Life Insurance 101

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I’m back after a fantastic spring break vacation with my guy. We did plenty of awesome and relaxing activities, but one of the many financial activities we did over our break was buy some extra life insurance. You’re probably thinking, “But Christine, you’re in your 20′s. Do you really need life insurance?” To which I would respond with a resounding, unflinching, “ YES!!”

There are two types of life insurance; term life insurance and permanent life insurance. Both types of life insurance pay out their death benefit if the policy holder passes away.  However, there are some major differences between term and permanent life insurance, three of which I plan to talk about below.  

The first major difference between the two is that term life insurance has an expiration date and permanent life insurance doesn’t. So at 30 years old you could buy a term life insurance plan that lasts ten years. It would expire when you turn 40. However, if you purchase a permanent life insurance plan at 30, it never expires.

Another major difference between term and permanent life insurance is that term life insurance doesn’t build cash value, while permanent life insurance does. With term life insurance, you pay for it, and it covers you for a specific amount of time, somewhat like care insurance or home insurance. With permanent life insurance, you pay for a specific number of years, lets say ten years again, but at the end of the ten years, when you stop paying, the policy doesn’t expire. As the years pass the policy builds cash value and you can withdraw from the policy for things like retirement income or for unexpected expenses. When you take money out from the policy, the amount you borrow gets deducted from what your death benefit would be.

A third major difference is that term life insurance tends to be significantly cheaper than permanent life insurance, especially for young people. Because of the fact that you build value over time with permanent life insurance, it is more expensive.

Depending on your situation, you may want to consider term, life, or both types of insurance. For example, if you are in your 20′s with no dependents (kids), no mortgage, and no health problems, you probably want to get permanent life insurance. It will be cheap because you are young, and the risk of you dying in the near future is pretty small. It will take you a few years to pay off, and then you will be insured for the rest of your life. Plus, it will give you an option for supplemental retirement income in the future.

If you have kids, you probably want to get some term life insurance. It’s cheaper than permanent insurance, so it will be better for your diaper and baby food filled budget. Regardless of whether you are a working parent or a stay at home parent, I recommend getting a term policy. If you’re the breadwinner, you want enough money that if you aren’t around to provide for the family, you know the family will still be able to live.  If you’re a stay at home parent, you should consider getting a policy that is enough to cover the cost of a caretaker for the remainder of your dependents’ childhood years. Remember, if you aren’t around while your significant other is out bringing home the bacon all day, your child(ren) will need care, and care is expensive.

Personally, I’ve chosen to take a balanced approach to life insurance, meaning some term and some permanent insurance. I have enough term life insurance to cover my major financial obligation, my mortgage. This way, if anything were to ever happen to me, I know that D, my fiancé, could stay in our home comfortably. Luckily, I don’t have any other debt, but if I did, I’d want enough to cover any other major debt I had. I also have some permanent life insurance. It’s more costly, but I’m using it as a financial vehicle for my retirement planning. Specifically, I plan to use it to supplement my income upon retirement. Or, in the event of my untimely passing, it would cover my funeral costs and give my family a couple thousand extra dollars for any unexpected expenses associated with my death.

The bottom line here is that you may not realize it, but you need life insurance. Whether you are single or taken, have kids or not, it’s a smart move to ensure your future financial stability and the financial stability of the people you love just in case you aren’t around anymore.  

Spring Cleaning

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The weather finally is getting warmer, the clocks have sprung forward, and it’s time for some spring cleaning! I enjoy cleaning out my closet as much as the next gal, but let’s get serious. Spring is a time for cleaning up everything, including those pesky personal finance tasks that you’ve been putting off.

Here are a couple of things you might want to consider getting done to complete your spring cleaning:

  1. Finish your taxes. If you didn’t do it yet, do it soon because the deadline is April 15. Be sure to use a tax professional to help you get the most deductions possible.
  2. Get a handle on your debt. Start organizing bills and stop putting them aside. Figure out how much you owe everyone, figure out what debt has the highest interest rate, and focus on paying down that debt first.
  3. Clean out your closet and donate the clothes you haven’t worn in 24 months. Did I mention that charitable donations are tax-deductible?
  4. Shop around for insurance. Have you been using the same company for 5 years without comparing rates? You might be able to reduce insurance rates by comparison shopping.
  5. Cancel subscriptions that you don’t use. Have you been receiving a magazine you don’t care for anymore? Are you still subscribing to xBox live even though you don’t use it? Cancel the subscriptions and stop paying for service you don’t use.
  6. Compare shop for cable/internet. Some companies offer a deal if you “bundle” cable/internet and commit to a year or two long contract. If you are feeling really adventurous, cancel cable completely and try using Hulu/Netflix.
  7. Check on your cell phone usage. Is there a new plan available that can better suit your needs? If you cell phone plan expires soon, ask yourself if you really need that fancy new smartphone. Odds are, you don’t.

Minimum Wage Rage

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Minimum_Wage_IncreaseRemember your first job? I do. I was 17, and I was working in a local park. It was around the corner from my house, and it was my job to be a “Recreational Seasonal Employee.” The job included tasks such as painting the lines on baseball diamonds, driving pickup trucks rather recklessly, cleaning public bathrooms (major yuck), keeping score for basketball leagues in the park, picking up trash, painting curbs, and playing games of Uno and Rummy 500 with my fellow seasonal employees. It was a fun, easy job for the most part, and I made a whopping $7.00 an hour, which is just below the current minimum wage for New York State.

Was $7.00 an hour good for a high school student with no skills or experience? Absolutely! I had enough money to gas up the car, head to the movies, or hang out with friends. I saved some cash on the side for college related expenses, and stayed with the job until I got my bachelor’s degree.

However, now that I’m older, more experienced, and more educated, I know that I command a significantly higher wage. I have a master’s degree, I’ve learned fantastic skills, garnered great recommendations, and accumulated 7 years of experience in the full-time workforce.

The idea of a minimum wage job is simply not an option anymore, considering my skills, experience, education, and the fact that I want to be financially sound adult. As a kid with no bills, no car, and no cares, $7.00 an hour was a perfectly acceptable wage. However, as an adult with bills, a mortgage, and ambition, $7.00 an hour simply isn’t an option. It represents life at or below the poverty line, and it’s a wage that is simply not enough to live on in the New York City area.

Granted, the current minimum wage in New York is $7.25 an hour. It’s better than $7.00, but I still don’t consider that a living wage for an adult.

With that said, there’s been a bit of political debate going on lately about the minimum wage. Politicians are toying with the idea of raising the minimum wage, with the idea that it will help the economy if wages increase. In New York, there is a proposal to raise the minimum wage from $7.25 to $9.00 over the next 3 years or so, giving minimum wage earners an automatic 24% raise over the next few years! I want to be clear here – $9.00 an hour is not what I would consider a living wage in today’s economy.  But, I also think that it’s not too shabby compared to the 2-4% the average worker gets annually.  

While I love the idea of increased wages for those of us earning the minimum, I’m a bit concerned about the lack of focus on the rest of us. There are lots of “middle class” people out there who have been working away over the past decade or so without receiving significant wage increases. Will they benefit from the increase in wages too? Or will their wages remain stagnant, as they have for nearly a decade?

Hence, I raise the question of the day: What would you do if you had a 24% raise guaranteed over the next 3 years? Ponder and feel free to comment with any ideas for how you would choose to use your newfound dough.

Sunday Shout Outs

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Photo Courtesy of thepoliticalcarnival.net 

This week I had tons of time to browse the interwebs because I was sick at home.  I’m finally feeling better, and although being sick was pretty awful, the silver lining was that I had plenty of time to check out and enjoy other bloggers’ writing.  Here are some of my favorites: 

How To Coupon – An Exercise in Frugality

Fear of Not Having Enough Money – Budget and the Beach

How I Became the Budgetnista (The Bike Story) – The Budgetnista

Went in the Grocery Store for One Item But… – Debt Round Up

You Vs. Debt: A Financial Guide for Controlling Your Expenses - Girls Just Wanna Have Funds

#Tag Getting to Know the “Person” Behind the PF Blog - Living Debt Free Rocks

30 Days & No Drinking – I’ll Cheer to That - Mo’ Money Mo’ Houses

Renting Out a Room in Your House – Moneyglare

10 Positive Financial Habits – No Debt Brunette

Rules for a One Night Stand – Thought Catalog (Not personal finance related, but hilarious)

Mean Spirited Friends – House Haters  - Student Debt Survivor

Thanks to everyone for the well wishes and for reading this week!  See you on the other side of Monday.

xo – Christine

 

 

 

The Cost of Getting Sick

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Courtesy of www.spaweekblog.com

How I Feel This Week – Image Courtesy of http://www.spaweekblog.com

Hello readers! I know I’ve been out of touch for the past couple of days. I’ve been home sick in bed, which has resulted in numerous naps, excessive consumption of chicken soup, a trip to the doctor, three antibiotics, and a bottle of Advil. I’m thrilled that I’ve finally mustered up the energy to compose a post, and the events of the last few days have gotten me to start thinking about the cost of getting sick.

This week, as a result of my respiratory infection I’ve incurred the following expenses:

  • Visit to the Doctor, including Strep Throat Test: $15 co-pay
  • Copious amounts of fresh chicken soup: $15
  • 3 Types of antibiotics – $5 each for a total of $15
  • 1 bottle of Advil to reduce fever, shakes and sweats: $10

That comes to a grand total of $55. Certainly not too bad when you add up the amount of services and products I’ve received. I’m lucky to get sick time through my job and have a good medical plan, which really reduced my costs significantly. However, what about those of us who are uninsured, unsalaried or both? In the interest of fairness, I want to show you how much the same exact experience would have cost me if I didn’t have sick time and insurance:

  • Visit to the Doctor, including Strep Throat Test: $220
  • Copious amounts of fresh chicken soup: $15
  • 3 Types of antibiotics: $210 (estimated $70 per antibiotic, which is on the cheap side)
  • 1 bottle of Advil to reduce fever, shakes and sweats: $10
  • 3 days of lost wages @ about $300 per day of work (pre-tax): $900

Grand total of…(digital drum roll)… $1355! That is nearly 25 times the cost of getting sick while having benefits. In my opinion, the discrepancy is ridiculous! However, it reminds me of how incredibly lucky I am to have sick time and health insurance. If you aren’t as fortunate, it’s especially important for you to think about putting some money aside in an emergency fund to cover these types of expenses in the event of an unexpected illness or other emergency.

Well, it’s time for another nap, so back to bed I go. Stay healthy my friends!

 

 

You Need an Emergency Fund. Really, You Do!

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I was recently talking to a friend who told me that she never learned how to save money. Her family never saved, so she never saved. I learned that her family’s financial mantra is “you can’t take your money to the grave, so you might as well spend it today.” Although I’ve heard this philosophy, I was surprised to know that someone so close to me believed it!

Knowing this wasn’t sound financial wisdom, I decided to introduce my friend to the phrase “saving for a rainy day.” It refers to the idea of a savings account where you stash enough money for a “rainy” (crappy) day. Things that could cause said “rainy” day include unexpected emergencies such as getting laid off, illness, large unforeseen expenses (car accident, leaky roof, etc.), and so on. The purpose of the emergency fund is to provide you with the resources to deal with the unexpected challenges that life can something put in your path.

There is a general rule of thumb for saving up enough money to deal with the unexpected. Most financial planners will tell you that you need to save up enough money to cover three to six months of expenses (rent/mortgage, transportation, food, bills, etc.) for your emergency fund. The money in this fund should be liquid, meaning you can quickly, easy access it. This way, if you are laid off/get sick/incur a large expense, you can easily withdraw the money you need to support yourself while you get back on your feet.

If the idea of saving up six months worth of bills seems overwhelming, start out by setting a series of more immediately attainable goals. Try to start by saving up one week’s worth of expenses. Once you’ve got one week, work towards saving up one month’s worth of expenses. From there, work towards two months, and so on. Setting up attainable, incremental goals will help you feel feel good about the milestones you reach on your way to setting up your emergency fund.

It’s true you can’t take your money with you after this life, but setting up your emergency fund can help you deal with the financial challenges that life brings. You never know when your “rainy day” will come, so get prepared and start saving.

Stop Putting it Off… Get Financially and Physically Fit

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Cartoon courtesy of davewalkercartoons.com

Cartoon courtesy of davewalkercartoons.com

Readers, I’ve got an ugly admission to make to you today. It’s finally time for me to come clean about a little vice of mine. I love to procrastinate. I really do. There’s nothing like not doing what you should be. I relish my lazy moments of nothingness, and although I’m not exactly proud of this character flaw, it’s been a part of me for years.

It started years ago, with me putting off writing papers in high school. My skill at procrastinating only improved in college, and at this point, I’d consider myself a master of the art. However, there’s one thing that I’m making a concerted effort not to procrastinate these days: working out.

Hitting the gym is easily my favorite adult activity to procrastinate. It’s so easy to sit on the couch, especially with the excuse of blogging, instead of walking down the street to the gym for a workout.

Strangely, through the years I’ve learned that the more I work out, the more I’m in control of my personal budget, finances, and life in general. It’s an unusual relationship, but there is balance in my life between my bank accounts and my commitment to the gym. Going to the gym gives me the motivation and confidence to deal with my life, especially financially.  When I take responsibility for my health, I do so in every aspect of my life, from the physical to the financial and beyond.  As a result, the more in shape I am, the more in shape my money situation is. The less in shape I am… well, you get the idea.

Knowing this, I’ve committed to my personal and financial fitness. I’ve been hitting the gym at least 3 times per week consistently and dealing with financial challenges immediately, instead of putting them off. Hopefully I’ll reap two excellent results of this habit: it will this increase my bikini-readiness for the spring/summer, and will also help keep me motivated to stay on my personal path to financial freedom.

What do you think readers? Do you find that working out helps motivate you to take charge of your money? Do you think there is a connection between the two or is a bunch of malarky? 

Shopping on a Budget

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Displaying my finds after a shopping at the local consignment store.

Last week, during my wanderings around my new ‘hood (I recently moved), I spotted an answer to this conundrum; the local consignment store. For those of you unfamiliar with consignment, it’s a secondhand shop where you can bring clothing or other items you don’t use anymore. The shop owner agrees to sell the item for you, and once your item is sold, you get a cut of the profit. If you’re not ready to let go of any items in your carefully curated closet, you can always do some good old fashioned shopping too.

Back to my shopping experience. The aforementioned shop is my new favorite because it features designer consignment. That means designer clothing, usually new or in like-new condition. The biggest perk: most of the denim is already hemmed – a definite plus if you are less than 5’10″.

My excursion was quite the success. I acquired the following pieces for $70: A black long sleeve scoopneck top (still new, from Bloomingdales), a striped turtleneck blouse (also new, from Anthropologie), and a purple Diane von Furstenberg dress. The dress was pre-loved, but I was willing to commit because after careful inspection, the dress was in new condition, excellent quality, fit like a glove, just missing the tags.

Shopaholics, fear not! Going on a budget doesn’t have to mean giving up your personal style or favorite brands. Rather, it might just mean adjusting your shopping habits and maybe even finding the local consignment store near you.

Shout out to Lucky Finds Boutique for a very productive and budget friendly shopping experience!

Thoughts About Deloreans… and Investing

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 Like most children of the 80′s and 90′s, I have a deep love for the Back the the Future movies. No, not because Michael J. Fox was oh-so-dreamy as Marty McFly in those movies. It’s really because time travel via a Delorean is just about the coolest idea ever.

We’ve all got a couple of things we’d like to take back ever having said or done, and the Delorean is certainly the tool of choice for fixing those faux pas. However, few mistakes ever will top failure to plan for your financial future. Remember, those who fail to plan, plan to fail. Which means that if you aren’t investing in your future today, you’re already planning a financial belly flop for retirement.

We all do our fair share of moaning and groaning about bills, rent, mortgage, debt, utilities, and whatever other expenses we incur from month to month. It’s already enough of a challenge to pay bills and stay ahead of the game, especially for those of us at the beginning of their careers, or on the lower end of the income scale (or both). But it’s a challenge you need to be up to if you want to secure your future financial stability.

I’d suggest starting out by taking 1% of your income – more is better – and investing it into a 401(k) program (or similar) at your workplace. Most employers offer some type of 401(k) program to their employees. For those unfamiliar with what a 401(k) is, here’s a definition, courtesy of Investopedia.com:

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

Chickvestor Translation: You choose to enroll in a 401(k) program and the following things typically happen:

  • You choose to have some of your pay put into a 401(k) account. This usually happens pre-tax. Pre-tax means that the money you choose to put away is taken out of your pay before Uncle Sam takes his share. You are not paying tax on the money you are putting into the 401(k)… yet. This decreases your taxable income, which in turn can reduce your tax bracket, decreasing the percentage of your income that you are required to pay in federal taxes. Any money that you don’t pay in taxes is money in your pocket!
  • Employers typically will match your contribution to your 401(k) account, up to a certain amount, usually in a percentage. Meaning, if you put away your maximum of 5% of your pay in your 401(k), and that equals $3000, your employer will put in $3000 just to match what you put in. Suddenly, your $3000 annual investment is a $6000 annual investment.
  • You earn interest on the money that you put away. That means your money accumulates value while waiting for you in the 401(k) account every year. You don’t pay tax on this money until you choose to withdraw it from your account, so let it compound interest work its magic on your money for a few years before withdrawing it!
  • Be sure to read the fine print. Different 401(k) programs have different perks and limitations. Check with your employer to find out the specifics offered at your place of work.

Although 401(k) programs are not the only programs offered by employers, they usually are the most common. Other programs include Roth IRA’s, tax-deferred annuities, life insurance, and a whole bunch of other investment tools and strategies. Your best bet is to speak to your employer to find out your options for retirement planning.

The bottom line here is that if you aren’t planning for your future, you are committing a major financial faux pas. So unless you’ve got Doc Brown’s Delorean in the garage at home, start your savings account, the sooner, the better.  

Lessons Learned From My Parents

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My mom and dad are inspiring and amazing people. They have hearts of gold, they are generous, and they have never left me wanting for love of affection. They are strong, and put family first. This is just the tip of the iceberg; they have tons of wonderful qualities, the vast majority of which I feel grateful to have in my genepool. However, they share one major flaw: they lack financial common sense.

My mom, an accountant by trade, doesn’t have a taste for fancy things. She lives for family, her cat, the L.L. Bean catalog, and the slightly more than occasional meal out. My dad also likes to eat out, attend sporting events, travel locally, and smoke a cigar here and there. They don’t have extravagant tastes, so what gives with their finances?

They have done a spectacular job of living beyond their means over the past 30 or so years. Whether it was living in a house that was a little bit beyond their budget, buying the car that was just a little more expensive than their last one, or eating out when they had a fridge full of groceries, they kept making the wrong financial moves, be them big or small. Couple these habits with repeatedly changing or losing jobs, unexpected illness, stagnant incomes, and a recently crashed real estate market, and you’ve got the perfect storm for fiscal crisis.

Now that my parents are approaching retirement age, these issues are more pressing than ever before. They’re paying the price of living beyond their means each day. 

The situation sounds bleak, but I’m retelling it because it’s a story of transformation.  My parents are improving their situation each and every day. They are adapting, changing their their day to day habits to keep their budget in mind. They are living in a home they can afford and drive cars that are in their budget. They even have a property that they’ve begun renting out for a profit. Each day is a fresh start, and I am proud of my parents for turning over a new financial leaf.

Remember, it’s never too late to make a fresh start for yourself and your bank account. If my parents can do it as they approach retirement, you can in your 20′s, 30′s or 40′s. Commit yourself to making your finances change and it will happen!