Do's and Don'ts of Finances......

[J.A.Y.]

I was reading the Bankruptcy thread earlier and thought we should have a thread for everyone to post about their experiences with finances both good and bad.

With it being early summer a lot of new college grads will be getting their first jobs and jumping into real life, so I think a list of everyone previous experiences could help us all.

First off I am 27, my wife 25, and pregnant with our first child. My first bit of advice to anyone in a situation close to mine is to get a Variable Universal Life Insurance Policy on yourself and your spouse.

It can serve as both a life insurance policy if something were to happen to you or your spouse, and a retirement/college fund too. With all dispersements at retirement age not taxable.

Also, USE YOUR 401K. Atleast put in what your company will match. That is a minimum, it adds up quick, remember I am only 27 and it has added up very quickly.

Thanks for all of ya'll post in advance.

[J.A.Y.]

Oh yeah start a Roth IRA. The earlier the better.

I have learned the better ratio you have of non-taxable to taxable income at retirement the better off you are.

Both Roth IRA and Variable Universal Life Insurance Policies are Non-Taxable Income at retirement.

[The Marmot]

WE NEED A FINANCE/INVESTMENT FORUM!!!


Carry on.....

[Hog in MO]

A little hindsight advice for college students RE credit cards:

The free t-shirt ended up costing me $13,768.87

That's a sheet load of t-shirts.

[Thunderhog Jr]

 :razorback:

Don't co-sign student loans for a family member.........

:razorback:

[wholehog92]

Don't go into debt for depreciable assets.

Don't cosign for anyone unless you are willing to reposess property and can afford whatever loan they needed.  By the way, if you can't reposess it, don't cosign for it.  If it violates the depreciable assets rule, don't cosign for it, if it's stupid debt for you, it's stupid debt for them.

Talk about finances before you get married.  I mean details and overall philosophy.  Record the conversation in some way.  ie minutes or actual media.

Pay your bills on time.

I have found if I invest half of my raise each year, it's a fairly painless way to increase my savings.

All I can think of off the top of my head.

[wooo]

Don't blow your entire paycheck on hookers and booze.

spending on hookers and booze is not blowing money. That my friend is spending money wisely!

[wooo]

being broke only causes more debt

[BigSexyHog]

Don't blow your entire paycheck on hookers and booze.

That information would have been usful to someone like me maybe 10 years ago when I was 24

[Ouachihog]

If you live in a state other than Ark (say texas) with high property taxes.  If you buy a new construction home, pay extra every month in to your escrow for property taxes b/c your initial property tax estimate is for the value of the lot only. 

Example:  You buy a new construction in TX for $200,000.  Property taxes on that will run you roughly $5100  per year, depending on where you live.  I know it can vary some, but let's go with it for discussion purposes. 

So, if you have your property taxes escrowed, that is roughly $425 per month ($5100/12 months).  However, depending on what time of year you buy the house, your tax rate is likely only for the value of the lot.  Let's say your lot is appraised at $30,000.  Instead of $425 per month (what it should be based on the true value) your bank only requires $65 or so per month (property tax on the lot divided by 12 months).   

12-18 months later, when your mortgage company does an escrow analysis, you are looking at a $5000 to $6000 shortage.  Which means you have to write them a check, or include the shortage in your mortgage payment.  It is very common for a payment in that price range to jump $400 of $500 per month to cover this shortage.  If you haven't planned for this (most don't), you're in trouble.

So like I said, pay the $425 per month in to escrow from the start, even though your bank will probably not be requiring it at that time. 

[Eddie Piggard]

I agree MB, Term is the better way to go.  You can get ten times the coverage, most times guaranteed renewable for 1/10 the cost of comparible Whole/Universal Life.  The returns on those two are at or just above the inflation rate, so, what are you gaining?

[cdhogfan]

I was reading the Bankruptcy thread earlier and thought we should have a thread for everyone to post about their experiences with finances both good and bad.

With it being early summer a lot of new college grads will be getting their first jobs and jumping into real life, so I think a list of everyone previous experiences could help us all.

First off I am 27, my wife 25, and pregnant with our first child. My first bit of advice to anyone in a situation close to mine is to get a Variable Universal Life Insurance Policy on yourself and your spouse.

It can serve as both a life insurance policy if something were to happen to you or your spouse, and a retirement/college fund too. With all dispersements at retirement age not taxable.

Also, USE YOUR 401K. Atleast put in what your company will match. That is a minimum, it adds up quick, remember I am only 27 and it has added up very quickly.

Thanks for all of ya'll post in advance.

You fell for basically an insurance scam.  If you can get out of it I would.  Get term insurance at a fraction of the cost and invest what you were paying for the other insurance into a good mutual fund.

[Hogs4Ever]

Fat, drunk, and stupid is no way to go through life.

[Masshog]

Fat, drunk, and stupid is no way to go through life.

Now you tell me...  oh well.  The Roth is an excellent idea.  Even if you have to work an extra job to fund it. I have made both my kids open one.  Take a few minutes and make sure you understand how compound interest works... its a powerful thing.  And don't fall for the old Bull darn that stocks always go up in the long run and that you should always be invested.  Its only true in the long long run.... but, thats another story and I'm way to fat drunk and stupid to get into it right now.   

[J.A.Y.]

You fell for basically an insurance scam.  If you can get out of it I would.  Get term insurance at a fraction of the cost and invest what you were paying for the other insurance into a good mutual fund.

A VUL is very similar to a  mutual fund just open ended meaning you can make additional investments at anytime.

The way a VUL differs is that you have a monthly amount you pay. A percentage is taken out to cover the cost of insurance (COI) or your benefit amount. The percentage I pay is 3%.

Like a mutual fund you have deductions for management of the fund, administrative, etc.

So out of the $165 a month I pay. Roughly $5 bucks is for the Insurance($500,000 to my family if I were to pass)
and then the administrative deductions which are around $25.

So between $130 and $135 a month is invested into a fund that I have control over through my financial advisor to invest accordingly.

We have two of these for Identical amounts, her's is cheaper b/c she is a younger and female.

[RazorbackRon]

CNN Money doesn't think the VUL is a very good idea.......unless your the financial adviser selling it.

http://money.cnn.com/2007/02/05/pf/expert/expert.moneymag/index.htm



Another point of view.........VUL: A bad, bad investment

http://www.weac.org/news/2002-03/march03/dollars&sense.htm

[hog.goblin]

A VUL is very similar to a  mutual fund just open ended meaning you can make additional investments at anytime.

The way a VUL differs is that you have a monthly amount you pay. A percentage is taken out to cover the cost of insurance (COI) or your benefit amount. The percentage I pay is 3%.

Like a mutual fund you have deductions for management of the fund, administrative, etc.

So out of the $165 a month I pay. Roughly $5 bucks is for the Insurance($500,000 to my family if I were to pass)
and then the administrative deductions which are around $25.

So between $130 and $135 a month is invested into a fund that I have control over through my financial advisor to invest accordingly.

We have two of these for Identical amounts, her's is cheaper b/c she is a younger and female.

Therein lies the problem....administrative fees are outlandish.  Buy level term for a lengthy period of time and invest the difference.  You can beat the insurance investment return especially after considering the fees.

Another problem is bad insurance agents often cause you to underfund your insurance coverage because it looks more attractive in the beginning.  Eventually you get to the point where your investment starts to erode because allocations are taken from it to cover your rising insurance cost.  I can't tell you how many VUL policies I have seen turn upside down when the client is in their 50s and 60s.  Bad time to lose your investment and have no insurance.

[PIGINAPOKE]

Stash a bit in a 401, Go to Cabo, Buy that new truck, Hit Vegas once a year. Or you can save for that Jetski at 65 yrs old. Your last meal could be breakfast Sat. My kids are not getting the cash I worked for, I love them but make yer own jack.

The house that Ruth built is still here and he never took it with him. Just like yours.

See the country and enjoy your life. Your dead one day and in 3 days after the fact no one cares. Execpt the ones who will live off of your money.

Money is not the driving force of life, Time is.

You would give back ALL the money you saved to see your family one more time . So see the family and spend that money with or on them today.

[Oklahawg]

Stash a bit in a 401, Go to Cabo, Buy that new truck, Hit Vegas once a year. Or you can save for that Jetski at 65 yrs old. Your last meal could be breakfast Sat. My kids are not getting the cash I worked for, I love them but make yer own jack.

The house that Ruth built is still here and he never took it with him. Just like yours.

See the country and enjoy your life. Your dead one day and in 3 days after the fact no one cares. Execpt the ones who will live off of your money.

Money is not the driving force of life, Time is.

You would give back ALL the money you saved to see your family one more time . So see the family and spend that money with or on them today.

Not great "financial" advise but I admire the lifestyle assessment. Today is golden. Still, hard to enjoy today if you can't afford it.

[The Marmot]

A VUL is very similar to a  mutual fund just open ended meaning you can make additional investments at anytime.

The way a VUL differs is that you have a monthly amount you pay. A percentage is taken out to cover the cost of insurance (COI) or your benefit amount. The percentage I pay is 3%.

Like a mutual fund you have deductions for management of the fund, administrative, etc.

So out of the $165 a month I pay. Roughly $5 bucks is for the Insurance($500,000 to my family if I were to pass)
and then the administrative deductions which are around $25.

So between $130 and $135 a month is invested into a fund that I have control over through my financial advisor to invest accordingly.

We have two of these for Identical amounts, her's is cheaper b/c she is a younger and female.

Roughly 15% in admin fees? Good luck breaking even.

Actually, you'd have to do better than 18.5% on the $135 invested.

[Eddie Piggard]

Stash a bit in a 401, Go to Cabo, Buy that new truck, Hit Vegas once a year. Or you can save for that Jetski at 65 yrs old. Your last meal could be breakfast Sat. My kids are not getting the cash I worked for, I love them but make yer own jack.

The house that Ruth built is still here and he never took it with him. Just like yours.

See the country and enjoy your life. Your dead one day and in 3 days after the fact no one cares. Execpt the ones who will live off of your money.

Money is not the driving force of life, Time is.

You would give back ALL the money you saved to see your family one more time . So see the family and spend that money with or on them today.

somewhat true, but don't leave your loved ones with a mountain of debt to deal with.  and I agree.....I have never seen a uhaul following a hearse though....

[Nashville Fan]

Never have a car payment. The value of a car drops like a rock. Pay cash for a used car. Investing the money that you would have spent on a car payment will make you a millionaire in approx 25 years.

[Nashville Fan]

WE NEED A FINANCE/INVESTMENT FORUM!!!


Carry on.....

and maybe a legal forum

[Section B]

Avoid all discretionary debt like the plague. 

Mortgage debt is good, at least until the IRS does away with the interest deduction.

If you're young (20s), dollar cost averaging ONE index (S&P 400 for instance) mutual fund at monthly intervals is the easiest way to become a millionaire short of inventing something.

[oldman1015]

You fell for basically an insurance scam.  If you can get out of it I would.  Get term insurance at a fraction of the cost and invest what you were paying for the other insurance into a good mutual fund.

read more and post less until you pass series 6 and 63 

[oldman1015]

Therein lies the problem....administrative fees are outlandish.  Buy level term for a lengthy period of time and invest the difference.  You can beat the insurance investment return especially after considering the fees.

Another problem is bad insurance agents often cause you to underfund your insurance coverage because it looks more attractive in the beginning.  Eventually you get to the point where your investment starts to erode because allocations are taken from it to cover your rising insurance cost.  I can't tell you how many VUL policies I have seen turn upside down when the client is in their 50s and 60s.  Bad time to lose your investment and have no insurance.

the same with regular ul policies sold in the 80's

[cdhogfan]

read more and post less until you pass series 6 and 63 

I'll let my net worth be more of an indication of how much I know about personal finances instead of a test.  You must be one of the guys that sells this ripoff insurance.  You might even started believing the lies you tell.

[jwdento3]

A finance forum would be a great addition.  Good idea.  I second the concept.

My piece of advice for the day is simply shop around from time to time.  I just cut my home premiums by 50% switching to Amica.

[cdhogfan]

A VUL is very similar to a  mutual fund just open ended meaning you can make additional investments at anytime.

The way a VUL differs is that you have a monthly amount you pay. A percentage is taken out to cover the cost of insurance (COI) or your benefit amount. The percentage I pay is 3%.

Like a mutual fund you have deductions for management of the fund, administrative, etc.

So out of the $165 a month I pay. Roughly $5 bucks is for the Insurance($500,000 to my family if I were to pass)
and then the administrative deductions which are around $25.

So between $130 and $135 a month is invested into a fund that I have control over through my financial advisor to invest accordingly.

We have two of these for Identical amounts, her's is cheaper b/c she is a younger and female.

I hope you didn't feel like I was insulting you.  You are doing a lot of right things and it sounds like you will be wealthy one day.  I think you will have even greater wealth if you drop the VUL policy.  You will save a ton in fees.  Also, if you have a financial advisor that recommended this to you I would seriously consider finding a new one.

[jwdento3]

it should be a general money forum:

money, personal finance, investing, insurance, etc.

Agreed.  Another good thread might be cost-cutting tips for those suffering at the gas pump...

[SultanofSwine]

Some thoughts on this discussion. Every client situation is diffrent and anyone that makes a blanket statement that any particular protection or accumulation vehicle is better or worse than another product without knowing a great deal about the person could very well be grossly incorrect.

There are tons of protection vehicles and there are what seems like countless types of accumulation vehicles and no single investment or insurance product is going to fit for every situation. That is why it is important for people to work with a professional advisor. They will assist you in uncovering what your true objectives are, what your risk tolerances are and what your current budget can withstand. They should always make recommendations that are in the clients best interest regardless of financial gain for themselves and if someone ever feels this is not the case, they are not working with the right advisor for them. The advisor/client relationship is one that will only reach its fullest potential if there is a strong level of trust working both ways. Just because Joe Blow has an advisor that has made him a bunch of money does not mean that he may be the right advisor for you.

IMO everyone needs a professional accountant, an atty they can call on and a financial advisor to go along with a household budget. The earlier the process is started the better. A question everyone should ask is do they want an insurance professional to assist with the protection aspects of thier plan and a seperate broker to handle the accumulation aspects of thier plan or do they want one advisor that will guide them through the entire process.

It is never to early to think about or start building an exit or distribution plan even if you are early in the accumulation phase.

Give serious consideration to protection products like disability and long term care and how they would fit into your overall plan.

BUDGET, BUDGET, BUDGET...get one started, review it periodically and adjust as needed but get one.

Last but certainly not least, diversification. It matters not if you are highly aggressive, ultra conservative or somewhere in between. Spreading the eggs is a prudent course of action.

[Eddie Piggard]

for term, go to Zanderinsurance.com

you'll get about 50 quotes there.

I have Zander and carry $400,000 on myself for $24/mo.  And yes, Dave Ramsey is the stuff.  Who wants to be normal, normal is broke!

[J.A.Y.]

This is the thread I was hoping for...

thanks for all the post guys and I will check into a term option for sure.

Keep 'em coming.

[SultanofSwine]

I am not going to speculate as to whether or not his VUL is the best option for him but you really should better understand the products before making some of the inaccurate statements you made in the last post regarding cash values and distributions.

[J.A.Y.]

I hope you didn't feel like I was insulting you.  You are doing a lot of right things and it sounds like you will be wealthy one day.  I think you will have even greater wealth if you drop the VUL policy.  You will save a ton in fees.  Also, if you have a financial advisor that recommended this to you I would seriously consider finding a new one.

No not at all.

My main goal is to have a good amount of money for the wife to pay off the house, etc, if I were to pass.

This did prompt a call to my advisor though, on the premium I pay for a $500,000 coverage, my actual monthly draw is $162.50.

My deductions are the  cost for the insurance itself it $27 month, the fees are $15.

Let me know what ya'll think. 

[SultanofSwine]

Still inaccurate because you are assuming an option A death benefit as opposed to an option b.

[cdhogfan]

I am not going to speculate as to whether or not his VUL is the best option for him but you really should better understand the products before making some of the inaccurate statements you made in the last post regarding cash values and distributions.

Don't speculate, just look at the numbers.  If someone has $150 a month to spend on a VUL policy they are much better off paying about $15 on a term policy and investing the rest in an investing tool without so many fees.  This is assuming they actually invested the difference and didn't spend it.

[J.A.Y.]

Someone give some advice on mutual funds...


which ones to look, which ones to avoid.

Typical Fees, Excessive fees, etc.

[SultanofSwine]

Let me add that in many cases people can be well served by the buy term/invest the rest route but again that may or may not be the best course for him. If he is looking for a way to create an additional source of tax free college funding then a VUL certainly can work in that scenario if it is properly structured. I am not trying to play the proponent of VUL's because they are certainly not right for everyone or every situation but they can and do work very nicely where approriate.

[hog.goblin]

No not at all.

My main goal is to have a good amount of money for the wife to pay off the house, etc, if I were to pass.

This did prompt a call to my advisor though, on the premium I pay for a $500,000 coverage, my actual monthly draw is $162.50.

My deductions are the  cost for the insurance itself it $27 month, the fees are $15.

Let me know what ya'll think. 

Net your premium and insurance cost and you are left with $135.50 "investable" monies.  Paying the $15 admin fee is approximately 11% of your investable monies.  If the market does great, you'll be lucky to breakeven.  You do get a tax benefit in that the growth and earnings are tax deferred.  But that's of relatively little help.

[cdhogfan]

Let me add that in many cases people can be well served by the buy term/invest the rest route but again that may or may not be the best course for him. If he is looking for a way to create an additional source of tax free college funding then a VUL certainly can work in that scenario if it is properly structured. I am not trying to play the proponent of VUL's because they are certainly not right for everyone or every situation but they can and do work very nicely where approriate.

529s would be the route to take if you are looking for a tax free way to save for college.

[SultanofSwine]

56, for college funding there are several ways to accomplish the goal of having funds available to draw on. But the question has to be asked whether you want to be able to draw those funds in a tax preferenced manner or not. A mutual fund portfolio would certainly be an option but you could very well be faced with capital gains to pay and assuming we are talking about some point in the future the corresponding assumption is that the capital gains rate could very likley be much higher than it currently is. You could use a Coverdale but the contribution limits are small and the child becomes the owner of the asset at 18. A 529 plan is a great option for many people because all of the accumulation that is used for qualified education expense can be drawn tax free. The downside here is drawing unused funds back out of the plan which will usually create a penalty situation for the contract owner. If the child is awarded a scholarship, the value of the scholarship can be withdrawn without penalty. A UL or VUL is another option and in some cases a very good one. You can withdraw funds in a tax preferenced manner if needed, you have the flexibilty to move to other products if the usefulness of the VUL has past and the death benefit in the event of such.

JAY, the mutual fund question is one I will not address in this forum. The best answer I can give is that you should set down with an advisor and discuss what your goals and risk tolerances are. At that point the advisor should be able to narrow down the types of funds that are going to best meet your needs.

As advisors, we have a fiduciary responsibility to always make recommendations that are in the clients best interest, that can not be done in this format with regard to your question about mutual funds. I could list you 25 funds that I have a lot of confidence in and all could fit your situation or none could. Aside from the compliance issues (which I take very seriously) involved with me engaging in that sort of discussion in this type format, not knowing your particular situation, I can not maintain my fiduciary standards and give you any specific fund recommendations. Hope you understand.

[cdhogfan]

Someone give some advice on mutual funds...


which ones to look, which ones to avoid.

Typical Fees, Excessive fees, etc.

I would start with a simple index fund.  The fees are typically very low.  Also, in your retirement accounts I'm a fan of the target date funds.  They adjust over time to less risk investments as you reach your retirement age so you will not have to manage that portion.  The trick is to let your money work for you.

[SultanofSwine]

If the kids are more than 5 years out from college and the Roth income limitations are not an issue, then that is another option.

[cdhogfan]

If the kids are more than 5 years out from college and the Roth income limitations are not an issue, then that is another option.

Sultan, do you know if you can roll a 529 into a Roth.  Probably not, but just wondering.

[SultanofSwine]

The short answer would be no. However, if the child has a scholarship, the owner could draw the amount of the scholly out with no penalty incurred and assuming they are within the income limitations for the Roth, make a contribution there with the amount witdrawn from the 529. That is not a rollover per se but accomplishes basically the same thing. If you are talking about funds remaining after the child completes thier education, the answer would be no. The account owner could name a new beneficiary or draw the funds and pay the tax on any gains plus the 10% penalty for a non-qualified distribution. The 59.5 rule does not apply to these accounts either.

Another issue to keep in mind is that 529 assets can have an impact on financial aid if the parents are the owners. Using grandparents as owners removes the assets from the financial aid equation.

Everyone should keep in mind that there are numerous ways to reach the same end objectives and for each person that route may or most likely will vary.

[BA Hogwild]

Fat, drunk, and stupid is no way to go through life.

Nope, but it is a start

[ConwayHog]

Still inaccurate because you are assuming an option A death benefit as opposed to an option b.

Good ol' Option A/B.

[bwbcpa]

Pay cash for your toys.

[Junkyard Hog]

Pay yourself first.

Read The Automatic Millionaire by David Bach.  I think it's a pretty good place to start.