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3 Things 5-13-24

Thing One



Item 4 From Our Five Favorites List



In keeping with our plan to discuss each of the five items on our favorites list, we’ll touch on the fourth item today. (See the full list below)



1) Credit cards are black holes.


2) Thirty years from now you'll wish you had invested more in stocks.


3) Put retirement first (not buying a house).


4) Insurance is a must.


5) You'll end up treasuring almost nothing you buy.



We could go on and on about the statistics on this point but we’re not going to do that. Instead, we’ll keep it simple by describing what insurance is and what it isn’t.



Simply put, insurance is the transfer of risk from one party to another. Insurance is not an investment. Do not be fooled by this even though there are many insurance products that contain investment features.



As for why insurance is a must, the seven reasons listed below cover that topic pretty well:



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 protect personal assets while you’re alive. If someone is injured by you, or on your property, there will likely be a personal injury lawyer involved. His sole purpose is to get money for his client (and himself in the process). If you haven’t transferred that risk to an insurance company, the lawyer will come after your personal assets to make his client whole.



5 - 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.



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.


Thing Two



Who Wants To Be A Millionaire?



The following is excerpted from yahoo finance.com. It is from an interview done with personal finance guru, Dave Ramsey. It’s a testament to the idea of thinking (and acting) long term.



…….



…The Ramsey Solutions survey busted the myth that, in order to be a millionaire, you need a big six-figure income or to come from a rich family where you’re set to inherit a pile of cash. Instead, most of the millionaires surveyed got rich through consistent investing, avoiding debt like the plague and smart spending.



“The typical millionaire that we found — 89% of them were first generation, meaning they did not inherit their money,” said Ramsey. “That’s good news for everybody — we’ve all got a shot.”



The two main items that helped these people hit the million-dollar mark: investing in their company’s 401(k) plan (or a similar tax-advantaged savings mechanism, like an individual retirement account) and buying a house and paying it off.



Buying a home and fully paying off the mortgage is easier said than done, especially in today’s high interest rate environment. A recent survey commissioned by real estate brokerage Redfin revealed at almost 40% of current homeowners in the U.S. would not be able to afford their homes if they bought today.



But Ramsey said he’s a “huge believer in homeownership” as long as buyers aren’t stupid about what they can truly afford. He said: “Homeownership is a key part in the first $1 million to $10 million of net worth that somebody builds.”



He concluded by saying: “There’s a lot of loud noises out there. I don’t know where that comes from [but] it’s not true that you can’t get ahead. When you convince someone it’s true, you’re stealing their hope and … that’s evil…



Ramsey told Von about a 2023 Ramsey Solutions survey, which quizzed 10,000 millionaires across the U.S. to find out what they do for work and how they built their wealth.



The top five careers for millionaires turned out to be:


• Engineer


• Accountant (CPA)


• Teacher


• Management


• Attorney



The interesting thing is, one third of them, 33% made less than $100,000 a year,” said Ramsey. “They were not making bank. They were not earning their way into it real quick…



Surprisingly, medical doctors and physicians didn’t make the top five. They came in sixth position because, as Ramsey put it, even though “they make a lot of money” they’re “notoriously bad” at managing it…



Thing Three



Just A Thought



"if you don't make mistakes, you're not working on hard enough problems. And that's a big mistake." - Frank Wilczek

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