Free Money Finance

One Year Ago: Invest in Appreciating Assets, The Value of Insurance and Estate Planning, and Free Money Finance Principles Summarized

One year ago this past week I finished my posts on "The Five Principles" I believe will help you grow your net worth (based on the fact that they've helped me). Here are the posts and a brief summary:

• Principle 4: Invest in Appreciating Assets - This includes things like a house, a small business, or rental property.  On the flip side, this principle also advises us to avoid those assets that decline quickly in value – like new cars.  As we explore this principle, we’ll discuss these issues and how to address them. 


• Principle 5: The Value of Insurance and Estate Planning - In order to be financially solid, you must protect your largest assets – your home (house insurance), your car (auto insurance), and your income (disability, medical, and life insurance).  In addition, you must protect them even beyond your life -- that's why we'll discuss wills in this section.


• Free Money Finance Principles Summarized - A quick review of all the Free Money Finance five principles.

Stop by these posts and see what Free Money Finance was like in the "early days."

Benefits of a Will

Here's a post on probably the most unpopular issue in money management (other than budgeting and maybe insurance), but it's an issue you must take very seriously.

Much of our lives are spent working to provide for ourselves and our family. But what about after we’re gone? If you don’t have a will, others will decide how your estate is divided when you die.  Follow these three simple steps to make a will that expresses your provision for your loved ones:

Step 1 – Find a good lawyer to do your will. Hand-written or fill-in-the-blank kits are often out-of-date and may not conform to state laws. Though a professionally prepared will may cost a few hundred dollars, it could save thousands of dollars for your estate. Ask friends and relatives for references as a starting place.

Step 2 – Complete the will. Be sure it includes the following:

• Who inherits your property. Make a list of all your assets and their approximate value. Then decide who gets your property, when they get it, and in what form. If you die without a will, the state decides what happens to your assets.
• Who will care for your minor children. Name a guardian (caretaker) for your children and a trustee (who distributes assets for children until they are mature and capable of making their own financial choices). Without your written instructions, the court will select a guardian who may not be the best choice.
• What happens if you’re incapacitated. A power of attorney gives someone legal authority to make health care and financial decisions for you if you cannot make these decisions yourself. A living will gives your doctor your desires regarding life sustaining procedures, artificial nourishment and organ donation. You’ll need both.
• How you minimize estate taxes. Many people have estates much larger than they realize when life insurance, retirement benefits, home, farm or other real estate, savings and securities are taken into account. Structure your will to avoid the unusually high estate taxes.
• Who administers your will. Choose an executor or a trustee. This person carries out the terms of your will.
• What gets donated to charity. Federal and state tax laws allow your estate to receive a charitable deduction for the full fair market value of a gift. Your will can remember the work of your favorite charity by donating a specific dollar amount or a percentage of your estate.

Step 3 – Update your will as needed. Review your will every three years to be sure it fits your present situation and conforms to current state laws.

Make it a priority to have your will drafted soon. It will not only allow you to express your desires regarding your health and resources, but will also give the maximum provision to those you love and wish to benefit.

Principle 5: The Value of Insurance and Estate Planning

The great book The Millionaire Next Door (which, BTW, you should read if you like anything I have to say) talks about people who become millionaires. (Guess the title makes that clear, huh?)  Anyway, the book says that the key to being wealthy is for a person to play both good offense (make a lot of money) and good defense (spend little and protect what they have).  The heart of good defense is insurance and estate planning.  It’s also the heart of Principle 5 which says:

Protect the value of your assets

In order to be financially solid, you must protect your largest assets – your home (house insurance), your car (auto insurance), and your income (disability, medical, and life insurance).  In addition, you must protect them even beyond your life -- that's why we'll discuss wills in this section.

Unfortunately, the areas of insurance and estate planning have four big negatives associated with them:

1. They're boring.
2. They're confusing and complicated.
3. They aren't urgent -- many people put them off for a long time and don't see any ill effects.  (until one day...)
4. No one wants to talk about financial issues that deal with them either being hurt or dead.  They think it's bad karma.

I can't promise that I'll make this topic exciting, but I will work to make it so simple that even I can write about it.  If you'll promise to at least listen to what I have to say, perhaps together we can overcome all these objections and make sure you're taking care of all the issues associated with Principle 5.