Insurance, Investments, & Retirement

This question comes up every now and than so I thought I’d address it right now. First we’ll talk about insurance. There are various opinions on insurance and what the proper coverage should be.

It’s my belief that you should insure for catastrophe. If you insure for every possible loss you could find yourself cash poor and over insured. On the other hand, if you insure for catastrophe you’ll be covered for the big things. For example, if you lost your car today could you recover financially?

Catastrophe insurance allows for you to survive the big stuff while not sweating the small stuff. One way to not sweat the small stuff is to raise your deductable. Raising your deductable is a great way to lower you insurance premium while covering yourself for the big losses. (All you have to do is to bank the deductable for the emergency)

Investments are real important after you pay off all your debt. Here’s a simple rule of thumb with investments. Let’s say you want a return of 7% and you can get it in a certain type of investment. If you still owe credit card debt odds are it will cost you more to keep the debt than to pay it off first. Once paid off than research a quality investment (credit cards average nearly 15% interest) for the return you’re looking for.

Pay off all your debt first it’s the best investment you’ll ever make.

Retirement is the biggest challenge yet. There are several variables to consider when saving for retirement such as investment return and inflation. First, many experts say you should have 70% plus of your annual salary for income when retired (your debt is the most important).

Here’s a simple formula. If you own everything you’ve got you will not need 70% of your annual salary to retire. Many folks discover they don’t need nearly as much money saved as they first thought for several reasons.

Take a sheet of paper and write down your mortgage payment, car payment, fixed debts, and credit card payments. Add all those monthly numbers and add 25% to the total (this allows for tax and it’s a rough guesstimate)

Let’s say your mortgage is $1200, car $350, and fixed debt $200, and credit card payments $175. 25% added to the total is $481.25. The total of $2,406.25 is how much you’d have to gross just to make your debt. Now, add your total living expenses.

If you own everything you have you’ll be able to live on your living expenses. It’s a big difference financially and the reason why you won’t need 70% of your annual salary to retire.

If nothing else all the above should be a lot of incentive to pay off your debt now.

David…