Can America save money for a rainy-day? Every day in this new economy has the potential for being a rainy one. With cutbacks, layoffs, and the mortgage crisis, we all are on the edge. It is now a fact that Americans cannot live as they used to. We must learn to spend less and save more. There are certain bills we all must pay each month. These include car payments, house payments and insurance. We are expected to save enough money at the end of each month to pay college and retirement costs, as well as take our family on vacation. Aside from all this, we should also be saving money for a rainy day. It’s difficult to do so in today’s world. I believe I can help.
Let’s get back to the bills that we pay each month. Let’s start with the house payment. Multiply your monthly payment for your house, whatever it may be, by the amount of time you still owe on your mortgage. If we have a 30-year loan, $1000.00 will be used. This is $1,000.00 x 276 payments, which comes out to $276,000.00. The home was purchased for $260,000.00 and we paid $60,000.00 down. To get the home free and clear, we put down $60,000.00 and will continue to pay $276,000.00. This totals to $336,000.00. We also need to add $84,000.00 to the first seven years of our payments. For a total of $420,000.00, we will be able to buy a home we own free and clear in 2032. While there are other costs associated with owning a house, such as taxes and insurance, let’s keep it simple. This is the point where your home is worth less than you paid. This is conservative. What you get is a savings account. My point is that you must sleep somewhere. Why not stay there and get some, or all of your money back?
What other costs do we need to pay each month? Food ….. If you don’t want to buy a John Deer, and then start tilling the dirt, I won’t be able to help you. ………What else Car payments are not a savings option unless you plan to buy antiques (can’t afford them). ……….Health insurance, Yes, health insurance can be a great savings account. (HSAs are becoming very popular in middle America) What else……….College funding, Yes college funding. ………..Life Insurance, life insurance is the best type of built-in savings. Let’s not forget about the 5 monthly bills that most of us pay. We can turn these savings accounts into savings and get at least some of our money back.
They are screaming at me, my article, the CPAs, the stock brokers, and all other non-insurance selling “financial advisors”! “You should look for cheaper insurance and then invest with me and my broker friends.” This statement is false because it says that Wall Street losses have caused Wall Street friends to become broker.
We Americans will adapt to the new economy today (or die). We will accept less return in exchange for greater guarantees. That assurance can be provided by well-written insurance policies. Look at your mutual fund statement to see the maintenance costs. This is approximately 1 1/2% to 2 1/4%. That’s equivalent to a well-written UL insurance policy, or a term policy that has a return of premium rider. The mutual fund has the potential to lose and it does not provide protection for your family. With a good UL policy you can have both savings and protection. A good UL policy has another advantage: all the funds are TAX-FREE and can be accessed every year. This is in contrast to a mutual fund you may own. Please consult your tax advisor if you are considering buying any policy.
A home mortgage protection policy with a return-of-premium rider is another type of insurance policy that is gaining popularity. This is simply a contract between the policy owner and the insurance company. It states that you will make all premium payments during the policy’s term and that we will return all premiums. This policy is easy to obtain and affordable. It is also a great way for your family to protect themselves and save money. These policies are so powerful, I will be writing more about them in a future article.
We also discussed health insurance. You may be thinking, “How can I save money while still having health insurance?” These accounts are known as HSA accounts. HSA stands for Health Savings Accounts. Simply put, there are two sides of a health insurance policy. Side one covers catastrophic care, while side two covers office visits. Side one is seldom used. How many times have you, or someone you know, spent extended periods of time in the hospital? Insurance companies consider this the most affordable side. The second side is the most expensive and can cost insurance companies millions in unnecessary doctor visits. These costs can be very high if you visit the doctor for the sniffles, then return to see the doctor a week later. Add those to the cost of the millions of people who do it, and you’ll see how expensive it is.
Let’s say we have a family of four and divide the costs. I pay $665.00 per months for dental and health care. 255.00 dollars are for hospital stays, the rest goes to doctor visits. That’s $410.00 from my $665.00 premium. Wow, that’s a lot. In an HSA, the doctor visits burden is on me. These visits are covered by me; this is where my savings account comes in. You remember the $410.00 you mentioned. This money now goes into my savings account every month. I also receive a special debit card that can be used only for prescriptions and doctor visits. All that money can be saved for next year if my wife and our boys don’t see the doctor except for our annual check-up. We eat healthier and exercise more often (I don’t want to spend that much money). You can see how that adds up over the years. Another thing to note is that you can add any amount you wish or not into the account. If you have money problems, just pay $255.00 and your policy will remain intact.
Did I say free in the title? There is no free in life, and that includes the protection of your family and your life. This article was the free part. I know how much it cost and you now have the information you need to start saving for a rainy day. Good luck!