you may never get out of debt or might even end up losing it all. By implementing good judgment now, you will be able to raise your lifestyle even more at a later time.

Your “Do not” list also has 5 good tips.

1) Do not panic - There is a way out, no matter how bad your situation is, so pproach the entire ordeal with logic, not emotion. It does no good to get overly upset about it. That negative energy is not good for your health or the other people around you. Besides, there are millions of people, including four past presidents, who have filed for bankruptcy or lost a home in foreclosure. Furthermore, there are laws in place to assist people to get back on their feet so forgive yourself from the past and start making smarter choices that will lead to a more productive life.
2) Do not make impulsive purchases – Some people derive importance from buying things on the spot. It is as if to say, “I am successful and I can buy anything I want.” Well, who cares? This may be one of the habits that got you in trouble in the first place. It is okay to spend money here and there, provided it comes from a defined account for that purpose, but buying an endless chain of unnecessary goodies is stupid, not a sign of success.
3) Do not take on more debt – If you cannot pay off all of your credit cards and other bills in-full and on-time every month, you are living beyond your means. One of the worst things you can do is compound your problem by pulling out your credit card or buying a new car. Resist the temptation to take on a new credit card so that you can transfer balances to a lower rate. That new line of credit may just serve as an additional source of temptation to buy even more stuff. Furthermore, new accounts lower your credit scores and can lead to all sorts of problems including getting your insurance rates raised.
4) Do not refinance your home – Financially challenged people tend to see the equity in their homes as a source of funds to pay off other bills. That is foolish and very dangerous. Subsidizing frivolous spending habits in this way merely serves to enable you to live beyond your means and drive yourself further into debt. If you find yourself saddled with so much debt that you cannot reasonably expect to pay it off within 30 months, then you may be forced into refinancing but this should only be employed after you have abided by the budgeting practices we have already discussed. Once you have established good habits you are less likely to see all of those paid off credit cards as an invitation to revisit the same old bad habits. If you intend to stay in your home for a few years it is okay to refinance, provide you reduce your interest rate by one percent or more. But do not be tempted to pull cash out unless it is to be used for safe investments which bring in more income than the interest expense on the new debt.
5) Do not spend all of the windfalls- When you get one of your credit cards paid off of a car paid off, do not run out and spend that money. The same thing when you get a raise. Do not spend it all. I suggest you use half of it to increase your standard of living slightly and the other half to pay down other debts even faster.

If you are not able to pay off your credit cards on-time and in-full every month then you are living beyond your means and spending money on interest which could be going to enhancing your lifestyle. Your goal should be to get into that situation within a reasonable period of time, say 2 to 3 years. If you are living within your means, as defined, then your goal should be to accumulate funds, which you can invest for passive income. By accumulating additional income, you are destined to enjoy all sorts of new benefits and that is the purpose of this entire conversation.

One of my favorite budgeting tools is available through Mvelopes. It is an on-line version of the traditonal envelope sysptem of budgeting.

Another popular monetary tool is an on-line checking account. One of the well know spots is held by ING Direct.

Finally, you can get many other budgeting tools from Dave Ramsey. His site is here.

Your thoughts are invited

Don't forget my other blog about human interest topics

Is Your Money Broken

I am writing a new book entitled Stop Flushing Your Money Down the Drain. Following is an excerpt from the Introduction.

Too many smart people would rather let their finances happen to them in some haphazard fashion than take a proactive role in their economic destiny. When they want to buy something, they examine their checkbook balance, and if there is a sufficient amount, it quickly goes away. If the balance is not sufficient to complete the transaction they revert to Plan B: Pull out some plastic money. All of this happens with little regard for any other obligations or opportunities that might be looming in a money-hungry future. This is the type of practice that confines good people to a lifestyle in the proverbial “Poor House”.

Car dealers and home builders have always taken advantage of the fact that people do not fully understand how powerful knowledge can be, Developers know that buyers know how much pain it takes to come up with a thousand dollars so they structure down payments and monthly payments to seem affordable while they raise the purchase price to a level which many people do not fully understand. For example, if someone hears the home price is $168,000 or $178,000 they perceive those two numbers to be about the same. That is because they have never held either amount in their hand. So, they will pay either price, provided they can afford the down payment and the monthly payment.

The point of all this is we need to control our money or it will control us. Men and women who use their money wisely can become very wealthy, even if they hold down modest jobs for all of their productive years. This book is going to show you how to do that.

One person told me that the people who need this book the most are the ones who are least likely to read it. I suppose there is some truth to his point because a fair number of those people don’t read much of anything. Still others might believe that finances are mostly just a matter of common sense. They are also correct. But those are not reasons for me to abandon the project. There are so many more folks who need the information.

More to come.

I hope you will drop by my other Blog. It is mostly about Human Interest stories.

Why Your Government Likes Inflation

There are so many benefits for governments to create inflation, that the temptation is very difficult to resist. However, history shows that many governments have overdone it and ended up destroying their monetary system and their entire economy. A prudent person might ask, “If the consequences of inflation can be so dire, why would the various governments want to embrace it in the first place?” I might be able to explain it with a dozen delicious, raised-glazed donuts: They are simply too tasty to resist.

Big Debtor
The US government owes more money (approximately 12-trillion dollars) than any company or individual on the planet. By manipulating policies so that there is a constant rate of inflation (They seem to like one to two percent), they can pay back the debt with cheaper dollars. For instance if they can borrow a dollar that can buy one-hundred paperclips, but slowly devalue the dollar (by printing more of them) by two percent per year, then after 10 years they can pay back the debt with a dollar that is only worth 80 paper clips.

Bracket Creep
If the government can keep the price of everything going up, they collect more money. As an example, if a union carpenter sees prices going up all around him, he will need a raise when his contract is over. Carpenters, and others like him, move into higher tax brackets as their wages increase and the government collects more money from them in the form of income taxes. Furthermore, the same principle applies as investments such as homes and stocks rise: The government collects more Capital Gains tax. Penny Jobs tries to explain it, but i think I do a better job.

State and local governments
Local governments also like it when inflation drives prices up. As goods get more expensive, revenues from sales taxes increase right along with them. Furthermore, when home prices rise, home owners tend to refinance their homes and spend the money.

The Citizens
Inflation benefits most citizens, especially those with major assets such as homes. If your house is worth $150,000 and you owe $140,000 you don’t have enough equity to sell or refinance your home. But if the home price jumps to $200,000 your debt becomes a much smaller percentage of the homes value (even though the new dollars are not worth a lot). Therefore you can get to the equity and enhance your life.
When the FEDs release extra dollars into society and those new dollars begin to move around, the people get a certain comfort level and spend any money that lands in their laps. As a result, they stimulate the economy which, in turn, sends new funds back to the governments.

However, people with large savings accounts or fixed incomes do not like inflation because the printing of new money makes each dollar less valuable. In cases like this, seniors watch their life time savings become less meaningful and as prices go up their income does not keep pace.

How They Do It
Basically, the government measures the sum of all of the new products that are created (Gross Domestic Product) and then release new money into society to cover the value of those goods. To create inflation they simply release slightly more money than those goods are really worth. For more on this topic, visit our friends at Seeking Alpha.

What say you?

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