Dec 17 2014

The Perils of Cut-Rate Insurance

By |December 17th, 2014|General Personal Finance|0 Comments|

A lot of people don’t like paying for car insurance; they see it as a monthly drain on their finances with no real return on their investment – especially since some policies can easily cost thousands of dollars a year. There are some insurance companies that offer substantial discounts on car insurance by offering what are called minimum coverage policies.

As the name suggests, minimum coverage polices offer the absolute minimum coverage that your state will allow you to have and still be legal. These minimums vary by state, with some states having substantially higher minimums than others.

The appeal of these minimum coverage policies is people can sometimes end up paying as little as half the cost of a similar policy from a different provider. The problem with these types of policies is that even at a discount they can cost you.

The Downside to Minimum Coverage Polices

The biggest problem with minimum coverage is that minimum coverage is often not enough. The average accident with injuries costs $126,000 – which includes injuries and property damage. If you have minimum coverage and your state only requires a minimum $3,000 for injuries, $2,500 for property, and a $60,000 per accident, there is no way that your minimum-coverage policy is going to cover the cost of the accident.

Another issue is that these policies tend to have very high deductibles, which could be impossible to meet. In some cases an insurance company will pay out their end of the claim and leave it to you to come up with the deductible. However, if you can’t come up with the money, then you won’t be able to get the repair. If you are in an accident with injuries, it could mean that the insurance company won’t pay out on the injury claim until you meet the deductible first.

Some of these policies also do not have adequate coverage for high-risk drivers. High risk drivers often have special needs, like needing an SR-22 document to be able to drive, and these minimum-coverage companies might not be able to provide that documentation. If they do provide high-risk coverage, chances are the cost is no less than you could find from another vendor, but with less coverage if you actually have an accident. It’s probably better to buy high risk insurance from a specialty vendor than from a discount company.

Keep in mind as well that if the insurance company is offering you such a great discount on coverage, it could be because it is cutting corners in other places, such as their systems, customer service or claims management. This means that you could encounter minor annoyances such as hinky phone systems; or major upsets, such as an incredibly cryptic and confusing claims process.

The other issue is that the company might also do everything it can to avoid paying the claim. It’s not unusual for any insurance company to avoid paying claims, but discount companies could be more likely to do so.

Alternatives to Minimum Coverage Policies

Find out what kind of discounts available from a standard insurance company. While many of these places are not as cheap as the cut-rate providers, you can often find discounts for having a clean driving record, or for bundling services like renters and homeowner’s policies with your car insurance. You might find that you can still save money by going with a standard insurance company, without having to compromise quality.

If you absolutely must go with a minimum coverage provider, make sure to do your homework:

·  Look for consumer reviews as well as ratings to see if the company has a lot of complaints. You should also check with insurance rating companies like A.M Best, and independent consumer sites like Consumer Reports.

·  Find out what other services the company may offer beyond just the minimum coverage. For example, some cut-rate insurers do not offer amenities like roadside assistance or car rental, both of which can come in handy if you have an accident.

·  Set aside some of the money you have saved on the low premiums to pay the higher deductible if you need to file a claim.

Dec 14 2014

Is Money Actually a Good Motivator?

By |December 14th, 2014|Blog|0 Comments|

At work I’m in the process of setting developmental goals for myself for the next year, I’ve started looking into some TED talks about leadership and business effectiveness. Yes, I like this stuff. Yes, that’s a little weird.

I came across a video that really shocked me. It’s called … You can watch the video here. Actually, I highly recommend you do or else the rest of this post isn’t going to make a lot of sense.

The premise of this guy’s argument is that when considering mentally challenging tasks, money is not only a bad motivator; it actually makes people perform worse than no incentive at all.

Obviously this goes against any normal person’s thought process. And no, I don’t consider Marxists “normal people”. I agree wholeheartedly that people are worse at completing the stupid task in this experiment when there is a lot of money at stake, but completing the candle task is much different from completing tasks at your job.

Let’s look at the difference between your job and the candle wax game.

Unless this is the first day of a brand new job for you, you probably have years of experience and/or education that has prepared you to be effective at your job. You’ve almost certainly made mistakes (and hopefully learned from them) and you’ve had some great successes. When you are confronted with a particularly difficult problem, you draw on your immense wealth of experience to guide you to the correct solution.

In the candle wax game, you are placed in a room and asked to complete some brain puzzling task that has no basis in practicality and, unless you’re a member of some weird riddle society, you have no training or experience to draw upon to complete the brain teaser.

This guy presents the candle wax game as proof that financial incentives don’t make people more effective at what they are doing. Heck, prestigious universities have spent lots of money doing studies to prove this very point. The sad thing is, they could have just watched the game-show network and come to the same conclusion.

Have you ever been watching Wheel of Fortune and seen a board that says something like HAPP_ BI_TH_A_ and nobody can figure it out? You’re screaming at the TV “HAPPY BIRTHDAY YOU IDIOT!” but the guy says “I’d like to buy an O” and you just smack your head.

That guy can’t see the answer because he’s sitting on $9,200 and a trip to Costa Rica and it’s freaking him out. He has all this pressure and he fails at a task that he’s not trained for.

Furthermore, nobody in their right mind believes that you can just throw more money at someone to get their brain to work better. If that were the case then Bill Gates would have paid someone enough to come up with a cure for AIDS. Money doesn’t make people smarter. It never has and it never will. It can, however, make someone work harder.

At my old job they gave crappy bonuses. I mean really crappy. They were so bad that I literally never even considered “What might happen to my bonus?” when I was trying to decide whether or not to finish something today or wait for tomorrow. There was essentially no incentive to work harder, so most of the time I didn’t. It made me an unhappy employee because there was no difference in my pay whether I was working like a dog or sleeping like a dog.

At my current job my bonus is a huge part of my pay, and I’m working harder at this job than I ever worked at my last one.

In summary, this guy is going against common sense and saying that financial incentives are actually counter-productive in the business world because it makes people dumber. What he doesn’t realize is his study is limited to a single point in time and deals with a task that the person is not prepared or trained to accomplish.

In the world we all live in, financial incentive doesn’t make anyone smarter, but it can make them work a lot harder. And when you work harder, you get better at your job. You gain the experience and knowledge that will help you solve the next problem.

Luckly for us, financial incentive is now, and will always be, the only way for a company to get incredible results from their employees.

Dec 12 2014

How to Give When You Can’t Afford It

By |December 12th, 2014|Blog, Life|2 Comments|

New Year’s Day is right around the corner, which means a lot of us are going to start making resolutions. Some will decide to go to the gym, eat healthier, or maybe even get more strict with their budget.

If you’re like my wife and I, we want to donate more money to charity. And when we say charity, we don’t necessarily mean non-profit organizations; we mean any organization or individual who needs help. Anyway, we would love to do more than we do today but we are on a super tight budget because we are building a house. We’ve already cut back substantially on spending and there’s not room to increase charitable donations at this time.

So should we give up? Of course not!

We don’t have money in the budget to donate, but we can make time to volunteer. We already volunteer at our church, but we are actively looking for more ways to volunteer and use our time to give back to people in our community.

You might be in the same boat as we are. You want to make a bigger difference but feel like you don’t have the funds to do it. When you don’t have money, consider giving your time.

Just like I don’t limit myself to non-profit organizations for my monetary donations, I also don’t limit my “volunteering” to those groups either. You can do a lot of good by volunteering at a soup kitchen. You can also do a lot of good by helping your friend move or spending an afternoon with your widowed grandparent.

Sometimes you feel the urge to reach out to an old friend you haven’t spoken with in a long time, but get busy and never call them. A nice phone call from a friend might have been exactly what that person needed to get through a tough day.

Can you imagine how happy you could make someone by writing them a sincere, heartfelt letter about how much they mean to you and sending it to them via good old snail mail?

A few years ago I spent a lot of time volunteering for non-profit organizations, and I found that almost all of them I worked with had more volunteers than they had volunteer work available. I also found that when an organization is getting something for free (volunteer work), they don’t value it.

I was helping renovate a daycare in a low income part of town that had flood damage. One week we put down a tile floor. The next week we were pulling up the tile floor we just put down because they decided they wanted something different. If they were paying for the labor to do all that work, you can bet they would have made the right decision the first time.

So whether it’s donating more money, volunteering for a non-profit, or just helping your niece with her homework, make it a priority from now on to just be a better person and give back any way you can.

Dec 10 2014

It’s Like I’m Going Back in Time

By |December 10th, 2014|Blog, Life|0 Comments|

We all reach certain milestones in life that are undoubtedly profound accomplishments. Everyone’s milestones are different, but some examples might be graduating high school, landing a great job, or marrying that special someone in your life.

These milestones are incredible. They are the building blocks that make up your entire life. You’ve become the person you are today because of the milestones you’ve reached (and because of the milestones you’ve missed). The sad thing about a lot of these milestones is that once you’ve accomplished them, you can’t go back.

Once you’ve graduated from high school, it’s over. You have that diploma for the rest of your life, but you can’t go back. For some people, high school was the best part of their lives, but they can’t go back. Those days are over. Marriage is theoretically a one time deal as well, although we know that’s not the case for everyone.

Isn’t it sad that you can’t go back? Sometimes you want to relive those glory days. Well I recently realized that I actually can go back and re-do one of the milestones I reached a few years ago. How exciting!

No, I’m not going back to high school. I’m deducting student loan interest from my taxes!

If you have student loans and make under a certain amount of money per year (you can look up the limits; I’m writing this post from an airplane and I won’t pay the $8 for wifi), you can deduct some or all of that interest and reduce your taxable income. I did this for years until I paid off all my student loans. Yay!

But as you know I’m married now. And my wife has some student loans that we need to pay. We combined our finances even before we were married, so I’ve (and when I say “I” I mean “we”) been paying student loans for a few years without getting to deduct the interest because they weren’t my loans. And even if they were my loans, my income as a single man was too high to qualify for the deduction.

However, I’m not a single man anymore. I’m married, which means all the tax laws change. Where my income used to disqualify me from taking the student loan interest deduction, my combined income with my wife is much less than the limit for a married couple!

I never thought I would be deducting student loan interest from my taxes, but here I am mentally preparing for my taxes next year and I just realized I get to go back and take this benefit again. How exciting!

Although when you really think about it, I went from not paying student loans to paying them again. Sure I get to deduct the interest, but it still sucks I have to pay them.

I guess that’s kind of like going back to high school. It sounds like a great idea, but I’m sure if anyone actually did it they would find it’s not nearly as fun as they remembered.

The point is, when you get married your tax life changes drastically. I basically have to start from scratch on my taxes for next year and consider every deduction and credit because who knows what I’m eligible for? Here’s hoping I can save a bunch of money on my taxes!

Dec 3 2014

Stop Renting Your Router and Modem

By |December 3rd, 2014|Blog, Personal Finance Tips|0 Comments|

I wrote earlier about how I’m breaking up with my cable company. As of December 11th, my monthly cable bill will drop from about $110 per month to $37 per month. Oh yeah!

I am adding Netflix at $10/month, but that still $47 versus $110, which saves $63 a month. That’s $756 a year. It’s amazing how expensive it is to watch a bunch of crap on TV.

Anyway, now that I’m down to just internet, I had the option to either pay $37 per month for just internet service or about $50 per month for the internet service plus a router/modem combo from the ISP. They want me to pay $13 a month just to rent their crappy equipment.

Of course I’m not just going to take that kind of a fee, so I looked up how much it would cost to buy my own equipment. The answer: $107.98 plus tax. I got a nice $20 router with fantastic reviews and an $88 modem that was on the approved list from my new ISP.

$11 per month is $132 per year, and that is just to rent the stupid equipment. You don’t even own it. On the other hand, you can pay $108 up front (less than 10 months of rental fees) and avoid that charge forever.

How to Set Up Your Modem and Router

When you have your own modem, the only thing you needs to do is to give the ISP the MAC number on your modem. It should be right on the bottom of the hardware so it’s easy to find. Once the ISP has authorized your modem then you are good to go. Either plug your computer in directly with an ethernet cord or don’t be cheap and buy a $20 wireless router.

The router is what sends the wireless signal throughout the house. You plug this directly into the modem and then follow the router’s instructions to set up your network. I strongly recommend putting a password on your network unless you want people stealing your wifi and potentially your identity as well.

The best thing about owning your router is that you get to set the password yourself and no one else knows it. When the cable company sets everything up for you, the installer dude knows your password. Call me paranoid, but I don’t like strangers knowing my passwords even if they do wear a beautiful Time Warner Cable logo on their polo.

It’s pretty easy to set up your own modem and router at home, and this way you can avoid the $3 or $8 or $11 or whatever monthly charge to rent the equipment. It will save you hundreds of dollars in the long run.

Dec 3 2014

Improve Your Mortgage Approval Chances Before Applying

By |December 3rd, 2014|General Personal Finance|0 Comments|

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Buying a home is an exciting moment and a major milestone for new buyers.

But the process of applying for a loan can be downright confusing. Lenders have strict criteria when evaluating an application. Factors from credit history to employment and even how much you can put down on the loan all affect the rates you can quality for.

A mortgage will likely be your largest expense. So it makes sense to prepare your finances and take steps to put your application in the best possible light. It can mean the difference between getting approved or denied.

So how can you improve your mortgage approval chances?

The key is to be well prepared. Here we look at steps to take before applying for a home loan.

1. Review Your Credit Report

Lenders take on a degree of risk when taking on new borrowers.

To minimise risk, lenders will look at your credit history to assess your ability to repay a loan. Anything from late payments to delinquent accounts will negatively impact your credit rating which will likely affect your ability to secure financing. This is why you should first check your credit report to see if there is anything hurting your credit.

You can obtain a copy of your report from the following credit reporting bodies:

  • Veda
  • Dun & Bradstreet
  • Experian

You will be asked to provide your personal information for them to identify you. Any inaccurate information should be immediately disputed. Providing proof of the mistake will help to remove the error from your records.

Your lender will question your ability to repay a loan if you have a history of late payments or delinquent accounts. Pay off any accounts that are delinquent and continue making timely payments on other accounts. If you have any recent late payments, wait for at least six months before applying for a home loan and avoid taking on any new debt.

3. Establish Savings

A way to demonstrate financial responsibility is a genuine history of savings.

It shows lenders you are able to put aside a set amount each month and likely able to handle regular loan payments. Both of these reflect positively on your mortgage application as your savings can form part of your contribution. The more you have saved, the less you need to borrow.

Many lenders now require evidence of savings if you are borrowing more than 80% of a property’s purchase price. Savings will typically need to be around 5% of the purchase price although this depends on the lender. So on a $200,000 loan, you will need up to $10,000 saved to meet the minimum requirement.

Having more saved is better and could mean avoiding fees like Lenders Mortgage Insurance. LMI is designed to protect lenders if borrowers require more than 80% of the purchase price. Saving at least 20% not only means avoiding this fee altogether but could qualify you for more competitive rates.

3. Have a Steady Income

Employment stability is incredibly important.

Lenders will closely examine your financial capabilities which means looking at your employment history. Demonstrating a steady source of income shows lenders you are able to repay the loan. Being with the same employer for several years is a huge plus.

Most lenders typically prefer income from a current employer for at least six months. If you have recently changed jobs, then the lender will look at where you were employed previously. Be prepared to provide details to show stable employment.

Lenders closely examine every detail about new borrowers to minimise risk.

The good news is you can start taking steps to improve your chances of getting approved. This involves reviewing your credit report, establishing savings early on, and having steady employment. Working with a mortgage broker can help point you in the right direction to secure a loan for your dream home.

Photo courtesy of TaxCredits.net