Welcome to living beyond your means . . . without debt

I grew up working class poor. My parents were immigrants from Hungary and worked their tails off. However, not having grown up in this country, they often overpaid when making significant purchases. For people who made very little money, overpaying was a really big deal. As the son who first observed, then learned and finally taught- it was a stunning realization that there are ways to get more for less! Getting what you want for less is like getting a raise! It is like staying at the Ritz and paying for a Holiday Inn (more on that later)! It is like paying for a Chevy and driving a Mercedes (more on that later)!

A little about me. I'm a money guy. I having my B.S. in accounting and an MBA in finance and corporate strategy. I've been the CFO and COO of public and private companies as well as the Managing Director of a turnaround consulting firm. Essentially, people hire me to, on a corporate level, figure out how to maximize assets, create strategies and how to stretch that scarcest of corporate assets . . . cash (every company I have ever been associated with is short cash). I'm the guy who develops Fortune 500 strategies on start-up budgets. So you can say, figuring out the how to get more from less is what I do (though strategy is my real talent).

My goal is to share some of my insights with you.

Lesson #1- Life Insurance

This might be a boring lesson to start (I told you, I was a finance guy not a marketer!), but life insurance is very important and something that most people pay 3x to 10x more than they should pay.

1) Simply put, if you have kids and aren't rich, you need life insurance. If you die, you shouldn't condemn your spouse of kids to a crummy life. It is bad enough losing a parent, but to deal with that and losing the house, the car, the school district, etc. can be devestating. Life insurance, if bought correctly, is not that expensive and should be part of everyone's portfolio.

2) A good rule of thumb is about 10x your income ($1 million for a limit). We can argue about amounts, but 10x is not unreasonable to pay for and will significantly assist your loved ones. It is also fairly easy to buy.

3) Term life only. This is where most people go wrong. Life insurance is one of those things that isn't bought as much as sold. Think about that. The guy who is selling is primarily movitated by commission. Commissions are huge on whole life, they are small on term life. But, I can hear someone saying, "you get a cash benefit with whole life ". Yes, but only because you over paid to begin with. There is a simple saying to keep in mind, "buy term and invest the difference". Boom, easy, end of story.

4) Don't buy term from a salesperson. I remember when I was 28, somebody was "nice" enough to introduce my to a Northwest Mutual agent. He "sold" my a one year, $100,000 term policy (because I was smart enough to know not to be suckered into whole life) for $420. What a deal, right? Wrong. The premium was a rip off. The salemen was getting rich on his commission. Today I have a $1 million, 10 year level premium (the premium stays the same for 10 years) for which I pay $275 per year (I am in my 40's now). So, I'm getting 10x the coverage I did over 10 years ago for about 30% less!

5) Buy your insurance online, from a broker such as insure.com (I've bought from them and no, I don't get anything for recommending them). The online brokers don't have salesmen to pay. They don't have big TV commercials to subsidize. They don't only sell one product. They have a low cost structure. They maket policies from most carriers so you can pick the one you want; cheapest is generally best, though it always makes sense to check the carrier's financial strength (the online broker usually provides this information). An online broker, like a salesman broker will arrange for an independent company to visit you and give you a simple exam (blood pressure, pulse, blood sample, height, weight, etc.). There is no cost to apply for a policy.

5a) Associations are good placed to buy life insurance if your health is not the best. Because there is one rate structure, and generally a yes/no answer the rates are higher, but association policies may offer may latitude in who is accepted. I'd still start with the online broker. These is no cost to apply for a policy.

6) Buy term life. Term life keeps your rate flat during the term of the policy (e.g. 10 year term keeps the premium the same for 10 years). Unless you are worried about your health declining, it is usually best to buy 10 year term. After 10 years, you can always get another 10 year policy (though prices increase as you age). If you want to lock in, a 20 year policy is a good choice for a new parent.

7) Don't buy life insurance from your employer unless you are in poor health and/or old. Employer-sponsored plans are universally poor. They typically are very expensive. You may get some free insurance- OK. But don't buy more here. The policy is could be as much as 50x more than a policy from an online broker (especially if you are not older and not in poor health).

8) Keep your policy information with your important papers. Don't keep your policy a secret. The last thing you'd want is to pay for the policy and not have the benefits available to your loved ones.

9) Life insurance is tax free.

10) Life insurance is priced based on age and health. If you smoke, you will pay more. If you are a bad driver, you will pay more. If you are in poor health, you will pay more. None of these are reasons not to get life insurance.

11) One of the best reasons to have life insurance is piece of mind. Chances are, you'll never use it, but it will make you (and your spouse) feel better.

12) Stop your life insurance once the kids graduate.

We will do something more "interesting" next time. Until then remember, "you can live beyond your means without debt!"

Tony