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Moving Toward A No-Debt Lifestyle:
Steps to Consider
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Any financial planning process begins with necessary changes in financial behavior. The degree of change varies based on financial priorities, but in the end, it’s about adopting good habits and abandoning bad ones.
Here are some ideas:
Start with nickels and dimes:
You can’t wish your way out of debt – it takes cash. Your recovery literally can start with loose change. If you’ve never done a real budget, it’s time. That means tracking every cent of your spending either online (Mint.com is a free online website that offers some unique expense-tracking tools), or on paper. Once you see what’s left in your wallet over the past month, start cutting non-essential spending like designer coffee, carryout, and deluxe cable, and start applying that extra cash to the highest-rate, non-deductible debt you have. Seeing everything you spend in black and white is the first step in changing your relationship with money for a lifetime.
Attack the highest-rate debt first:
In most households, this means attack the credit card balances. While February’s credit card reform law has given borrowers a slight boost by applying monthly payments to highest-rate balances within every credit card statement, it won’t matter much unless you begin paying more each month than the minimum balance. Zero in on your highest-rate cards first, pay more than the minimum, and then work downward.
Refinance if you can:
Mortgage rates are still at historically low levels. You’ll need at least 10 percent equity in your home and a credit score exceeding at least 740 (out of 850) to qualify for the best rates and negotiating with your current lender first is a great place to start. Be sure to inquire about the various government programs and how they pertain to your specific situation.
Make debt-fighting a family lesson:
When you’re talking to kids about budgeting and lowering your expenses, you have to walk a fine line between discipline and fear. But setting money priorities is part of growing up, and it’s essential to discuss and agree upon them as a family. Generally speaking, it helps to solicit the input from others as they feel involved in the decision making process.
Set some post-debt money goals:
Getting out of debt means you’ll be in for an extended period of frugality, and that might be a bit depressing. But as you battle your balances, make some time to really think about what you want to do with your life after the debt is gone. Having a debt-free lifestyle doesn’t stop at having zero balances (though that might call for a celebration!). Being debt-free is the gateway to better money management that will help you reach your dreams. A financial planner can help get the conversation started on what those dreams and aspirations are and what permanent savings, spending and investment philosophies will be necessary to achieve them.
Shop differently:
The retail explosion of the last generation – and its implosion of the last 2-3 years – has revealed to a wider audience what money-smart people have always known. Happiness is not measured in what you wear, what you drive, or even where you live. If there is a cheaper solution to find both necessities and luxuries, adopt it. If used or wholesale options are available for food, clothing, house wares or services, why pay retail? Internet retailers, price-comparison shopping sites and online coupon sources are popular for a reason – they almost always offer lower-cost paths to savings. Use them and compare. Here’s another suggestion – keep a centralized shopping list on a big sheet of paper that lets you see all the spending you feel you have to do, and then try to handle it during one organized trip. Seeing everything in front of you will make it easier to prioritize what you really need and what you don’t.
Do-it-yourself or barter repairs and services:
The do-it-yourself movement is in a new phase with the downturn. For any home or auto maintenance chores you may have during the year, learn as much as you can about those tasks and estimate the cost of materials and your time before doing them yourself. Previous generations made do-it-yourself a necessity. See if that option is right for you and you might save considerable money doing it. Also, for more complicated jobs, partner with friends and family and you can help each other save money.
Rebid your home and life insurance:
Most everyone knows that bundling home and auto insurance with one carrier saves money. Increase your deductibles if you can afford to and ask your agent specifically about changes in behavior that can save you money. Also, try taking mass transit to see if it can reduce your insurance rates. See if you can benefit from age-related discounts. And check whether it might be worth beefing up your home security or adding more protection against weather-related disasters (storm shutters, shatter-proof glass, etc.) or upgrades to appliances, plumbing or electrical systems. Lastly, be tax-smart about improvements – EnergyStar.gov lists rebates and other breaks for upgrades around your home.
Go debit:
Debit cards wearing a bankcard logo are typically welcomed at most stores where credit cards are accepted. This way, you pay cash without carrying cash. If you don’t have such a card, you can probably get one from your bank to replace your traditional ATM card, but remember to tell them to limit your buying power on the card to only what you have in your account. And use overdraft protection to avoid fees.
Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations.
We also have excellent referrals to a variety of professionals, and you are welcome to contact John Hayman, Donna Zinman or Gary Clarke for a list of these professionals. |
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What To Know
and Ask About
Disability Insurance
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The commercial featuring that loud, quacking duck has gone a long way to making people think about individual disability coverage as a way to keep bills paid if the family breadwinner gets sick or injured over an extended period of time. It’s true -- individual disability insurance is more important than ever, and every working individual should consider having it.
Why is it a good idea to have personal disability coverage, particularly when most employees can buy such coverage at work for a nominal fee? That’s because most employers offer disability coverage that lasts 12 weeks or less and covers less than 60 percent of a worker’s pretax income. That might be workable for a surgery or injury with a relatively quick recovery time on the couch, but a diagnosis for even the most curable cancers can put workers with even the best financial coverage into a devastating financial bind.
And if you are self-employed, the need for the best, most flexible long-term disability insurance is even more important because other than your own resources, that coverage will be your own safety net. Here are some essential things to know about long-term disability coverage. Remember that policy language is critical, and a financial planner can give you a second, helpful set of eyes to review what your insurance agent recommends:
If you’re considering becoming self-employed or might lose your job due to layoff: The time to buy long-term disability coverage is NOW. Insurers will base your initial coverage limits on what you’re earning in your current job, which is important since entrepreneurs and unemployed often earn considerably less – at least for awhile -- once they’ve left their current employer.
Make sure you can purchase more coverage as your income increases: Because you stand to earn more in future working years – if only based on inflation – you should make sure your benefit levels can rise to meet the demands of replacing that income if you need to in the future. Obviously, people who expect to make vastly higher salaries in the future need to plan for this.
Check for a non-cancellation feature: Make sure that once you’re approved, the insurer can’t cut your coverage unless it decides to stop writing coverage for everyone in your job class. It should also state that the insurer can’t raise your rates based on the benefits you’re to receive.
Compare benefits and premium cost: Get bids from several carriers. The premium you pay will depend on a wide array of factors and can vary dramatically from person to person. Such things as your age and your gender will be a factor in what you pay.
Go for “own occupation” coverage: Even if you are able to work in a different capacity, own-occupation disability insurance will provide you with the income replacement you need if you are unable to work in your current occupation. Make sure you understand how that coverage fits your current profession.
Know what “elimination period” means: Like a deductible in home, health or car insurance, the elimination period is a big cost determinant in disability coverage. (It’s actually a big factor in long-term care policies, as well.) Most long-term disability policies will kick in after 30 days after you’ve been declared disabled. But if you specify an elimination period of 60, 90 or 120 days, your premium will be lower. An important point about the 30-day elimination period: benefits don’t start accumulating until you’ve been laid up a month after the ruling date and you won’t get your payment until a month after that. Be very clear with your insurer when you’ll get your first check based on what elimination period you choose, and make sure you have a cash cushion to cover that need in your emergency fund.
What’s your benefit term: For each disabling incident, your policy may pay benefits for a certain period – two, five years or until retirement. It’s all in how your policy is constructed. Many policies may pay for life if you purchase this benefit and you are disabled prior to age 60. Also, make sure there’s language that increases your benefits as your income increases over time.
See if there’s a residual benefit feature: Some policies may offer you 'residual benefits' or a partial payment if you're less than 100 percent disabled, but still can't perform all the duties of your job. |
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John Hayman, CFP
Founder & President
Email John |
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Donna Zinman, MBA
Senior Financial Advisor
Email Donna |
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Gary Clarke
Senior Financial Advisor
Email Gary |
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Rick McNamara, CFMC
Director of Investments
Email Rick |
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Dawnalizabeth Henke,
MBA, MSFA
Chief Compliance Officer
Email Dawnalizabeth |
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Catherine Norris
Manager of Client Service
Email Catherine |
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Aimee Schwartze
Director of Client Service
Email Aimee |
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Amy Montano
Office Manager
Email Amy (AJ) |
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