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3 Things 12-21


A Letter From A Financial Writer To His Son

Morgan Housel from laid out ten pieces of advice in a letter to his newborn son a few years ago. Find them below (and use and share them as you see fit):

1. You might think you want an expensive car, a fancy watch, and a huge house. But I'm telling you, you don't. What you want is respect and admiration from other people, and you think having expensive stuff will bring it. It almost never does -- especially from the people you want to respect and admire you. When you see someone driving a nice car, you probably don't think, "Wow, that person is cool." Instead, you think, "Wow, if I had that car people would think I'm cool." Do you see the irony? No one cares about the guy in the car. Have fun; buy some nice stuff. But realize that what people are really after is respect, and humility will ultimately gain you more of it than vanity. 2. It's normal to assume that all financial success and failure is earned. It mostly is, but only up to a point -- and a lower point than many think. People's lives are a reflection of the experiences they've had and the people they've met, a lot of which are driven by luck, accident, and chance. Some people are born into families that encourage education; others are against it. Some are born into flourishing economies encouraging of entrepreneurship; others are born into war and destitution. I want you to be successful, and I want you to earn it. But realize that not all success is due to hard work, and not all poverty is due to laziness. Keep this in mind when judging people, including yourself. 3. This may sound harsh, but I hope you're poor at some point. Not struggling, and not unhappy, of course. But there's no way to learn the value of money without feeling the power of its scarcity. It teaches you the difference between necessary and desirable. It'll force you to budget. It'll make you learn to enjoy what you have, fix what's broken, and shop for a bargain. These are essential survival skills. Learn to be poor with dignity and you'll handle the inevitable ups and downs of financial life with ease. 4. If you're like most people, you'll spend most of your adult life thinking, "Once I've saved/earned $X, everything will be great." Then you'll hit $X, move the goalpost down the field, and resume chasing your tail. It's a miserable cycle to be in. Save your money and strive to get ahead. But realize your ability to adjust to new circumstances is more powerful than you think, and your goals should be about more than money. 5. Don't stay in a job you hate because you unwittingly made a career choice when you were 18 years old. Your dad shakes his head at college freshmen choosing a major to guide their lifelong careers. Almost no one knows what they want to do at that age. Many don't know what they want to do until they're twice that age. 6. Change your mind when you need to. I've noticed a tendency for people to think they've mastered investing when they're young. They start investing at age 18 and think they have it all figured out by age 19. They never do. Confidence rises faster than ability, especially in young men. Learn the skill of changing your mind, discarding old beliefs, and replacing them with new truths. It's hard but necessary. Don't feel bad about it. The ability to change your mind when you're wrong is a sign of intelligence. 7. The best thing money buys is control over your time. It gives you options and frees you from relying on someone else's priorities. One day you'll realize this freedom is one of the things that makes you truly happy. 8. The road to financial regret is paved with debt. Also, commissioned salesmen. But mostly debt. It's amazing what percentage of financial problems are caused by borrowing. Debt is a claim on your future, which you'll always miss, in order to gain something today, which you'll quickly get used to. You'll likely use some debt, like a mortgage. That's OK. But be careful. Most debt is the equivalent of a drug: A quick (and expensive) hit of pleasure that wears off, only to drag you down for years to come, limiting your options while weighed down by the baggage of your past. 9. Your savings rate has a little to do with how much you earn, and a lot to do with how much you spend. I know a dentist who lives paycheck to paycheck, always on the sliver's edge of financial ruin. I know another who never earned more than $50,000 and saved a fortune. The difference is entirely due to their spending. How much you make doesn't determine how much you have. And how much you have doesn't determine how much you need. Don't become a money hoarder or a miser. But realize that learning to live with less is the easiest and most efficient way to gain control of your financial future. 10. Don't listen to me if you disagree with what I've written. Everyone's different. The world you grow up in will have different values and opportunities than the one I did. More importantly, you'll learn best when you disagree with someone and then are forced to learn it yourself. (On the other hand, always listen to your mother.)


Why Buy Life Insurance

There's an old saying in the life insurance business, "Buy term, and invest the rest." The thought behind the phrase is pretty simple. Insurance is for mitigating risk. Investing is for creating a return on invested capital. Don't mix the two unnecessarily. If you need to buy insurance, you should buy the least expensive kind and only buy it for the amount of time that you've determined you need it. Then, if you have money left over, you should invest it in a manner that minimizes your expenses and is consistent with your tolerance for risk. But how do you know if you need life insurance? Take a look at the eight items listed below. If you can relate to any one of them, you likely need to give life insurance further consideration. ............. 1 - To protect your family in case you die prematurely. This is the most basic reason for purchasing life insurance. People die unexpectedly all the time. If that person happens to be the primary breadwinner in a family, that death might create undue financial hardships in terms of liabilities that persist after death like mortgages, car payments, etc,. And even if that person isn't the primary breadwinner, the untimely death might create financial issues where none existed previously like childcare, homemaking, and even the loss of any secondary income. Income replacement properly summarizes reason number one for purchasing insurance. 2 - To create an estate. You might determine that you will not be able to leave behind the type of estate that you would like to. You can use life insurance to "create" an estate to pass on, provided you can pay the premiums. The earlier you make this decision the better as age and health sell life insurance. 3 - To protect an estate. When you die, your heirs will have to pay taxes on what you pass to them. If you would like to keep the government from taking too much of what you had planned to leave your loved ones, you can buy insurance for the purpose of paying the estate taxes, thereby relieving your heirs of that burden. 4 - To guarantee insurability. Many young parents (and grandparents) who are worried about potential health issues purchase insurance on their young children to establish insurability while they're young and inherently more insurable. The idea is that as they get older they can always increase the coverage amounts of existing policies without providing evidence of insurability through health exams. That means that if they develop health conditions later in life, they're already covered. 5- To create a cash value savings account. With anything other than a term policy, there is the opportunity to build up a cash value by routinely paying the premiums. This is a kind of forced saving account. It's not the best way to save, but it's an option. 6 - To protect a business if a key person dies. Business owners will often purchase key person insurance policies to protect themselves against the untimely demise of a key employee. The specific knowledge, skills, and abilities of the deceased individual are typically not easily replaced, but the proceeds from key-person policy can help buy the business time to rebuild the lost knowledge by providing capital for additional resources and training. 7- To protect remaining partners in a business if one partner dies. There are cases where one partner dies and it would be impractical, for any number of reasons, for the surviving partner to continue in the business with any of the deceased partner's heirs. Policies known in the business as buy-sell agreements allow for this by making funds available upon a partner's death to "buy out" the heir's interest in the business. 8 - As a part of an employee's compensation package. There are times when a business buys life insurance on an employee, who is usually an executive, as a fringe benefit to that employee.

Thing Three

Just A Thought

The inherent vice of capitalism is the unequal sharing of blessings. The inherent blessing of socialism is the equal sharing of misery. - Winston Churchill

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