Archives For October 2009

       Think it sounds ridiculous? Bear with me and I’ll explain how I came up with that number. This obviously isn’t the exact cost for every single person, but it probably isn’t far off. I didn’t include the cost of electricity, purchasing and replacing your television, or the cost of lost opportunities due to the hours wasted watching television. I’m also basing the cost on the amount I pay for satellite TV. Your actual costs may be higher or lower (probably higher as I have the most basic package).

The Assumptions

       I assumed a cost of $40/month for the subscription. This is the cost of my basic satellite TV subscription. There’s a good chance most people pay more than this, so my estimate is probably conservative.

       I assumed you started your subscription at age 22 (when most people are out on their own) and you keep it until you die at age 80.

       I assumed an inflation rate of 3.8% and an investment rate of return of 8% (very reasonable over a 59 year time period).

The Results

Television by dailyinvention on Flickr       If you decide to give up your cable or satellite TV subscription and instead invest the money, you’d have over $577,000 at age 80. If we adjust for inflation, that $577,000 would be about $63,900 in today’s dollars (e.g., what costs you $63,900 today will cost you $577,000 in 59 years because of inflation).

       By age 65, you’d have an extra $177,700 because you gave up that cable/satellite TV subscription. This is the same as $34,300 in today’s dollars. That could mean retiring a year earlier! (depending on your income needs in retirement)

What About the Cost of Purchasing a TV?

       If you’re 22 and you decide to save $100 instead of purchasing a TV set, you’ll have an extra $2,955 by age 65—or $570 in today’s dollars. (While the price tag says $100, it’s really costing you $570 because you could have invested that $100.)

       If you save $500, that’s an extra $14,780 by age 65—over $2,850 in today’s dollars.

       If you save $1,000, you’ll have an extra $29,550 by age 65—more than $5,725 in today’s dollars! (That $1,000 big screen TV is really costing you $5,725.)

       And we haven’t even figured in the cost of lost opportunities because you watched so many episodes of Lost…

The $64,000 Question

       If Dish Network, DirectTV, or Comcast told you that subscribing to their service would really cost you $64,000, would you do it? Even with the first month free, I just don’t see how it’s worth it.

       Add in the cost of purchasing a TV (and replacement TVs), the higher medical bills because you sat on your butt so much, and the other reasons you should stop watching TV and you’ll soon find that it’s just not worth it.

TV;        If you’re struggling to get by, TV should be one of the first things you cut. It’s a drain on your finances (a $64,000 drain!), wastes your time, and can get in the way of quality family time. Your time is better spent finding ways to increase your income, cut your expenses, and enjoy your life the way you want (instead of the way the TV tells you to enjoy it).

Disclaimer and Other Stuff

       Even though I know how much television costs, I have not given it up completely. However, I do watch a lot less than I used to and I’m amazed at how much more I can accomplish! Now I tend to only watch a couple shows on Discovery Channel. (I’m a science geek at heart.) I’ll watch in social situations as well, but overall I probably watch less than a couple hours a week on average.

       Not all TV is bad. Like I said, I like to watch Discovery Channel. Educational shows can be a good way to get some entertainment while expanding your mind at the same time. But most TV shows are an absolute waste of time—end of story.

       It seems like a strange question to ask, but it could be important to avoid paying unnecessary taxes or having the money squandered. You’re not required to own the life insurance policy that covers your life, and it may not be a good idea for you to own it. Why does it matter? Because depending on who owns the policy and who the beneficiary is, the insurance proceeds could end up in your estate (possibly incurring estate taxes) or the proceeds could be considered a gift (incurring gift taxes). Here are a few situations to consider:

If You’re Married…

       If your spouse is the beneficiary of your life insurance policy (and they’re still alive when you die), it’s not going to matter if you or your spouse owns the insurance policy. If you own the policy on your life and your spouse is the beneficiary, then the insurance proceeds will be considered part of your estate for tax purposes. However, you get an unlimited marital deduction, which means that you don’t have to pay estate taxes on anything that goes to your spouse. So in this case, it doesn’t really matter (as long as it’s owned by you or your spouse).

       If your spouse’s estate could end up over the estate tax exemption (currently, $3.5 million in 2009) because of the insurance proceeds plus other assets, you may want to consider an irrevocable trust to hold the insurance policy and the proceeds. But if that’s your situation, you should be talking to an attorney or financial planner and not getting free information on the Internet. Your situation is too complex for a do-it-yourself solution.

       For most of us (who don’t have assets plus insurance over $3.5 million) this will never be a problem. It doesn’t really matter if you or your spouse own the policy if your spouse is the beneficiary.

If You’re Single or Widowed…

       If you’re single, it’s generally best for the beneficiary of the policy to be the owner. If you own the policy on your life, then the proceeds will be included in your estate as a taxable asset. Now, if your estate won’t exceed the estate tax exemption (again, $3.5 million in 2009), this doesn’t really matter at all. You won’t owe any estate taxes anyway.

       This logic wouldn’t apply if the beneficiary is a minor because it’s more important to make sure the money will be handled properly. In that case, you’ll want to make the designated guardian the beneficiary and owner of the policy or use an irrevocable trust to own and be the beneficiary of the policy. The trust would then contain provisions for how the proceeds should be distributed to the minor or the minor’s guardian. If that’s your situation, you’ll need to meet with an estate attorney to get advice about your circumstances.

       Finally, you don’t want to have a situation where the owner, insured person, and beneficiary are all different people because of gift tax consequences. For example, if your dad owns the life insurance policy that covers you but your child is the beneficiary, when you die the IRS will consider the insurance proceeds a gift from your dad to your best friend. Your dad would then owe gift taxes on the insurance proceeds. This is not a good thing and these unnecessary taxes can be easily avoided. The solution in this case is to have the child be the owner and the beneficiary. If that child is a minor, read the above paragraph for advice.

       If you have questions about your specific situation, feel free to leave them in the comments and I’ll try to help. But if you have complex circumstances, you should probably meet with an estate attorney to get the help you need. Yes, it will cost money, but it’ll cost much less than a mistake would.

How to Buy Life Insurance

Corey —  October 28, 2009 — 3 Comments

If you’ve realized you need to buy life insurance and you’ve figured out what type of insurance you need and how much, your next step is to actually buy the insurance you need. With a few simple steps, you can make sure you buy the right policy for you without spending too much.

Gather Your Information

The first thing you should do before buying any kind of insurance is to make sure you really need it. Buying insurance you don’t actually need is a waste of money and should be avoided at all costs. When considering your need for life insurance, you need to ask yourself what will happen if you or your spouse dies. Would the survivor (you, your spouse, or your children) be able to manage without any insurance proceeds? If so, you don’t need insurance on that person.

If not, you need to ask yourself how much coverage you actually need. We’ve already looked at the issue of how much life insurance you need in a previous article. Make sure you’ve carefully determined this amount as it will be one of the main factors determining the cost of your insurance.

If you really do need life insurance and you’ve figured out how much coverage you’ll need, then you’ll need to decide if you need permanent life insurance or term life insurance. Most people will only need term life insurance. There are only a few reasons you might need permanent life insurance.

If a term policy is right for your situation, you need to choose a term length (10 years, 20 years, 30 years, etc.). How long you’ll need the coverage depends on the reason you’re buying the insurance. If it’s for income replacement, you’ll need the coverage until you would retire. If it’s to cover certain debts, you’ll only need coverage until those debts are paid off. The term length you choose will have a significant impact on the price of your insurance policy. But don’t try to save by choosing a shorter term than you really need.

While you’re shopping for insurance coverage, you’ll need some basic information about your health and financial situation. Have that information handy, and be prepared to undergo a medical examination before the insurance company will actually issue your policy.

Keep It Simple

When you go to purchase a life insurance policy, you’ll be bombarded with a variety of options (usually called “riders”) that you can add on to the basic policy. Your best bet is to stay away from these options. Generally, they are a bad deal for you but a great profit center for the insurance company.

For example, with a term policy you’re likely to be offered a “Return of Premium Rider”, which promises to return all the premiums you’ve paid into the policy if you keep it until the policy terminates (at the end of the term you’ve selected). However, you’re going to pay a higher premium for this “privilege”. If you were to instead invest that amount (the cost of this option), you’d end up better off in the long run even with a conservative investment portfolio.

The same goes for a “Waiver of Premium Rider”, which promises to cover the cost of your insurance if you should become disabled. You should not mix life insurance coverage with disability insurance coverage. Also, avoid the “Accidental Death Rider”, which usually doubles the amount of your life insurance proceeds if you die because of an accident. When you calculate your life insurance needs it doesn’t really matter how you die, you’re insuring the financial needs of your survivors because you died. How you died is not going to make a difference in calculating that need.

If you’re going for term insurance, you’re better off going with a basic, level premium term policy with no frills for a term length and coverage amount that will meet your needs. You’ll cover your other needs (like disability) with other insurance coverage specifically designed for that need.

Shopping for a Policy

You’ve figured out how much coverage you need, how long you’ll need it, and what kind of insurance policy you need (term or permanent). Armed with that information, you’re ready to start shopping around for insurance. You have a couple options here:

In Person or Over the Phone – You can shop for life insurance in person by going to or calling a life insurance agent or broker. The key issue here is the difference between an agent and a broker. An agent represents the life insurance company, and he is only bound by law to serve the best interests of the insurance company (not you). An agent may be a “captive” agent, which means they only work for one insurance company, or they may be an “independent” agent, which means they work for more than one insurance company. Either way, they are working directly for the insurance company as the company’s representative and they have no legal duty to serve your best interest. Agents can only get quotes from the insurance companies they work for, which means you might not get the most competitive rates.

On the other hand, a broker represents you and is bound by law to keep your best interests in mind at all times. Insurance brokers are working directly for you and do not work for the insurance company. They may provide you with quotes from any number of insurance companies, which helps you find the best rates available. They are also required to clearly disclose their compensation for selling you a policy. It should be clear that I would strongly recommend working with a broker whenever possible. Ask your family, friends, or a trusted advisor (accountant, lawyer, or financial planner) for a recommendation of a good insurance broker. If you can’t get a recommendation, search for insurance brokers in your phone book or online and meet with several to find someone you trust. Generally, these brokers will be able to help you with other insurance policies as well (auto, homeowner’s, disability, etc.) so you’ll want to get someone you can enjoy working with and believe to be trustworthy.

Online – The Internet has made it very easy to get insurance quotes with little hassle or time. There are a wide variety of online insurance quote services available, which is obvious with a simple search. Insure.com is one of the best sites to get life insurance quotes as they ask you pertinent questions and outline the requirements you’ll need to meet to qualify for the policy quotes they provide. If you have a complicated situation or want to talk to someone in person, you can try Accuquote.com or call them at 1-800-442-9899.

Get Multiple Quotes

You may be tempted to get the first Cheap Term Life Insurance plan out there, but make sure to do your homework. Regardless of the method you choose, be sure to get multiple quotes. Also, keep in mind that if you’re married the best deal might involve using separate insurance companies for you and your spouse. These warnings are especially important if you choose to use a life insurance agent because they will be limited in how many companies they can get quotes from. This is an important decision, so make sure you give it the time and consideration it deserves.

Questions?

If you have any questions, feel free to leave them in the comments. I always do my best to answer readers as soon as possible. Thanks!

Show Me in the Scriptures…

Corey —  October 27, 2009 — Leave a comment

       A reader recently left a comment on my post discussing how much you should have in your emergency fund. Frank said:

Could you please show me in Scripture where it says believers are to have an emergency fund?

Thank you.

       I responded to Frank’s question in the comments, but I think this is an important enough issue to address in its own post.

       Not all personal finance advice can be backed up with a specific quote from Scripture. Does that mean it is bad or unchristian? Not in the least. If the advice follows the pattern of teaching and wisdom in the Bible, it can still be considered good advice for Christians despite the lack of a specific Biblical reference.

       For example, is there a specific Bible verse telling you that you should create a will? No. But it’s still a wise thing to do. Is there a specific Bible verse that tells us to update our résumés? Again, the answer is no, but that doesn’t change the validity of the advice.

       This concept doesn’t apply just to personal finance. Is there a Bible verse telling us to buckle our seat belts? Nope. But does that mean you’re trusting your seat belt more than God if you buckle it? What about looking both ways before you cross the street? Do you lack faith because you do this?

       The problem with applying the “show me in the Scriptures” test is that there is not specific advice for every single situation we will encounter in life. There are guiding principles and values that, along with God’s Holy Spirit, will help us discern the wise choices. But you’re not going to find Bible verses telling you to brush your teeth, stop eating at McDonald’s, or to take advantage of an HSA if you’re eligible.

       Scripture does contain many verses teaching us the importance of wisdom in handling our affairs. Here are a couple examples:

       The simple believes everything, but the prudent gives thought to his steps.

Proverbs 14:15 (WEB)

       The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.

Proverbs 21:5 (WEB)

       Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.

Proverbs 21:20 (WEB)

       The prudent sees danger and hides himself, but the simple go on and suffer for it.

Proverbs 22:3 (WEB)

       In fact, the entire book of Proverbs points to the importance of wisdom and its place in the life of those who follow God. But what about all the times Jesus told us not to store up treasures on earth? Or when He taught us not to worry about what we’ll eat and drink and wear?

       Tell me, what did Christ mean when He said do not worry or be anxious? What does it mean to worry or be anxious? Those words mean to be distressed, uneasy, and tormented with care about something (material things in this case). Christ’s solution was for us to “seek first the Kingdom of God”. Instead of being worried about how we’ll meet our material needs, we should be worried about how we’ll meet our spiritual needs – how will we serve God and draw closer to Him.

       You can be worried and anxious about material things whether or not you wisely plan ahead. I can have an emergency fund and still be worried about material things. I can not have one and still be worried about material things. Even if I have an emergency fund, I can stop worrying either because I have that money saved or because I trust in God’s provision. That brings us to the other main teaching of Christ about money.

       When Jesus taught about storing up treasures and serving Money what did He mean? What does it mean to be wealthy or rich or to have treasure? All those words denote an abundance, which means having much more than what is sufficient or needed. Jesus’ warnings about wealth were not to tell us that we should never use money appropriately to meet our needs. Jesus warned us instead of the danger in accumulating more than what we really need. He told us not to become consumed with money and wealth.

       There is a vast difference between being consumed with accumulating an abundance of wealth and planning wisely to have enough to meet our needs. In the same way, there is a huge difference between being occupied with worry and prudently foreseeing needs and dangers and preparing to face those situations. These two teachings that Jesus gave us are so often stretched to mean that we should never save anything at all for the future because that demonstrates a lack of faith. The truth is that Jesus taught us to:

  1. Give God and His Ways priority in our thoughts and lives.
  2.        

  3. Avoid storing up more money than we will need. (That is, not to let becoming rich be our priority in life.)

       Proverbs commends wisdom and many New Testament verses speak to the importance of providing for your own family. We are not taught to make ourselves a burden to others when it is within our power to care for ourselves. Instead, we are taught that if there are any among us who cannot provide for themselves it is our responsibility as fellow Christians to care and provide for those people. Jesus’ teachings combined with the rest of Scripture in no way preclude us from saving for the future, using insurance, or utilizing money in any other wise manner. What is forbidden is making Money our god – giving priority to accumulating more money than we really need instead of serving God.

       The real issue then becomes finding contentment in Christ and determining our true needs. The danger we face is allowing the world to dictate our needs and success (a bigger house, a fancy car, expensive clothes, etc.) instead of learning to live on enough (our daily bread). That is the bigger issue here and the battle all of us Christians face. Once we have submitted to God in our discontentment and covetousness, we will be able to make Money serve us and God’s Kingdom instead of allowing it to be our master. But these are all topics worthy of their own discussion (contentment, defining needs, and avoiding covetousness).

       Please share your thoughts on this topic in the comments. I’m looking forward to hearing from all of you!

       Do you want to eat healthier but you’re afraid it will be too expensive? I have three easy recipes you can combine to make a wholesome meal for less than $1 per serving. And it doesn’t taste like cardboard, either!

       These recipes come from the More-With-Less Cookbook, a collection of Mennonite recipes with a focus on affordable but nutritious meals. It’s also focused on moving away from processed foods and wisely using the world’s resources. I highly recommend you buy a copy if you don’t already have one. It’s a very affordable cookbook ($12.15 on Amazon) and a great value!

Middle Eastern Lentil Soup

Combine in soup kettle:

1 cup lentils
4 cups water
1/2 teaspoon cumin

Cook until the lentils are soft (about 30 minutes), adding water if needed to maintain a soup consistency.

Heat in skillet:

1 tablespoon olive oil

Add and sauté just until yellow:

1 onion, chopped
1 clove garlic, minced

Blend in:

1 tablespoon flour

Cook for a few minutes. Then add the sautéed ingredients to lentils and bring to a boil. After the soup boils, remove from the heat and stir in:

2 tablespoons lemon juice
salt and pepper to taste

Tomato Chutney

Combine in a bowl:

2 cups chopped fresh or canned tomatoes (about two medium tomatoes)
1 medium onion, chopped
3 tablespoons lemon juice
2 tablespoons vinegar
1 tablespoon sugar
salt and pepper to taste

Garnish with fresh cilantro, if available.

Rice

I hope you already know how to make steamed rice… :)

Fix up about 5-6 servings (1 1/4 to 1 1/2 cups dry rice).

The Meal

       Serve the Middle Eastern Lentil Soup over rice and top with the Tomato Chutney. This should make about 5-6 servings. Total cost per serving? $0.80! (Assuming you drink water, of course.) You could probably add a vegetable for an additional $0.20-0.30 per serving (or less if you use fresh veggies or grow them yourself). You can easily prepare and cook this meal in about 40 minutes. (Rice is easy, and you can fix the chutney while the lentils are boiling.)

The Nutrition

       Lentils are one of the healthiest foods you can eat. They’re high in fiber, folate, molybdenum, manganese, iron, and vitamins B1 and B6. They’ve also been shown to reduce the risk of heart disease. Serving lentils with rice ensures that you get the complementary proteins you need to match the complete proteins available in meats. The lack of meat, however, means that this meal is very low in cholesterol.

Eating Healthy for Less

       I plan to share additional recipes that will provide you with healthy meals at an affordable price. While this isn’t a cooking blog, it is about saving money. Saving money on your food bill shouldn’t come at the expense of your health. These types of recipes help you save money and eat healthier. In general, if you want to eat healthier and save money, follow these tips (from the More-With-Less Cookbook):

   Eat More:

  • Whole Grains- rice, wheat, barley, rye, oats, corn, and millet
  • Legumes – dried beans, soybeans, dried peas, lentils, peanuts
  • Vegetables and Fruits – inexpensive, locally grown, in season or homegrown and preserved
  • Nuts and Seeds – inexpensive, locally grown or homegrown

   Use Carefully:

  • Eggs
  • Milk, Cheese, Yogurt
  • Seafood
  • Poultry
  • Meats

   Avoid:

  • Processed and Convenience Foods
  • Foods Shipped Long Distances
  • Foods Heavy in Refined Sugars and Saturated Fats

Fresh tomato sauce by merci on Flickr       I stopped by the grocery store one day while I was in town. I needed to pick up some milk and a few other things. I wanted to get some more tomato sauce to keep my supply well-stocked since I just used some in a recipe for Beef Curry a week earlier.

       I generally go straight for the generic brand (Shurfine in this area), but there were a couple sales on the bigger cans of tomato sauce. The sale wasn’t on a well-known name brand, but it wasn’t a store or generic brand either. This 29 ounce can of tomato sauce was “on sale” for $1.50. The generic brand (Shurfine) 29 ounce can was $1.19. Not much of a sale if you ask me.

       I was about to grab the big can of generic brand tomato sauce when I saw the smaller cans on the shelf above. These cans were 15 ounces and they cost $0.59 each. Quick math tells you the small cans are a better deal. I can get two small cans (30 ounces) for a total of $1.18, or I can get one big can (29 ounces) for $1.19. So I can choose to pay 3.9¢/ounce or 4.1¢/ounce for the same product. Which size do you think I bought?

       Now, it might not seem like a big deal, and in this case it wasn’t really. (OK, I only saved a penny!) But if you watch for this kind of thing over the course of your entire grocery trip, you can save quite a bit of money. Do it every time you shop for groceries and you can significantly reduce your food bill for the year.

       So don’t grab the bigger can, carton, bag, or box because you think it’s a better value. Check the numbers first. It really doesn’t take long if you have a calculator (and most of us do if we carry a cell phone). And don’t automatically grab the smaller size either. It can pay to buy in bulk and store what you don’t need. Just make sure it really is a good deal before you throw it in your cart.

Frugal Tip: Check the price per unit to decide between buying in bulk or buying a smaller size.

       To find the price per unit, divide the total price by the total number of units for the item you’re considering. In the case above, I divided 118¢ by 30 ounces to get 3.9¢/ounce on the smaller cans. Remember: total price / total units = price per unit

       Life insurance is a no-brainer for families where both the husband and wife work outside of the home. But single-income families often neglect the value of all the work the stay-at-home spouse accomplishes every day. If the stay-at-home spouse passes away, how will the surviving spouse keep his or her job and accomplish all the things their spouse used to do? That’s why life insurance for a stay-at-home spouse can be a very important part of your financial plan.

How Much Insurance?

       To figure out how much insurance you need, you have to know how much income you need to replace. But what’s the value of the work a stay-at-home spouse does? This will largely depend on your personal situation. If you have children, the value of a stay-at-home spouse is going to be much higher than it would be for a family without children. Considering all the cooking, errands, child care, laundry, cleaning, and various other things a stay-at-home spouse can accomplish, you should consider the value of that spouse’s work as equivalent to a full-time job.

       Many life insurance companies will provide coverage for the stay-at-home spouse equal to the working spouse’s coverage up to $1,000,000. If you have children, it makes sense to purchase the same amount of insurance for both spouses. This way the surviving spouse could choose to stay at home and take care of the children and housework without having to worry about income. If you don’t have children, you may not need to purchase quite as much insurance for the stay-at-home spouse – but you’ll have to decide how much you would need if the stay-at-home spouse dies.

       I don’t agree with the calculations that say a stay-at-home spouse is worth $120,000 or more per year. As I mentioned before, the working spouse could choose to stay at home or work less after his spouse’s death. Yes, it would take adjusting to a new situation and learning new skills, but good luck finding a life insurance company that will give you a $2,400,000 policy on a stay-at-home mom or dad.

Don’t Forget Your Stay-at-Home Spouse in Your Insurance Planning

       When you’re determining how much insurance you need, don’t forget to consider insurance coverage for your stay-at-home spouse. There’s true value to all the work a stay-at-home spouse does every day, and trying to juggle a full-time job plus all the extra work your spouse did will amplify the stress of dealing with your spouse’s death. Don’t neglect the importance of life insurance coverage on your spouse even if they don’t get paid for all the work they do.