Eliminate As Much Debt As Possible: Put together a plan to start reducing your personal debt. There are many different strategies to reduce your debt. If you have a bunch of debts with similar balances, then start paying off the one with the highest interest rate first. If you have a bunch of debts with a large range of balances, then start paying off the smaller ones first to get them out of the way. Read my plan to get out of debt here.

Make sure you are properly insured: This applies to your homeowner’s, auto, life, and health insurance. Your home should be insured up to the cost it would take to replace it if it burned to the ground. Your contents should be insured at 50 to 75% of the value of your home. For auto insurance, make sure you have at least 100,000/300,000/100,000 auto liability limits on your policy. Carrying any limits less than that severely increases the chances of getting sued for causing bodily injury and/or property damage and not having enough coverage to pay for the damages. If you have kids, a spouse, parents, or other family members that depend on your income, you should carry about 8 to 10 times your income of level term life insurance. This is an adequate amount for them to invest and live off of the interest on a monthly basis. Regarding health insurance, make sure you have enough money in your emergency fund to cover deductibles co-pays, and any other shared expenses you may have to incur if you have an emergency health issue. A catastrophic event during these times can and will bankrupt you if you are not properly insured.

Increase Your Emergency Fund: Most financial planners advise saving a 3 to 6 month emergency fund, but in this economic climate, I think you should save AT least 6 months of expenses in an emergency fund. This has been on my mind a lot lately, and I am going to talk to my wife about increasing our emergency fund, because no job is stable right now, and we now have a house to protect.

America is resilient, and we will push out of this economic slump, but we need to face reality and react to the current economic conditions. Play your cards safe right now. I know that everyone is saying, “how, take chances right now, this is the time when people get rich!”. No, people with money get richer right now, because they can afford to take chances. Many of them still lose a lot of money, but it does not put them under. If you are an everyday citizen without a lot of money to take a chance on an investment, play your cards safe until the economy stabilizes. Related Posts:

• How To Protect You and Your Family From Financial Ruin In A Recession
• Knowing When To Tap Into Your Emergency Fund
• Five Steps To Getting and Staying Out of Debt (Step 1)
• Insurance Companies Looking Out For You and Your Car
• Dow Jones Index Drops to 6800 For The First Time In 12 Years

Reduce Your Financial Risk During This Recession is a post from: Money Crashers

1. Protection
2. Accumulation
3. Distribution

Protection means protecting your family, yourself, and your finances. In a down economy, you must first think about protection. We often jump to phase two which is accumulation. We want to invest money before we want to protect it. This is a big mistake, because one catastrophic event in your life will drastically change your financial health. Consider these three things to protect you and your family from financial disaster.

Insurance

Get this straight: we buy insurance to protect us from disaster, not life’s little expenses. So many people get frustrated with insurance companies when they won’t pay for every little thing. Insurance companies should be much less nit-picky about their coverage, but that is a topic for another time. The fact is that we buy auto, health, property, and life insurance for life’s catastrophic disaster that could cause us to go bankrupt. An auto accident with multiple injuries and totaled cars, a health accident or unexpected disease, death, and/or a natural disaster are events that will ruin your personal finances. Insurance companies will pull through for the most part on catastrophic events. I know we all hear horror stories around insurance companies not paying this and not paying that, but the fact is that they are scared NOT to pay the big claims, because enough bad faith lawsuits could cause them to go bankrupt.

• Auto Insurance: make sure you have high levels of liability coverage and collision coverage on a newer car.
• Homeowner’s Insurance: Make sure your house is insured to replacement value, which is the cost it would take the rebuild the house in the event of a fire, hurricane, or earthquake.
• Health Insurance: Make sure you have it. We all talk about how many Americans don’t have health insurance, but it’s not all because they can’t afford it. Many Americans CHOOSE not to carry health coverage. If you want to self-insure yourself, I would recommend having a net worth in excess of a million dollars. My recommendation for those self-employed or employers don’t offer coverage who are healthy is to get a high-deductible health plan with a health savings account attached to it. You can gradually save money in the HSA, and have 100% coverage for accidents and surgeries after you meet the deductible. I was just quoted $84.00 a month for a high-deductible plan that pays 100% of my costs after the deductible with a rider for emergency room visits that does not require a deductible.
• Life Insurance: Buy it when you have someone depending on your income such as a stay-at-home spouse and/or children. Buy a level term life insurance policy for either 20 or 30 years. Buy 8 to 10 times your current income. So, if you make $50k a year, then buy a $500k term policy. Once the term expires, it will be much too expensive to renew the term, but by then, you should be planning to have a large nest egg to self-insure your death.

Eliminate Debt

Eliminating Debt is one of the best and easiest ways to protect yourself from financial ruin. Read my debt elimination plan series to learn about a proven plan to help you eliminate your debt. When you get the debt out of your life, you reduce your revolving payments, free up more of your income, and reduce the risk in your life. It’s the best way to protect yourself in a bad economy!

Increase Your Emergency Fund

If you don’t have an emergency fund, then start one. If you have one, then beef it up. A starter emergency fund should have at least $1,000 to $2,000 in it. A fully funded emergency fund should have 3 to 6 months worth of fixed expenses in it. So, in a down economy beef up that emergency fund to 6 to 8 months of expenses, just in case you or your spouse loses a job or have a tragic life event.

Will we get through the hard economic times? Yes! Is it possible to find a job right now? Yes! It all depends on you. Don’t depend on the government to help you, depend on yourself with the support of your family and your god to help you achieve your goals. Related Posts:

• Reduce Your Financial Risk During This Recession
• 5 Steps To Prepare For A Natural Disaster
• Knowing When To Tap Into Your Emergency Fund
• Are You Paying Too Much For Life Insurance?
• Watch Out For New Health Coverage Programs To Offered By Your Employer for 2008

How To Protect You and Your Family From Financial Ruin In A Recession is a post from: Money Crashers

1. Buy flood insurance. We all remember the images of Hurricane Katrina and the Iowa floods. A flood disaster will destroy your home, and homeowner’s insurance NEVER covers it. Protect your home further with flood insurance purchased from the federal government. You can pick up the maximum coverage for $300 to $600 per year in moderate risk areas. Go to Flood Smart to find a local agent to purchase a policy.
2. Inventory your personal property. If you need to file an insurance claim for your personal property, documentation is crucial to receive the full amount of the value of your stuff. Take photographs of everything worth over $50 in value and create a list. Store the photos or video on a disk with the list and put it in a fire-proof safe or store them online.
3. Keep a large emergency fund. Some states place a larger deductible on claims involving natural disasters such as hurricanes and earthquakes. Make sure you have enough money in your emergency fund to cover your deductible along with additional living expenses. Insurers will pay for additional living expense, but they require you to incur the expense first, and then they reimburse you. Make sure you keep all receipts for temporary housing, eating out, and any other additional costs for being away from your home if you need to vacate during repairs.
4. Upgrade your home. Stronger windows, stronger roof tie-down straps, reinforced footers, and many other upgrades can be performed on your home to strengthen it when it faces a natural disaster. Many insurers give credits to your premium for making these upgrades, because they know that it will reduce the overall damage to your home during a disaster.
5. Get your home re-appraised. As a claims adjuster, I’ve seen so many houses burn half way to the ground only to find that they were under-insured. The scenario is common. You buy an insurance policy ten years ago for $150,000, but the cost of construction has gone up considerably, but the agent failed to increase the coverage each year. Now, that $150,000 house costs $225,000 to reconstruct. Speak to your agent about applying an inflation guard to your policy that increases your coverage amount by 3 to 5% each year. Also, get a professional replacement value appraisal to accurately assess the replacement value of your home. Remember, you DO NOT need to consider land value for the coverage amount on your policy.

Look, I know you don’t want to think about disaster striking you and your family, but it happens and you will be pissed off when you find out how ill-prepared you were for it. Do it for you and for your family.

Related Posts:

• How To Protect You and Your Family From Financial Ruin In A Recession
• The Importance of Renters Insurance and Why You Need It
• Four Types of Insurance You MUST Have At All Times
• Are You Paying Too Much For Life Insurance?
• To Buy or Not To Buy Rental Car Insurance

5 Steps To Prepare For A Natural Disaster is a post from: Money Crashers

One question that I hear popping up in the thoughts of you all is, “Where should I park my emergency fund when I’m not using it?”

Before I answer this question with my opinion, I want to back up one step before you have this question. First, ask yourself, “How am I going to treat my emergency fund?”

I submit to you that you should treat your emergency fund like an insurance policy, not an investment. Many of the mathematical minds immediately think about how they can maximize their returns on their emergency fund when they aren’t using it. You should never sacrifice liquidity to gain more return on your emergency fund money. The most ideal situation is to find a money market account that is easy to access AND gives you enough of a return to at least keep up with inflation. About two years ago, online savings accounts have great returns as high as 6 percent! But, since the recent changes by the Fed with certain interest rates, the savings account rates have gone down a bit. Still, I believe these are the best options for where to park your emergency fund, unless you emergency fund is big enough to get good rates at a traditional bank’s money market account. Usually you need $25k or more to get a decent rate. Your emergency fund is an insurance policy. It’s there to use when you’re in a bind, and you have a completely unexpected expense such as the water heater in your house breaking or paying a collision deductible for a car accident. Don’t treat it like it’s this investment money where you need to maximize its returns. It’s great if you can earn a little bit on it while it’s sitting there, but the most important thing is that you can have access to it quickly without paying any penalties to get it (i.e. putting it in a certificate of deposit would be a VERY bad idea).

How much should my emergency fund be?

If you’re trying to get out of debt (except the house) and you own a house, I would build up $1,500 to $2,500 for a baby emergency fund while your paying off debt. If you don’t own a home, you can probably get away with $1,000 as your fund. If you’re debt free except for the house, then I would save up 3 to 6 months worth of expenses. Remember, this is not 3 to 6 months of income, it’s how much you pay to live each month. If you want to build up a bigger fund than that, by all means, go ahead. This is a recommended minimum guideline. So, if you spend $2,000 a month on housing, food, utilities, and gas, then a $6,000 to $12,000 emergency fund is adequate.

So in conclusion, make sure that you check yourself and how you treat your emergency fund before you start thinking about what to do with it when you aren’t using it. It’s an insurance policy from the company of YOU. Self insurance is always the best insurance policy, because YOU are the claims adjuster. Related Posts:

• The 11 Principles Series: Saving Money For the Unexpected
• So You Are Out of Debt, Now What?
• Knowing When To Tap Into Your Emergency Fund
• Reason For Not Updating This Blog
• Reduce Your Financial Risk During This Recession

Treat Your Emergency Fund Like an Insurance Policy is a post from: Money Crashers

This is not a far-fetched idea. There’s no doubt that a positive correlation between technological advances and increasing life spans exists. The article describes how 20 to 40 year olds should plan on living a long life of retirement and planning to pursue multiple careers, because we’ll be awfully bored if we retire at 65 and live another 35 years!

This is encouraging to think that we’ll live a long, productive life, but it’s also scary thinking about preparing to support yourself for 25 to 30 years. I don’t think it has to be scary if you start thinking about it now. Therein lies the problem. How many 25 year olds think about their life as an 85 year old? One of my favorite parts about the article is the quote that talks about how Generation Y is expected to fund their own retirement by contributing to a 401(k) all while we are funding the lion share of Social security which is benefiting older generations and may not benefit us in the future. Basically, we’re taking our retirements, our parents, and our grandparents retirements and putting them both on our shoulders. Great.

The point is that you will make your life much easier if you plan 50 years ahead at age 20 to 30. You won’t need to spend any time catching up to save for retirement, which will result in having more money in your 40s and 50s to have fun with your family while your not too old to shoot a basketball. That’s the way that I look at it. I’m going to bust my butt in my 20’s and 30’s to set my life up for having a ton of fun in my 40s, 50s, and beyond.

What are you doing to prepare for hitting the century mark? Have you thought about it? Do you care? Related Posts:

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Are You Financially Preparing to Live to be 100 years old? is a post from: Money Crashers

The one thing that I learned the most is the importance of appointing a guardian if your children are minors. It scares me to think about all of the taxes that will be imposed on my money and who could end up with my assets after I die if I don’t have a will, but it would HORRIFY me to think that the state had full control of appointing a guardian to my children if I don’t have a will. If you don’t care about protecting your estate, you NEED to protect your children. If you have somewhat significant asset and/or have children, PLEASE go out and write a will TODAY! This is one time that I would definitely recommend using an attorney that specializes in estate planning. They know all of the tax laws, and they’ll help you protect your assets and family.

Check out the Kiplinger’s article about five things you can learn from the Anna Nicole Smith debacle. Related Posts:

• Do You Need A Will?
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• Into The Archives from Last February
• When Should You Hire A Financial Professional?
• How To Protect You and Your Family From Financial Ruin In A Recession

Estate Planning 101: Taught by Anna Nicole Smith is a post from: Money Crashers

Who needs a will?

Generally, anyone with assets over $10,000 and/or anyone with minor children in their custody. Your will can also appoint custody of your children to someone that you know and trust. That person will also manage the money and assets that you leave your children until they are of legal age.

What happens if I die without a will?

Bad things. Your estate will be divided up by the court and they have full control over what happens to your stuff and your children! Now that is scary.

What are the tax implications?

This is the part that I won’t even get into, because I know there are plenty of people out there that specialize in helping you minimize your probate and estate taxes. I know that if everything is getting transferred over to your suriving spouse, there are no estate taxes. These taxes kick in when the assets start getting inherited by the children and grandchildren. There is a standard deduction of $2 million dollars before the 46% estate tax kicks in, so this allows several way to reduce your tax bill. Generally, if your estate is worth less than $2 million or your spouse survives you, then your estate tax will be next to nothing. It gets complicated the richer you are. I would read up more about this online and speak with a qualified attorney if you have a very large net worth or are single.

What is a living trust?

A trust exists when one person (often called the grantor or the settlor) gives property to another person (called the trustee) to hold and manage for one or more other persons (called the beneficiaries). Although no statute or regulation defines the phrase “living trust,” it generally describes a trust that the grantor can amend (change) or revoke (cancel) during his or her lifetime. Through the terms of the living trust, the grantor keeps all the benefits of any property placed into it for the rest of his or her life. The grantor also can be the trusteee, but the grantor’s spouse or a trust company also often serves as trustee. A living trust can be funded with any property such as bank and brokerage accounts, stocks and bonds, a home and other real estate. Some living trusts may not be funded initially, but rather at a later time or at the grantor’s death. An attorney can help advise when a trust should be funded and with what property. The terms of a trust are described in writing in a document often called the declaration of trust or trust agreement. This document is signed by both the grantor and the trustee. (Taken from the Ohio State Bar Association Law Facts Website.)

The point of all of this is not to become a legal expert on all of the details of wills and trust. The point is to be more aware of how important it is to HAVE a will. Sound financial planning must always involve formulating a plan for your money when its in your possession and when you part your ways with it. Unfortunately, we can’t take money to heaven, but I don’t think you’ll need it in heaven, anyway!Related Posts:

• Estate Planning 101: Taught by Anna Nicole Smith
• When Should You Hire A Financial Professional?
• Financial Question of the Day: What To Do With Child Support
• Should You Buy Liability Umbrella Insurance?
• Protecting Your Financial Future During a Divorce

Do You Need A Will? is a post from: Money Crashers