Wolves in sheep clothing are lurking everywhere in financial services, radio shows, and webinars. You’ll hear tons of contradicting information like:
“Make sure you buy whole life insurance!”,
“Buy term life insurance and invest the rest”,
“Real estate never loses value”,
“being a landlord is a nightmare”,
“Invest in your business, and you’ll never go wrong”…..
The contradictions can be confusing, and financial advice is rarely an “either or” situation – but a trade-off situation. At it’s core, financial wisdom comes down to being one of two types of people; one that earns or one that pays interest.
We believe that while every financial situation is different, there are some foundational principles that are true & should be followed.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
3 Steps to get your Finances In Check
1) Get Mad
GET MAD & Get plugged into Dave Ramsey’s books, podcasts, and financial peace university. Start listening to it EVERYWHERE YOU GO! Indoctrinate yourself with the time tested philosophy that says “Debt is dumb, and the new mark of success is actually a paid off mortgage”!!! Read his book “The Total Money Makeover” and get yourself emotionally engaged in your finances.
Get mad about the bondage debt puts you in, the opportunity cost of frivolity, and the lies we’e believed in the past.
Get Mad About Opportunity Costs
Did you know, that if you invested $500 a month into a growth stock mutual fund and it earned an average interest of 8% annually and you did that for 30 years, YOU WOULD HAVE interest and principal totaling $745,180 but only invested a meager $180,000?
$500 a month is $16 a day. That’s the price of going out to lunch and a coffee. Now think of the silly things we often spend money on that adds up to far more than $500/month.
1. Cable Television
2. Eating out
3. Excessive Housing
4. Excessive toys (both for adults and children)
Get Mad You Weren’t a Smart Kid (some of you might have been though) – I’m just trying to illustrate a point here. But what if when you turned 15 you got a job and worked for 5 years, simply to the extent that you could invest $250/month for 5 years while going through college. After 5 years, you would have put in $15,000 of your own money into the market.
Then, you never invest again – but you earn a net average of 8% over the next 50 years, ending when you are 70.
By the time you were 70 years old – the account would be worth $989,688! And you only saved $250/month for 5 years, then waited another 50 years after you quit!
The longer you wait, the smaller the financial reward becomes down the road. So GET MAD and start today.
2) WORK DAVE RAMSEY’s 7 BABY STEPS
Live on a budget
This is hard, since we’ve become a culture that just “swipes and checks”. You know what I mean right? Where you check your account then swipe your card? We eat out all the time, buy cute things for our kids, ask for double meat on our Chipotle, and go on weekend stay-cations all the time because we know there’s enough money in the account to cover it…… at least that’s what usually happens.
But the “swipe and check” syndrome, where we spend first and check second, kills a financial plan. So here are two simple ways to get started.
1. Use Dave Ramsey’s EVERYDOLLAR.COM to build a budget where you directly tell EVERY DOLLAR where the heck it’s supposed to go.
2. Create automatic discipline to live out your budget. Use the envelope system like Dave Ramsey suggests.
Make it your purpose to pay off every single piece of non-mortgage debt you owe. Use Dave Ramsey’s “debt snowball” where you pay the minimum payments on all but the smallest debt balance you have – and pay as much as you can as fast as you can towards that one. When the smallest is paid off, take all that payment and throw it at the second smallest, then the third, fourth, and on and on.
Work at it with intensity, sacrificing like crazy and getting after it![/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]
3) PROTECT YOURSELF FROM WHAT YOU CAN’T AFFORD TO LOSE
Insurance is all about protecting yourself from losing what you can’t afford to lose.
Here are the main things to protect against:
Devastating Sickness – you could go broke quick if you had a freak accident.
Death – Losing your love, support, and income is financially devastating to a widow or widower and your kids. If you have children, you owe it to them to make sure you’ve taken out lots of term life insurance so they would be protected as a family.
Disability – What if you suddenly lost the ability to work & you required care? What if you lost the ability to work and you’re family had to invest more time into taking care of you? You need to protect from losing your income with Long Term Disability Insurance. IF you lose your ability to work until you’re 65, that would probably impact your life right?
Accidents– Getting your home, vehicle, and liability insurance in place is critical! “Stuff” happens as they say, don’t let it wreck your financial picture because you didn’t pay your Property & Casualty insurance.
Murphy’s Law: You also need to remember that “now that you’re getting organized, anything that can go wrong, probably will go wrong!” this is called “Murphy’s Law”. The way you fight this is to build up a $1,000 emergency fund of cash which serves as a buffer between you and the credit cards. This is Dave Ramsey’s first step in the 7 Baby Steps. Resist the temptation to keep credit cards around “just in case”, that’s the way they market those things to us! Cut up the cards and work the plan.
Protection from Premature Death: I’m going to be brutal here for those of us with families. Everything from working spouses to “stay at home” spouses…..
– You might die.
– God might let you die.
– Your spouse’s plan shouldn’t be to re-marry a richer and hotter person.
– If you die, your kids will need MORE of your surviving spouses time, so don’t think “oh my spouse will have to go back to work”. OF COURSE a surviving spouse will get back to work, but give them the freedom to ease into it, choose a balanced career, build into their kids, and set them up for success!
– LIfe insurance can be cheap, when your young, healthy, and low-risk.
– Buy enough insurance to provide a certain income every year.
Term Life Insurance.
Take out ample death benefit, 20-30 year, TERM LIFE INSURANCE will provide for your family for their entire life if you die prematurely. Buy 20-year terms at least when you are young, and get it from an insurance agent that won’t slime you and recommend permanent life insurance or variable annuities (We’ll talk about this later). Dave Ramsey says that you should get a death benefit equal to about 20x your income. We differ in the office, but we encourage you to be GENEROUS with your death benefit selection as long as the pricing is minimal.
Stick with TERM LIFE INSURANCE, we don’t recommend to buy any insurance that’s supposed to be an investment vehicle. Stick with Term!
Provide an Income with Death Benefit: When deciding on a death benefit amount, consider buying enough so that your surviving spouse could draw income from the nest egg it makes after paying off all debts. I can’t emphasize this enough – your death will be devastating to them, and giving them the freedom to mourn & invest deeply into their relationships is what your family deserves. Don’t skimp on the death benefit!
Do the math so that your surviving spouse can pay off ALL DEBTS, bury you, and then live off a 4.5% withdrawal rate from the nest egg. So you need to pick an annual income amount you want to provide for your widow/er, divide that number by .045, then add the amount of debt you have to that number. You’re going to get a big old number – which is the amount of death benefit that would be OPTIMAL if you can afford it. Work your way down from there as your budgets & sacrifices play in.
If you have a family, life insurance is a NON-NEGOTIABLE!
Get LONG TERM DISABILITY INSURANCE, preferably supplemental coverage. This is the insurance that will cover you if you suddenly can’t work because of various disabling factors. Imagine you get hit in the head, have debilitating migraines, screw up your back, go blind, or have a stroke and cannot work. What will you live off of while you’re waiting for our pathetic government to give you the scraps off the social security program?
You need to ensure that your income is insured. Do the math and try to get close to 80% of your income covered or decide how much your budget would actually require. Talk to Nuance Financial and we will point you to people we know and trust to get you solid quotes from multiple providers so you get a strong price.
Remember that social security disability payments are meager compared to what a policy from a good carrier would provide.
You should be made aware that it’s really hard to get Long Term Disability coverage if you have just about ANYTHING on your medical record or if you’re overweight. It’s critical to get long term disability insurance when you are young, fit, and healthy – no matter how badly your “young, fit, and healthy self” doesn’t think it’s an issue.
If your company provides it, the cost saving is generous. But remember, if you were to lose coverage due to a job loss, those group policies usually end so that you would have to approach the open market to get insured. This is another reason that buying a supplemental policy, or one not associated with your employer, is usually most beneficial (although not the cheapest).
Get emotionally charged to get your finances in gear. Get on Dave Ramsey’s 7 Baby Step program. Protect yourself from what you cannot afford to lose or endure.
Here are Nuance Financial, we serve as a tax accountant, outsourced accountant, bookkeeper, quickbooks bookkeeper, payroll firm, and cpa firm. There are so many things that we do, but we serve the great people that dawn the Lakeville North Panther Jersey’s, Lakeville south cougars, the Burnsville Blaze, Prior Lake Lakers, Farmington Tigers, Bloomington Jefferson and Kennedy High School and Richfield folks. We love Minnesota, and we desire that each and every family of small businesses would have the opportunity to be more generous with what they have because they’ve lived financially wise lives.
Minnesota accountant: If you like the idea of working with an Apple Valley accountant, Rosemount accountant, Farmington accountant, Lakeville Accountant, Elko Accountant, New Prague Accountant, or Prior Lake accountant – then we’re your team!