Tag Archives: budget

Life Insurance: the options

Hello world!  I’m back after being MIA for a few days.  It’s been a nice, relaxing weekend.  Yesterday, I finally bought Vibram Five Fingers after thinking about it for over two years.  REI had a 20% off promotion for members (side note: the $20 fee for a lifetime membership is totally worth it) and I received a $55 REI member dividend so I only paid $23 for them.  I wore them on a walk with Macy this morning and they were very comfortable!  I think they’ll be great for short runs and my Tough Mudder circuit training.

Today, I am working on the eulogy for my grandma’s funeral.  She lived a very long, full life… and it’s hard to even begin to figure out how to summarize that into a 20-minute speech.  I hope I am lucky enough to lead the long and fulfilling life my grandma lived.

Sometimes life is unpredictable though.  (whomp, whomp… I know that makes me sound like Debby Downer)  My grandma passed away at 91, my aunt passed away unexpectedly at 49 and my friend from graduate school has been in critical condition for two weeks at age 33.  No one likes to think they won’t be the person living to 91, but sometimes you need a contingency plan to protect the loved ones you leave behind.  By a strange coincidence, I purchased life insurance earlier this month.  So, this post is intended to give you a quick reference guide on life insurance options.

There are two basic types of life insurance: term and permanent.  A good analogy is that term insurance is like renting and permanent insurance is like owning.  With term life insurance, there is no cash value accrued and coverage is only guaranteed for a set period of time.  With permanent life insurance, cash value is accrued and coverage is guaranteed for your entire life at the same monthly premium.

Term insurance is the least expensive and the premium is usually about $10/month per $100,000 if you’re a young, healthy adult (but gets more expensive as you get older and/or less healthy).  You pay the premium for a set time period that you want coverage.  This is usually good for younger people with limited financial responsibilities/means and parents who want to insure their minor kids are taken care of if something happens to them.  The idea is that you may only temporarily want life insurance because you’ll eventually hit a point in life when the equity in your house or your other savings and assets will eliminate the need for life insurance.

Permanent life insurance is more expensive and premiums vary based on the plan. The most basic benefit is it provides insurance protection and builds up a cash value (savings).  This is a little more detail about the benefits:

  • You can access the cash value by taking a loan against the policy, it can be used as supplemental retirement income, and it can be used as collateral for loans
  • You may get paid dividends if and when the insurance company declares them or you can have the dividends rolled into your cash value.
  • You are guaranteed the benefit for life at your initial premium, whereas term insurance expires and renewing may not be at the same premium rate.  With term insurance, you might not re-qualify for a renewal or it might become very expensive because of age or health.

So, there are a lot of benefits!  That is probably why premiums can be 8-10x more expensive than term insurance when you are a young, healthy adult.

How does permanent life insurance build up cash value?   Part of your premium pays for the insurance and the rest is invested by your insurance company (or, in my case, Northwestern Mutual).  The benefit of this versus saving or investing it yourself is there is usually a guaranteed rate of return.  You can also choose how quickly you want the cash value to accrue, which will be factored into your premiums (the faster you want it to build up, the higher your premium).

There are three basic types of permanent life insurance: whole life insurance, universal life insurance and variable life insurance.  I stole the descriptions of these from the National Association of Insurance Commissioners ‘Life Insurance Buyer’s Guide’:

  • Whole Life Insurance covers you for as long as you live if your premiums are paid. This is the most common form of permanent insurance.  You generally pay the same amount in premiums for as long as you live. When you first take out the policy, premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years.  Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher since the premium payments are made during a shorter period.
  • Universal Life Insurance is a kind of flexible policy that lets you vary your premium payments. You can also adjust the face amount of your coverage. Increases may require proof that you qualify for the new death benefit. The premiums you pay (less expense charges) go into a policy account that earns interest. Charges are deducted from the account. If your yearly premium payment plus the interest your account earns is less than the charges, your account value will become lower. If it keeps dropping, eventually your coverage will end. To prevent that, you may need to start making premium payments, or increase your premium payments, or lower your death benefits. Even if there is enough in your account to pay the premiums, continuing to pay premiums yourself means that you build up more cash value.
  • Variable Life Insurance is a kind of insurance where the death benefits and cash values n the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy. Be sure to get the prospectus from the company when buying this kind of policy and STUDY IT CAREFULLY. You will have higher death benefits and cash value if the underlying investments do well. Your benefits and cash value will be lower or may disappear if the investments you chose didn’t do as well as you expected. You may pay an extra premium for a guaranteed death benefit.

Which one is better?  If you don’t have a good retirement savings or already feel financially strapped, term insurance is probably the best option right now so you can focus on increasing (or starting) your 401k and building up a savings.  If you are looking to make more long-term investments in your life, a mix of term and permanent is probably the best.  I have both because I want a little extra protection for when I have kids (and you usually get a discount when you buy them together) and I want to diversify my retirement and savings.  If you’re young, now is definitely the time to investigate your options because you will get a better rate.  Even if it is a small term policy, it is better to have some coverage.  No one likes to think they would need it, but sometimes life can be unpredictable.

Who can you talk to if you want to investigate options further?

  • I know everyone dreads going to them, but talk to a Financial Planner.  They will be able to recommend if it is something you should consider or if you should focus your financial efforts somewhere else.
  • Your car insurance company probably offers term life insurance.  I know State Farm offers it.
  • When I was doing my research for this post, I discovered the Consumer Federation of America will evaluate your permanent policy (if you already have one) to determine if it is worth keeping.

Do you currently have term or permanent life insurance?  What was the reason you decided to buy life insurance?

Is anyone still going strong with their March Madness bracket?

Thrifty Thursday: Credit Score Breakdown

Credit score.  We all know the term and that we want it to be good.  But how is it determined, what is “good”, and does it really matter?

How is it determined?

The most common method to determine credit scores is the FICO method.  It was formulated in the early 1980’s between Fair Isaac and the three major reporting agencies: Experian, Equifax, and TransUnion.  I am going to be a lazy blogger tonight and share with you exactly how your credit score is broken down, as reported in a Money article (these bullets are literally a copy and paste so I know I’m being lazy, but why recreate the wheel when they explained it so well??):

  • 35 percent of the score is based on your payment history. This makes sense since one of the primary reasons a lender wants to see the score is to find out if (and how promptly) you pay your bills. The score is affected by how many bills have been paid late, how many were sent out for collection and any bankruptcies. When these things happened also comes into play. The more recent, the worse it will be for your overall score.
  • 30 percent of the score is based on outstanding debt. How much do you owe on car or home loans? How many credit cards do you have that are at their credit limits? The more cards you have at their limits, the lower your score will be. The rule of thumb is to keep your card balances at 25 percent or less of their limits.
  • 15 percent of the score is based on the length of time you’ve had credit. The longer you’ve had established credit, the better it is for your overall credit score. Why? Because more information about your past payment history gives a more accurate prediction of your future actions.
  • 10 percent of the score is based on new credit. Opening new credit accounts will negatively affect your score for a short time. This category also penalizes hard inquiries on your credit in the past year. Hard inquiries are those you’ve given lenders permission for, as opposed to soft inquiries, which include looking at your own score and have no effect on the score. However, the score interprets several hard inquiries within a short amount of time as one to account for the way people shop around for the best deals on a loan.
  • 10 percent of the score is based on the types of credit you currently have. It will help your score to show that you have had experience with several different kinds of credit accounts, such as revolving credit accounts and installment loans.

(this is Anna speaking again!)  Your credit report isn’t always going to be accurate because sometimes information is reported inaccurately to Fair Isaac.  This could be: a company didn’t correctly report or update your payment history, someone else’s information was accidentally reported on your credit report, or some other fluke caused your information to be incorrect.  This is why it is important to take advantage of pulling your FREE report every year.  Checking over your report could save you a lot of money in the long run if it means your score will get a boost.  (be careful not to get suckered into the monthly credit monitoring for $9.95/month… not worth it)

What is “good” and how do you get there?

Most people have a score between 650 and 750, and anything over 700 indicates good credit management.  Getting a good credit score takes time.  You need to pay on time, reduce your debt (strive for 25% of your available limit), watch the kind of debt you take on, and follow all the other good advice that I copied and pasted from Money earlier in this post.  This is a breakdown of all the ranges:

  • Between 700 and 850 – Very good or excellent credit score.
  • Between 680 and 699 – Good credit score.
  • Between 620 and 679 – Average or OK score.
  • Between 580 and 619 – Low credit score.
  • Between 500 and 579 – Poor credit score.
  • Between 300 and 499 – Bad credit score.

Does it really matter?

Yes, you want a good credit score but having a great credit score may not get you much more.  A good score will save you a lot of money — and not just because you will get lower interest rates on loans.  These are a few instances where your score matters:

  • Loans and credit cards.  You will get a lower interest rate, and in some cases a bad credit score will prevent you from being accepted for the loan altogether (and the rejection could also hurt your score).  For example, if you are approved for a $100,000 home loan at a 7% interest rate and your friend is also approved for a $100,000 home loan at a 6% rate, your friend’s monthly payment will be $65 less each month than yours.
  • Insurers.  Car insurance companies may use your score to determine your insurance premiums.
  • Landlords.  Landlords may want to know if you consistently pay your bills a time. A low score due to late payments could prevent you from being approved for housing.

However, the difference between a great score (above 750) and a good score may be minimal.  This is because lenders see the risk of someone with a score of 800 defaulting as being about the same as someone with a score of 740.  Therefore, they will both qualify for good interest rates.  Don’t get me wrong, the person with a higher score will save more on interest but it will be a much smaller spread than between someone with a score of 740 and someone with a score of 675.  The person with a great score might save an additional $10 or $20 per month on a $30,000 car loan.

Do you check your credit report annually?  

Have you watched any of the March Madness games today?  Which upset did you pick in the tournament?  (Matt didn’t invite me to be in his bracket!)

The Wedding: Budget reality check

Ok, now it’s time to get down to the details of planning (since we are still hoping to get married this year, which might be a little crazy).  Our first step is to establish our desired budget, which is $20,000.  This includes the invitations, groom’s dinner, ceremony, reception, wedding bands, and all little things that go along with a wedding.  I love Excel files so I found this nifty budget planner online:

$200 for my band? I better not let Matt get that idea into his head! 🙂

At first, we thought this sounded like more than enough money to get us a decent wedding for about 225 guests.  Then, we did some internet searching and realized we need to adjust our expectations.   Whoops.  Welcome to the reality of today’s wedding.  (I still can’t believe the average wedding is nearly $30k!)

We decided that, rather than extend our budget, we want to look for ways to have a nice wedding within our budget.  From what I’ve read and been told, there are two ways to cut cost – trim the guest list and get less expensive food.  We will need to trim the guest list, but we have a lot of friends we’d like to invite and both have relatively large families so the lowest we can probably go is 200 people.   

Matt and I have been in full brainstorming mode for the past two days and, as a result, my head hurts (literally.  where did this dang headache come from?  It must be bad because I wrote “my head hearts” and I read it five times before I realized it didn’t say “hurts”). 

The thing that seems to be the most important to us is uniqueness.  We want something a little different than the standard banquet hall experience.  The problem is the cute venues are all expensive (if it’s not the rental fee, it’s the food!) or won’t fit the size of our guest list. 

These are a few of our ideas (please chime in with your ideas in the comments section):

  • Friday evening wedding.  My concern here is the minimums are lower, but not necessarily the “per plate” cost so I’m not convinced it will save us money. 
  • Lunch wedding.  We could get married around noon, serve lunch, and go out to a bar for some fun.  The main drawback of this idea is I really like the thought of dancing into the night with my friends and family.
  • Find a unique ceremony site and use a standard banquet hall (or one that will let us bring in food).  The reality is that banquet halls have better food pricing and, once everyone is dancing, it doesn’t matter where it is. 

Tomorrow, we are going to look at Profile Event Center in Dinkytown.  The benefit of this place is it’s in a great location and there aren’t any rental costs if you meet the food minimum.  They used to let you bring in your own alcohol but recently changed that policy.  Boo to that.  That is probably better because we determined it would cost us over $2,000 to buy enough alcohol for our guests (hey, our people like a good time!) but it is much less expensive to give two drink tickets or host a cocktail hour.

We are working on scheduling more showings for Friday.  Since we want to get married this year, we have about two weeks to figure out if we can make that a reality.  We have already discovered a lot of venues are booked for the year, but luckily there isn’t a shortage of options in the Twin Cities area!

How did you or someone you know save money on their wedding?  What is the most unique wedding you’ve attended?

Feeding a family of four for $300/month + my tryst with the Do-si-dos

I am training for Tough Mudder and my first sprint triathlon.  I’ve had a hard time jump-starting my training because of fun evening activities so I decided to give morning workouts another chance.  Today was Day #1.  I woke up at 5:10am and I’d like to say I sprung out of bed ready to hit the treadmill.  Instead, it was a 40 minute negotiation with the alarm clock and myself before I finally got myself up and on the treadmill.  Best. Decision. Ever.

I felt so good I decided today was the day to showcase the Michael Kors dress I got on clearance for $18 (it was previously off-limits because it was a little too snug when I bought it).  The problem?  I couldn’t figure out the belt.  I spent a few minutes fidgeting before I enlisted Matt’s help.  We spent another 15 minutes fidgeting before we decided on this tying maneuver

(I also learned these kinds of pictures are more difficult to take than you’d think!  Maybe someday I will do a post dedicated to pictures gone wrong)

My excitement about my morning workout, the dress, and possibly signing up for a St. Patty’s Day run had me feeling pretty good when these showed up at my desk:

After lunch, this happened:

A few minutes after that, this happened:

At that point, I was just glad I didn’t eat the wrapper.  I have zero willpower against Do-si-dos.  Besides, it’s for the kids.  I didn’t feel too bad because Matt and I have been eating a lot healthier the past few months by eating at home and bringing our lunch to work more often.

Cooking at home more often has led us to coupon-clipping (normal people style, not extreme style).  While flipping through Kiplinger’s Personal Finance today, I found a nice story about Carol Scudere, an Ohio woman who started Budget-Meals.org.  Her non-profit teaches families how they can eat well inexpensively (no extreme couponing required).  Based on her experience in the food industry, she believes most families of four should be able to eat well for $300/month.  The basics that I have learned and that this organization promote are:

  • Buy what you need.  Don’t buy food just because it is on sale (unless it is a non-perishable item you know you’ll eat and you want to take advantage of the deal)
  • Look for in-season fruit and vegetables.  A good place to check is Aldi.  They carry in-season fruits and vegetables to keep their costs lower.
  • Plan your meals for the week and make a list
  • Stick to your grocery list
  • Know what is worth buying in bulk.  We know we’ll use black beans so we’ll buy those if we see them on sale, but we have a 20 year supply of pickles that was a waste of money.

Matt and I invest about 20 minutes each week into clipping coupons and another 15 minutes picking out our meals for the week.  We don’t clip coupons for unhealthy food we don’t want to eat to avoid the temptation.  Our coupons go in a file and we only take what we need for the week or really great deals that are going to expire.  This has resulted in a 15-20% savings in our grocery bill!  We know because Cub and Lunds put it right on their receipt 🙂

Additional resources for tips on how to slash your grocery bill:

  • Click here for the Kiplinger’s article.  The Budget-Meals.org website also contains links to good online coupon sources here.
  • Carrots ‘N’ Cake has a Grocery Shopping 101 series of blog posts.  Click here to see her series.

Happy saving!

I finally discovered Instagram.

Good morning and happy weekend!  Did you know it is National ‘Drink Wine’ Day?  Don’t mind if I do (tonight)!

It’s already been a productive Saturday for me.  I finally hopped on the Instagram bandwagon. I captured this picture of Sunny keeping an eye on the neighborhood for us (South Minnie is a dangerous place):

Keeping the neighborhood safe from squirrels (if we didn't hold him back by not letting him outside)

I discovered the semi-blurry feature and took a picture of the roses Matt got me for Valentine’s Day:

This is the level of romance I would have fake-puked at when single. But now it makes me 🙂 🙂 🙂

Matt had a great idea to make us omelets and coffee this morning.  Yum.

Did I eat this today or in 1927? Instagram is so sneaky like that.

Now, we’re listening to a little Otis Redding while we update our budget sheet (and I write this, of course).  “Updating our budget sheet” really just consists of making sure our expenses in our Excel file match our checking accounts online and that we have enough money to pay our bills the next few months (we do! yay for my budgeting system!).  It sounds boring but it is actually very exciting (or I’m just a huge nerd, which wouldn’t surprise me to learn).  One of these days I will get fancy and do all this work through a website like Mint.com.  For now, I am old-school and prefer to do it on my own in Excel.

By the way, (FYI) if you’ve filed your tax return, checked on the status online, and were told no information is available – that appears to be a mistake.  Refunds will be disbursed on the average schedule of 10-21 days.  The official message can be found on the IRS website here.

(this is Macy hiding from Sunny and keeping warm by the heater while we work at the table)

sweetest dog in the world

I have a magazine addiction (although it is not as bad as Colleen’s addiction!).  So, I have promised Matt that today I will go through my stack from the past few weeks.

evidence that I really am a "research junkie"

Yes, you read that right – I said the PAST FEW WEEKS.  In my defense, I got January and February at the same time since I just signed up for a few of them.  What can I say – I got too many good deals on the subscriptions to pass up and they’re great for when I travel.

I hope everyone enjoys their Saturday as much as I plan to enjoy mine!  I might get crazy later and make some Tuna Cakes (instead of crab cakes).  Maybe I’ll get ambitious and post the recipe 🙂

How I took the stress out of managing my budget

If I could only recommend one financial strategy to people for the rest of my life, it would be what I’m going to describe in this blog entry (next to saving for retirement, of course!).  Be prepared to have your mind blown by the simplicity and sheer genius of what I’m about to describe.

First, let me tell you how I got to the point of needing to implement this….

I was so excited to graduate college and ditch the whole “poor college student” thing.  Right after I received a full-time job offer during my senior year, I bought a brand new car and started spending money like I was already making a full-time income.  Ok, who am I kidding? I was spending outside my means before that even though I was footing the bill for a private college.  I already expected to borrow $50k toward my education so I didn’t see the point in “stretching myself too thin” by contributing what I had leftover after rent to my tuition.  I had time to pay it off later so why not enjoy a few new outfits, right?

I continued to live without a budget for a couple more years after college until I decided to buy a townhome (it was 2006, everyone was doing it).  I quickly realized I was living beyond my means.  You would think the credit card balance, constant stress of money, and overdraft fees would have clued me into this earlier.  I needed to lock down my spending… quickly.  Colleen’s sister, Laura, told me how she managed her money and I thought I’d give it a try.

The strategy….

I have two checking accounts – one for fixed bills and one for variable expenses (gas, groceries, eating out, and all that good stuff).  First, I calculated what I need to contribute from each paycheck to cover my monthly bills.  Then, I set up my paycheck to auto-deposit that into my bills checking account and the rest goes into my spending account.  It. is. that. simple.

Exhibit A:

Why do I swear by this?  I never have to worry about whether I have enough in my account to cover my bills and I always know what I have left to spend for the week because they are separate accounts.  This small change caused a large improvement in my stress level and spending habits.  My bills auto-pay from my bills checking account, the money to cover them is automatically deposited from every paycheck, and I check in every week to make sure it is all going smoothly (and sometimes I only check in every month!).

Happy budget management!  (tips on how you manage your budget are encouraged in the comment section!)