Outside Economics

Got Cash Flow?

Posted by Wendell Brock, MBA, ChFC on Fri, Sep 01, 2017

I have an uncle who, during his professional career, was a very well respected city manager. Periodically he would come and visit us in Los Angeles. On one such trip during my high school years, we all went to dinner and he told us about a developer in his community who was planning to build a shopping center of some sort. My uncle was really excited about this project because it looked like it was really going to happen, and would be a great addition to his community. 

He commented that he had seen many development projects come and go across his desk and they would get down the road a bit and the developer would pull the plug. Upon investigating the reason, he found the interest rate had changed a quarter or a half a percent and the project would no longer cash flow at the new rates.   

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That was the first time I remember learning about cash flow. I had known something about interest rates and how if you borrow money you are charged interest. I knew that if you put your money in the bank or owned bonds you earned interest. But cash flow was a different story. He went on to say in these projects “cash is king.”

At this time I had a job, I had been working for the Los Angeles Daily Journal running their dark room, developing film, and printing photos to be published in the news paper (great gig for a 16 year old). I had a bit of cash flow myself, but I never thought of my income as cash flow. And yet that is exactly what it is: Income = Cash Flow.

In financial planning, cash flow is key. It is the basis of all financial decisions. What is the total cash flow? How will this expenditure affect cash flow? Will this investment improve cash flow? Managing cash flow, for some families, can be incredibly difficult; it starts with the goal of self reliance.

Every dollar earned goes in some manner towards self-reliance, which is usually a goal most families have. In today’s world, a large part of that is earning an income. Self-reliance is the sum total of the ability to provide for the necessities of life for our family. 

Spending money always has an effect on our cash position. Unchecked spending will destroy a family’s hard earned resources. I have seen families destroyed because one spouse will not give up the unchecked spending, racking up debt in the process. In counseling with these couples, and helping them understand the difference between needs and wants, can be a challenge, especially when they are set in their ways. I maintain faith that a person can change. 

Needs vs. wants is a tricky thing, simply be cause people can alway justify their spending. After all that is what good marketing is about, “creating the need.” Marketers help us justify spending and perceived needs will always grow to whatever the income is, again justifying the spending. Every spendthrift clearly justifies their spending!

To get an understanding of the most basic needs, a starting place is to list all the places where money is spent, then prioritize that list based on the simple fact if they don’t have that item someone in the family will suffer physically (I realize physical suffering is extreme, but you have to start somewhere). While many people may think cable T.V. is a need, millions in the world get along just fine without it, food and water on the other hand are essential. 

Growing a stable cash flow or improving cash flow is important to the family’s self reliance. As people manage the cash flow for asset growth, self reliance becomes more of a reality. Putting some money aside on a weekly or monthly basis from cash flow is critical to becoming self reliant. The only money that will be in the future is what is sent on ahead. 

One of my financial planning professors use to say, there are only two things you can do with cash flow, to make things balance, increase income or decrease spending. Decreasing spending only works to a certain point, at some point cash flow or income must be increased. To the extent a person can increase or maintain a decent cash flow and keep spending in check they can enjoy the blessings of self reliance.     

Self reliance does not only come to people of great wealth, it comes to people of all income strata; the basic level is simply to live on less than the cash flow that comes in. Diverting some of that cash flow as it comes, into some sort of savings vehicle is how to start becoming self reliant and properly managing income. It is true what George S. Clason said in his world famous book, The Richest Man in Babylon, “part of all I earn is mine to keep.” This is great advice - always keep some of what you work so hard to earn!

 

REMEMBER:  "Nowadays peopel know the price of everythinga and the value of nothing." Oscar Wilde

Topics: Interest Rates, cash flow

Homeowners Insurance - So What's The Big Deal!

Posted by Wendell Brock, MBA, ChFC on Fri, Aug 04, 2017

Homeowners insurance can be very confusing - let’s be honest how many of you have actually read your policy and know its limits, etc.? That's what I thought, not many! After all we only have it because it is required by the mortgage lender and we are confident that, just like life insurance, it will never happen to us, so we would skip it and save the money - right? Even though for many Americans their home is their second most important asset (You can ask me later what the first most important asset is).

If life insurance is any indicator then a full forty percent of the homes would not be insured, simply because that is how many people run around with out life insurance. But I digress, back to the subject of homeowners insurance.

maxresdefault.jpgYears ago I bought a rental house with my older brother and his wife. Yes the three of us were business partners, imagine going into business with a family member! I owned half and they owned the other half. Well we all remained great friends and kept our family relationship in top order - while the partnership ended 20 years ago when we sold the house, I would do it all over again with them, they were the best business partners I could have had at that young age. 

We had a tenant whose 12 year old son was caught playing with matches - unfortunately he was caught after the house caught fire and burned down! They lost everything they owned (they did not have renters insurance) we lost a house. So I know first hand about a house fire and the importance of maintaining the proper insurance.

There are two general types of property coverage for residential real estate: dwelling and homeowners policies. 

Dwelling policies are more limited in their scope of coverage, the policy is more basic for the property and most things are added via a “rider” to the policy. Perhaps you could say it is an alls-carte - you can pick and choose what you may need. Often they are used to cover rental houses or vacation homes.

A homeowner policy is more of a package of coverages for the owner of the property. It will typically have the broadest coverages. These policies have two parts: 1. the property coverage, insuring the home and contents, and 2. providing liability coverage, should there be a problem, where the owner is liable for something occurring on the property or through some sort of bad act by the property owner or an immediate family member for which he/she may be responsible.

Having the proper amount of insurance coverage is key. This can be tricky with home values changing on a regular basis. However, you should have the value of the home evaluated on a regular basis.

Here is the rule:

In order to have your home properly insured the insurance property coverage must equal a minimum of 80 percent of the replacement cost of the home. The home’s market value is a pretty good estimate of this figure as replacement cost is one of the factors that contributes to a home’s market value. 

People often ask, why 80 percent and not 100 percent? The reason is that traditionally, 20 percent of the home’s value is placed in the value of the land upon which the home sits. If the home is damaged generally speaking the land is not and a new home can be rebuilt in its place, making the land a consistent value of the overall property.

Here is the formula for replacing a damaged home:

(Insurance carried/Insurance required) x amount of loss = amount of reimbursement

This is how it works in real life, a homeowner experiences a $100,000 loss on their home worth $300,000. 80 percent of $300,000 is $240,000, this is the amount of coverage a homeowner should carry. Now lets put this into the formula:

(240,000/240,000) x $100,000 = $100,000 In this case the homeowner would be reimbursed the full amount of the loss.

Here is another example, in this case the same homeowner had not updated their policy in several years, which let the policy fall behind the value of their home, they did not maintain the 80%. The coverage they carried was based on a home value ten years ago when they purchased the home at $200,000, required coverage at that time was only $160,000.

($160,000/$240,000) x $100,000 = $66,667, this is what the homeowner would receive for their $100,000 loss. The balance they would have to come out of pocket to complete the required repairs. 

Falling behind on the insurance can be a real problem in high inflationary times because values can increase rapidly

As a side note, neither of these examples takes into account the deductible, that amount would be deducted from the amount of the reimbursement to get the final reimbursement amount. A homeowners policy may have different deductibles for different types of losses, so it is wise to keep track of that deductible amount. This is where a good savings plan is helpful to have the funds at the ready for such a need.

Many people go through life never experiencing such a loss to their home or property, however that does not mean that you should not be covered. This is something that you don’t want to “self insure”, maintain adequate coverage because if and when something happens, you will be glad you did. Pull out your homeowners policy and review it. Make sure the coverages work for your personal situation. If it is lacking in any area call the agent and get it updated or call me and I can walk you through each of the issues.

 

REMEMBER:

Regarding Hot Tips: "Assume you are always the last to know." ~ Charles Kirk

Topics: homeowners insurance

What's Up With AARP and Long Term Care Study?

Posted by Wendell Brock, MBA, ChFC on Fri, Jun 30, 2017

This week an article I saw caught my eye…every three years AARP conducts and publishes a scorecard on how each state performs with regard to caring for our elderly, primarily centered around long-term services and support, basically long-term care. There were five main areas of focus for the study, Affordability and Access, Choice of Setting and Provider, Quality of Life and Quality of Care, Support for Family Caregivers, and Effective Transitions. Now people may say what does this have to do with me? I am working, I have a family, and saving for retirement, I am not interested in long-term services for the elderly.

That may be the case, but if you are on the earth and living, then you have parents who may still be living, and at some point you will have to assist them. Or you are older and you can see the top of the mountain you have been climbing for the past 30 plus years and retirement is getting closer; perhaps you need to stop for a moment on the journey and rearrange the gear in your pack, pickup a few tools to make the decent down the mountain much easier and more secure.  Either way this is for you.

Here are some highlights on this interesting article that are important for us to learn.1497018516323_2484036_1497017731134.jpg

Most states saw some improvement in fact more improved than declined. Few had meaningful improvement over 10 percent in any one category. The study reported: "Most notably, the majority of the states had no meaningful change in each of the five measures in the Affordability and Access dimension. The cost of Long-term Services and Support (LTSS) over time remains much higher than what middle-income families can afford, and most adults do not have private long-term care insurance."                                     Source: State Long-Term Services and Supports Scorecard, 2017.

It was interesting to see that there was no improvement in the vast population of this country in regards to people becoming more prepared for their future by purchasing Long-term Care Insurance.

One area where there was significant improvement was in the area of Family-Centered Care. Family caregivers provide the majority of care for the elderly and recognizing their needs is a positive signal. The article discussed the success measured across the following three main areas:

  • Family caregivers are assessed for their own needs;
  • States have adopted spousal impoverishment provisions in Medicaid home and community-based services; and
  • States have enacted the Caregiver Advise, Record, and Enable (CARE) Act to notify the family caregiver before the person is discharged from the hospital and to instruct the caregiver on how to perform follow-up medical/nursing tasks."

Families that care for their parents are true angels and it can be so difficult for them, many work and have children at home complicating matters more. Receiving some support in the form of education and understanding of what needs to be done to take care of your partents is huge.

One area where improvement was not so dramatic was in Effective Transitions. Effective Transitions is the process of moving a person from a hospital to a nursing care facility to recuperate and then back into their community. The aim is to help people who have been in nursing homes 90 or more days to transition back into the community. Only a few states saw improvement in this area.

The benefit of this is that people are really more comfortable in their own surroundings, in their own home, which is where they should be. The challenge is that only about 5 percent of people  on average who have been in a nursing home greater than 90 days transition back home. Receiving care at home is less expensive as well - saving retirees thousands of dollars.

The bottom line is that state law, best practices and the way people are cared for are changing. If people want to be cared for in their advanced age, it is best to make a plans now, if your parents are retired or over age 50, talk to them about their plans. The government has a plan for you - you will be cared for in one way or another, it may not be a the way you would like, but you will get care! Let your family members know what your plans are and make your wishes known (in writing). Helping those closest to you understand what to do to help is one of the kindest things you can do. Nobody wants to improperly care for a parent or other family member.

Educate yourself on the ins and outs of Long-term Care, learn the differences between assisted living, home health care, and nursing home care. What are the long-term care triggers, and how do they work? Review your budget and look at how you would pay for the different levels of care. Part of your plan may include obtaining some long-term care insurance, make sure the premiums are guaranteed for life. It can be difficult to pay into a policy for several years only to get an unaffordable premium increase.

For more information on other long term articles you can look hereor here. To see how your state did in the AARP study you can look here. The report was well done and offered some real insights into the overall needs of one of our nation's most valuable resources, our seniors.

REMEMBER:

I wish my wallet came with FREE refills! ~ Anonymous

Topics: Long term care, Long term care insurance, Long-term Support and Services

If YOU Want to Be The Only YOU - Get ID Protection

Posted by Wendell Brock, MBA, ChFC on Fri, Jun 23, 2017

Financial planning is the wise use of your assets to make maximum use before and after tax dollar. As an advisor who consults people on financial planning topics, I am constantly looking for ideas and ways to help people use (and I would add “protect”) their assets wisely. 

With the advent of the internet connecting the mobile phones, personal computers, tablets, etc., communication and information has never been easier.This certainly presents many challenges as well.   Keeping information and identities safe is a constant growing problem.identity-theft-online-fraud.jpg

The following short report about cyber crimes caught my eye: 

Losses from cyber crimes rose 24% in 2016: FBI

Reuters 6/21/2017 - Thomas Reuters - Business Insurance

(Reuters) — Losses from cyber crimes rose 24% percent in 2016 to over $1.33 billion, according to a report by the Federal Bureau of Investigation's Internet Crime Complaint Center.

The center, which was set up in 2000 to receive complaints of internet crime, received 300,000 complaints during the year from hacking victims.

Businesses lost $360 million to cyber criminals, who tricked them into wiring money using fraudulent emails that appeared to be from corporate executives and suppliers, according to the report released on Wednesday.

IC3 said it received 2,673 complaints last year from victims of ransomware, with losses totaling over $2.4 million.

In May, the WannaCry ransomware attack infected 300,000 computers in more than 150 countries, disrupting factories, hospitals, shops and schools.

Ransomware is a form of malware that encrypts data on infected machines, then typically asks users to pay ransoms in hard-to-trace digital currencies to get an electronic key so they can retrieve their data.

While consulting on a de novo bank we were starting in Illinois, the banker and I were visiting about bank crime and he mentioned that what will be the biggest problem is “Identity Theft” he said that the average bank robber may only get away with approximately $3,500, while the average identity theft case gets away with just over $17,000. He then mentioned, I don’t know why anyone would want to rob a bank - you get the FBI after you and a lot of prison time; while ID theft is a local matter, so no FBI and the local police are so overwhelmed that they don’t know how or can’t follow up on the crime. Consequently ID theft and cyber crimes go largely unsolved. (Please note I am not suggesting people join in becoming cyber criminals.)

The robbery is not just of money, it is perhaps more importantly your time.

The Federal Trade Commission, FTC, reports that on average, recovery from ID Theft can take 200 hours of work and up to six months. They have some good information and more tips on their website. That is a lot of time and effort to restore your good name, which means it will take a person almost eight hours per week of work for six months - who has an extra eight hours per week? And yet people are forced to spend the time to clear things up.

In an effort to help protect my clients more from such a horrible crime as ID Theft, I have started recommending people have some sort of ID Theft protection. As more criminals move to cyber space, I am sure it will get worse before it gets better. And whatever better is, it will take time to develop and deploy, in the meantime protect yourself.

For more information about protecting the only YOU click here. This will take you to ID Shield one of the premier companies that protect your Identity. As a point of disclosure I did sign up to represent ID Shield, simply because I believe in their valuable service.

REMEMBER:

"For me life is continuously being hungry." ~ Arnold Schwarzenegger 

Topics: Financial planning, Identity Theft, ID Theft

Six Tips To Becoming Self Reliant

Posted by Wendell Brock, MBA, ChFC on Fri, Jun 09, 2017

Recently I was in a meeting and the thought occurred to me; why do people even attempt to have a financial plan? What is the purpose of having a financial plan? Why take the time to create a financial plan and put forth the effort to implement it and follow through with it? The answer to these questions may sound obvious, but as I have studied financial planning and worked in the financial industry for the past 30 years, I have concluded that people have an innate desire to be self-reliant. However being self-reliant is a learned trait while we may have the innate desire, we have to act on it, and learn self-reliance.

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What does it mean to be self-reliant? According to Dictionary.com, the adjective originated around 1826 and means, “relying on oneself or on one’s own powers, resources, etc.” Another definition, one that is a little broader is this: The ability, commitment, and effort to provide for the spiritual and temporal necessities of life for self and family. Both definitions explain the necessity to provide for one’s self.

The second definition is more comprehensive. My thinking is; how can you be self-reliant if you are not mentally or spiritually in the game? Can someone provide for self and others without that inner strength that comes from being mentally or spiritually prepared? I believe that self-reliance is more than just a good job and a fat bank/retirement account(s).

Self-reliant people not only have a good source of income, they have money in the bank, investments, as a friend of mine would add some food storage, debt free, and they are spiritually and mentally able to care for their own. This is a challenge in todays world where people are pulled in every direction, often wasting time and money. In some cases, children don’t have a complete understanding of what it took to earn the money they are now spending. 

With the challenges of providing for one’s self and family, may I submit that it would also include the necessity to continue to learn and improve one’s self. Consistently learning and integrating new concepts of truth, would help a person accomplish a goal of self-reliance. For example read good books, work with a mentor, be a mentor, help someone else reach their goals.

How does someone become self-reliant? Here are six ideas that will help you become more self-reliant:

  1. Pay yourself first: Take some money out of each pay check and send it to savings (savings accounts, retirement accounts, investment accounts). The discipline of saving money and living on less than one’s income is a critical part of self-reliance.
  2. Using a family budget: Using a budget is one of the basic principles of good money management. See more here
  3. Risk management: Risk management is taking care of the risks we are exposed to on a daily basis. There are four things that can be done with the risks: 
      1. Keep the risk yourself and personally pay for the things that may happen
      2. Control the risk through behavior
      3. Prevention - don’t engage in behavior/activity that would enhance the risk
      4. Transfer the risk through some means of insurance.
  4. Be prepared: Things happen in life that cause great pain or financial difficulty (loss of a job, divorce, death of a loved one, business reversal, etc.) These trials may cause us to stretch and grow in ways we never knew we could, so finding, and developing coping skills is critical (developing the mental/spiritual side of self-reliance).
  5. Daily improvement: Find something to do on a daily basis that will help you improve various aspects of your life. For example each morning, I spend time, praying, reading, writing in a journal, exercising, and meditating. 
  6. Become debt free: Debt is truly a bondage that never sleeps, never eats, is always your companion where ever you go; becoming debt free is a blessing of self-reliance. Get out of debt!

These steps towards complete self-reliance take time and work. Don’t be too hard on yourself if you are not self-reliant in the next year - keep working towards it. “Claim progress”, as my wife would say. Map these things out how you personally might implement them in your own families’ and measure your progress. And then realize that life happens and each of us can experience a reversal.

Reversals that can cause a person to be completely wiped out and they have to start over, some people go through life with no issues at all (at least not that we see), so be patient with people around you as we are all be on the road to self-reliance, we aren’t at the same level, or we may have just suffered a reversal.

Finally, remember that there is always hope; keep the embers of hope alive by working on the above six items in some manner, as part of your financial plan regularly measure and keep track of your efforts, and you will become self-reliant.

 

REMEMBER:

"Strive not to be a success, but to be of value." ~ Albert Einstein

Topics: Budget, self-reliance, self-reliant

Understanding the Amount of Life Insurance YOU Need

Posted by Wendell Brock, MBA, ChFC on Fri, Jun 02, 2017

The question is often asked how much life insurance do I really need? It is different for each person; however there are some basic formulas and a rule of thumb that help.

A rule of thumb is typically developed after going through so many iterations and calculations that the rule becomes a basic truth. Calculating the amount needed for life insurance is no different, as over the years many individual needs analysis have been calculated that a rule of thumb has been developed and it is quite accurate. That rule is basically 10-20 times a person’s annual income.Ins family.jpg

Now when this rule of thumb does not work, is if there is only one bread winner in the home and the stay at home spouse has little to no income. The stay at home spouse still has significant economic value to the family. Another case where the rule may not work is in the case of insuring children. (See article about insuring children here.) Children have great economic value in a family, and should a family lose a child, that is a grievous experience to go through. Receiving a death benefit, would provide the money so the family could take the time needed to grieve; while not necessarily needing to go back to work right away to pay the bills for a funeral. 

To get a more accurate amount of the life insurance to buy, a needs analysis is performed with a simple formula which helps zero in on the particular amount for one’s circumstances.

First, let’s review the purposes of life insurance, generally there are three major reasons for it: 

1. Financial care for loved ones in case of premature death 

2. Pay for final expenses of the decedent

3. Provide liquidity for the estate (business buy out, estate tax burden, complete a project, pay off a certain debt, assist with retirement income, provide a charitable gift.)

What it should not be used for is to profit from the death of a loved one. Also a person must have an insurable interest in the person they are placing the policy on. 

The formula for developing the needs analysis is basically Income needs for however many years, plus expenses that will need to be paid, minus current assets, including current life insurance policies. I like to print out a form and work the numbers by hand, simply because it makes the process more real. You can download a worksheet here

When I was a young adult my father passed away. He had a small life insurance policy, I am sure it was not much, simply because my parents could not afford much. But it was a great help to my mother when he did pass away. His policy did not pay for every little item we could have used or needed, but it did pay for several important cares of life, including his funeral expenses. I am the youngest in the family, and at the time of my father’s death I was in college, unmarried, and working part-time. My mother was a school teacher and getting closer to retirement. The value that small policy had on our entire family could not be calculated in simple financial terms, as it blessed our mother for years. Remember money is an emotional thing, its not just numbers. That peace of mind for my mother was incredible and I thank God for the agent who helped my father get the insurance. 

As you calculate your insurance needs don’t just look to the here and now, look off into the future as well. Needs can and will change over time. Many people these days find themselves raising grandchildren, thus putting them back in the position when they were young parents, affects their need for life insurance. 

These long-term needs should be covered with some permanent life insurance, while other short-term needs should be covered with term insurance. Often this can be - again a rule of thumb - approximately 20-40 percent of the total life insurance need. It is something that each person should consider and work with their agent to determine the proper amount in view of their long-term goals.

In the end, life happens and each person is left with needs and wants. We may not take care of all the wants, but each of us can make a serious dent in covering the needs with some form of life insurance - it is an inexpensive way to provide financial peace of mind for our loved ones.

 

REMEMBER:

"Gold is money, anything else is credit." ~ J.P. Morgan

Topics: life insurance, term insurance

Four Simple Steps to an Effective Budget

Posted by Wendell Brock, MBA, ChFC on Fri, May 26, 2017

We typically know how much we spend each month, but do we really know the details? Budgeting is the process of creating a physical plan for the uses of our monthly/annual cash flow. A budget therefore is a spending plan, it is the document that tells you and others how and where the money will go. While that is the basic concept there are several aspects of putting together and implementing a budget, namely finding the data, drafting an effective budget, agreeing to the budget, and using a budget. Budgeting is an essential building block to personal finance. I hope to bring about a positive mindset about using budget, so lets explore these items: 

Finding the Data

Right off the top this can be a task of self examination! I ask clients to go back through four months of check book statements and list and total where money was spent. Where people spend money tells a lot about what is important to them. The reason I ask for three months, some quarters may have a funny month of spending, it may require some extra data mining from another month or two in order to get enough accurate information. 

Don’t forget to list all the sources of income. Often the focus is solely on the spending, but listing income is important too. List bonuses, or second jobs, etc., an accurate income figure is especially important if it varies monthly due to commissions, overtime, or other factors. bigstock-Budget-Finance-Cash-Fund-Savin-95460770.jpg

When assembling this information determine the level of detail to categorize the spending. For example there are several items that I buy at a grocery store that are not actually “food”, but since I bought them there, I put them in the grocery category. I try to keep it simple, otherwise I could end up separating items on one receipt, calculate the proper tax, and then put them in their proper category.

Next arrange where the spending has been based on “Needs” vs “Wants”. This is really important as it helps to prioritize our spending. Maybe you value your entertainment budget, but most likely it’s not more important than your mortgage.

Drafting the Budget

Once the data is organized, it is easy to see where and how much money has been spent. This becomes our basis for drafting the budget. Make sure at the top of the budget is the line “Pay Myself First”. Successful budgeters realize that they don’t save what is left over, they save first and spend what is left over.

Add a bottom line figure of approximately ten percent of the spending part of the budget for “TIF” - Things I Forgot. We all forget items or things pop-up which need some attention. This is where those items go.

After subtracting the savings, spending, and TIF, from the income, the bottom line should equal a “0” - zero! This is called Zero Based Budgeting. If the figure is positive put more into savings, if it is negative, then look to the wants section for items which may be easier to live without. 

This is where each person needs to come to grips with the “needs vs. wants” in the family finances. Focus on the needs then prioritize the wants and make things stretch as far as possible. However, do not eliminate or cut into savings. Savings is not the float figure in the budget!

Agreeing to the Budget

Now that the budget is drafted, it has to be agreed upon. It is critical that spouses agree to the budget, particularly if this process is to be successful and effective. Both spouses must be “All In”; one can’t simply dip a toe, while the other dives in. I cannot emphasize this enough. It does not work well if one spouse works within the budget and the other spends what ever they want, after all they should be on the same team.

Because things change, spouses should have a monthly meeting about their budget items to review what was done the past month and what the plan is for the next month. This little meeting should be taken seriously, by calendaring and keeping the meeting time sacred - do everything possible to make it happen. Needed changes should be noted and agreed upon and then move forward. 

Using the Budget

The budget is a financial tool, a spending plan - where dollars are told what their job is and sent off to do that task, in an effort to accomplish certain goals. What a budget is not, is a form of punishment! A budget should free us from many financial decisions that may be thrown at us on a daily basis through various forms of media. A budget is a way of disciplining ourselves by keeping our needs and wants in check.

We all have wants, a new TV, automobile, vacation, etc.. A budget helps us get these items by structuring how and when we get them. It keeps us from impulse buying, by predetermining how and where we are going to spend our hard earned money. This means that all these wants, can be had in their proper time, when the money is saved to make such purchases. This is a category I call “save to spend”. My mother use to remind me as a young boy, “You can only spend it once!”

Let the budget work for you by developing the habit of using it. Make your monthly meetings effective, at times they may take only a few minutes to simply review and say, “no changes needed”. Good, move on and have fun. Other times the meeting may take a little more time due to larger up-coming changes as to where money needs to go. Once this begins to happen regularly, recognizable progress will come. 

Don't let the on-going meetings be the weakness that kills the process. Remember the meeting may only need to be ten minutes to review and discuss the next month. The habit and discipline of monthly meetings will be what greatly increases your success of sticking to your spending plan. Steven R. Covey said, “The power to make and keep commitments to ourselves is the essence of developing the basic habits of effectiveness.” Keep it simple, but make it happen. With a new mindset about the use of a budget, your financial effectiveness will increase by keeping the commitment to properly manage your cash flow. Effective money management buys you financial freedom.

For more information you can see this article: Budgeting 101 and you may download my FREE simple Effective Budget Spreadsheet here.

 

REMEMBER:

"Kindness is a language which the deaf can hear and the blind can see." ~ Mark Twain

Topics: Budget, budgeting, personal finances, financial freedom, Effective Money Management

Insider’s Clever Quotes From Wall Street

Posted by Wendell Brock, MBA, ChFC on Fri, May 19, 2017

“Nothing can make the spirit fly higher than finding a bargain when you’re the buyer. And nothing can make the spirit sink deeper than finding it later a whole lot cheaper.” Has been one of my favorite sayings over the years. A few years ago I submitted that saying to my friend, Mark Skousen who was writing a book, The Maxims of Wall Street. Maxims of Wall Street.jpg

I went a few months ago to listen to Mark speak at a conference and to my surprise he quoted this saying in his presentation; he told my he uses it in all his presentations now and always gets a good laugh! (It's very important for an economist to get a laugh!)

Mark is considered to be one of the top twenty economists in the country, and is frequently interviewed by various news outlets on economic issues. 

This book is full of whit and wisdom from many of Wall Street’s finest investors, some of our nations greatest thinkers, and many brokers is a fun read. Many of the sayings are very true and others are … clever old sayings.

Some sections include: How to Make a Million, Market Timing, Bargain Hunting, Contrary Investing, Only a fool holds out for top dollar, Risk and Reward, Leverage and Debt, Fear and Greed, you get the idea. If there was a Maxim on Wall Street it is in the book.

Allow me to entertain you with a few exerts from his book:

“A mariner does not become skilled by always sailing on a calm sea.” - Heber J. Grant

“The market does what it should do, but not always when.” - Jesse Livermore

“I am often in error, but seldom in doubt.” - Ira Cobleigh

“One of the most dangerous enemies to a trader is a magnetic personality.” - Edwin Lefevre

“A trend in motion stays in motion, until it stops.” - Jim Dines

“Don’t confuse brains with a bull market.” - Humphrey B. Neill

“If you are a long term investor, you will view a bear market as an opportunity to make money.” - John Templeton

“Haste makes waste.” - Ben Franklin

“You should give your kids enough money to do anything but not enough money to do nothing.” - Warren Buffett

“Bad news travels faster than good news.” - Poor Richard’s Almanac

Now that you have a feel for what is in the book - go get a copy! 

Wall Street and the entire financial industry has certainly produced some interesting characters over the years. I don’t recall promoting or reviewing a book before on my blog, so let me know what you think? Some maxims are true while others are false, which adds to the humor of this book. The maxims clearly provide a little insight into the person who said it. You can get a copy of Mark’s book by clicking here. It certainly is a fun read!

 

Remember:

"The worst thing that can happen to an investor is to make money on his first trade. He thinks investing is easy."

- Mark Skousen

Topics: Economists, Wall Street, Mark Skousen

Why On Earth, Would Someone Insure Their Children?

Posted by Wendell Brock, MBA, ChFC on Fri, May 12, 2017

Children are near and dear to most everyone’s heart. This week being Mother’s Day, I want to address the need for insuring our children - there I said it yes - the need to place life insurance on our children. Many will say that children do not need life insurance simply because they do not have an “economic value”, after all they are not a bread winner of a family. Perhaps there are some other reasons to insure your children (this also applies to grandparents insuring their grandchildren), lets explore a few.

WTB Brock Kids.jpgWhen I was in college I remember an employer, who had five incredible children, tell me that every child is born with a bank account. There is always a way to raise a child. Many years later I would have to agree. My wonderful wife and I are the parents of six children whom we love and are proud of. They bring more joy into our lives than we thought could be possible. We hope they live long healthy lives. 

One quick lesson on life insurance. Insurance in general is based on risk that a particular event will happen - in the case of life insurance, the risk event is death. Because it is anticipated that we will all live a long life, the older we get the more expensive life insurance costs. This is for two reasons: 

1. We are potentially closer to death so the risk of dying goes up dramatically. 

2. The death benefit is funded by the reserves of the insurance company, which are built by many people paying premiums to the company. Even if you lived to be age 100, a person 55 years old would have a shorter period of time to pay the premiums into the reserves than a ten year old, thus requiring more premium. There are other factors at work as well, but these are two basic reasons it is inexpensive to insure children.

As adults, we do all we can to protect our children. Unfortunately, after all we can do, death can still happen. Children die for many reasons or causes: illness, automobile accidents, drowning (according to the CDC, it’s still the number one cause of death in children ages 1-4), and acts of violence, to name a few. I believe when parents have children, they look forward to a brighter future, thinking that their children are going to grow up and do something great. As parents we visualize our children’s beautiful wedding, college graduation, having children of their own, as well as their successful career. Back to some reasons to insure children:

Life Lessons

One reason to place insurance on a child is to teach them some of life's financial lessons. Many of these lessons are best taught while young. Teaching children about money and its uses in life can be enhanced with the added lesson of life insurance, what it is for, how it is used and the simple fact that life is fragile and we have an obligation to protect it. Sometimes these lessons may include a long-term vision of life and the expenses we may inccur throughout our entire life, in other words some expenses never go away

Child’s health

Life insurance is issued based on a person’s health. People must be able to prove they are of a certain health standard in order to be offered a policy. Most children are born very healthy and yet over time in their youth they develop certain childhood diseases that may cause simple to dramatic health issues later in life. These health issues can prevent them from obtaining life insurance when they are older and are a “bread winner” of their family. Or they may be able to obtain life insurance but it is dramatically more expensive due to the extra health risks caused by the ongoing disease. The healthier a person is, the cheaper their life insurance will be.

For example, one disease many children get is diabetes. According to the CDC, by age 20, 4.3 million people are diagnosed with diabetes. Any one disease can cause a policy to be issued at less than a standard rating, which cause premiums to go up. Many illnesses prevent children from obtaining insurance at all, simply because their risk of death is now too great.

By obtaining a policy when a child is young and potentially at their healthiest point in their lives is a wise move. The premiums on a ten year old are much less expensive than a 30 year old young married mother or father. With the right policy the premiums will never increase for the rest of their lives, from age ten to 100. This insures that they will have at least some amount insurance when they are older.

Economic Value

While children are not the bread winners, they do have economic value. After all parents invest a lot of money in their children, all with the idea that they learn through their education and extracurricular activities to be successful someday. I am in no means suggesting that the insurance is a way to profit from the death of a child - that is completely sick and wrong. What I am suggesting is that children do have economic value.

Once I was visiting with a friend a church, who happened to be a mortician. His funeral home had recently handled the death of a child and he mentioned to me that the worse part of his business was seeing a family go into debt to pay for the death of a child. His answer to that problem was that he wished every parent had insurance on their children. 

For parents the birth of a child and the death a child are both expensive. While you hope the latter comes much later in life, unfortunately for many it does not and when parents are grieving their loss to add the expensive burden of a funeral, that only adds to the grief.

Other Reasons

Families often ask: How to save for college? One method is with a permanent policy that builds cash value, those funds can be used to help pay for college expenses. A friend has paid for all three of his daughter’s college education from the cash values of his children’s policies. In this way the family is using their dollars very efficiently - while building cash reserves, they are also providing protection for their children. For every premium dollar invested there are multiple benefits that can be achieved.

Here is an example of a range of rates, insuring a child age 5 can be as low as $395 per year for a $100,000 death benefit. A 15 year old is only $637 for the same benefit. 

While this is a sensitive subject to discuss, I wish all children well and pray they have the best in all they pursue. I hope this information offers greater understanding about the value of life insurance for children. Insuring children while they are young and healthy, teaching them about financial literacy, helping them realize they do and will contribute to society, and helping them prepare and save for their future are great reasons to get them insured now. Considering the above - I think the question is: Why on earth would someone NOT insure their children?

If you have any questions or you would like more information feel free to drop me a note. 

Remember:

"Little choices we make will be bundled together and show clearly what we value. Those choices will also show clearly what we are."  Boyd K. Packer

 

Topics: life insurance, Children, How to save, insure

Personal Finances and The Distractions of Life

Posted by Wendell Brock, MBA, ChFC on Fri, May 05, 2017

Years ago I use to teach seminars about personal finances and one thing we use to talk about was what I will call the distractions of life. We all live busy lives, some extremely busy, and so we end up living by the rule “if it ain’t broken don’t fix it”. Often we all create our own busyness and the level of “busy” is largely up to us. Yes we have work and family obligations, but we are in control of many of those obligations.

Yesterday I was visiting with a client, we belong to the same social club and he asked about the annual picnic being canceled, since I attend the board meetings he figured I would have some insight. I told him that there simply was not a Saturday in May that worked; too many other functions were already planned. After all May starts graduation season for college and high school, it has the Memorial Day Holiday, and you could also throw in the beginning of the wedding season. Who does not know of someone getting married during the months of May or  June?

As a result of our busy lives our personal finances get left to what ever benefits our employer offers and then we simply hope for the best with everything else. It has been said that the average family spends more time planning their annual vacation than their family finances. series of ocean-waves.jpg

The distractions of life seem to come in waves and they are timed just like the waves at the beach, some are larger than others, but they come regularly and timely. Here are some examples:

We start every new year working to get caught up from the holidays, then it is Valentines Day, the world tells us we have to do something really special for our sweetheart and we respond. If we know what's good for us we'd better!

Next is Easter and Tax season, so we say to ourselves and others “I will attend to my personal finances after I finish my taxes.” So lets meet after tax season is over. Tax season ends and…

It is graduation/wedding season and my child is graduating from high school and my nieces best friend is getting married, so out goes May and June - just too busy. Lets meet in July…

Well July comes and we have again the wonderful holiday we call the 4th, Independence Day! (Wouldn’t it be wonderful to be truly financially independent on Independence Day?) And it is also vacation season, with August on its tail. Things will settle down after we return from vacation and we will have time to work on our finances…

Here we are at the end of August and into September back from vacation, but life is so crazy with trying to get the kids settled back in school and the Labor Day holiday, we just can’t find time to visit… 

Then October starts and it is the beginning of the fourth quarter, work gets demanding simply because we have to make a strong push for the end of the year, the hours at work are so crazy, maybe it will slow down next month…

Next month is the beginning of the holiday season, with Thanksgiving (my personal favorite). Then Christmas and New Years and we all know how busy the holiday season is so we simply can’t meet then… 

Soon enough we are right back where we started at the new year with little to no progress on our personal finances. The waves keep coming. At some point we have to stop and take control of our lives and our finances. It is all a matter of priorities. If we wait until its broke, then often we can’t fix it. If all we do is take what is offered to us as benefits from work, then what happens if we are unlucky and get the dreaded pink slip? Poof, just like that, our benefits are gone, and we have a personal financial crisis.

I have a client in that very situation who was hit by a storm. During his last job, he developed an illness that prevents him from obtaining life insurance. He lost his job and benefits, he always thought that he would have enough wealth so he could as the drive-by’s say “self insure his life”. With the large amount of money he has, he still has two young children, he still needs some life insurance. A little time and planning would have helped a lot.

Don’t put things off, get things organized, see a professional financial advisor, make sure they at least have a professional designation, that requires them to have some level of financial education and a code of ethics, the best are: ChFC, CFP, and CPA. As a ChFC (Chartered Financial Consultant) I understand the education, rigorous exams, and practical experience necessary to obtain such a designation, my clients have benefited from this additional training. I am always happy to help people prepare and become independent, so, for more information give me a call. 

Get started today, after all the waves will always come regardless, and so will the storms. Don’t let the waves get in the way of preparing for the storms!

 

REMEMBER:

"Opportunity abounds in alleged bad times."
"True optimism includes realistically looking for opportunities among bad developments" ~ Howard Ruff

 

Topics: personal financial crisis, personal finances, Family Finances

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Wendell W. Brock, MBA, ChFC

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