We all know what 2020 means, right? It’s the year where our vision should be a perfect 20/20. Too often our 20/20 vision is actually perfected by looking back and saying, “I should have done ______.” You know the saying, “Hindsight is always 20/20.” When it comes to your insurance and finances, it doesn’t have to be blurry. Let’s make this year one of perfect vision by doing just a little prep work and getting educated.
1. Everyone has a “money mindset.” Some focus on multiplying assets, and others focus on multiplying stuff. Some are risk-takers, while others are conservative. What is your “money mindset”? Also, know that it changes over time (e.g. we tend to be more conservative as we get older). Know your mindset, and use it to help guide you on your insurance and financial decisions.
2. Your home is often referred to as the largest asset/purchase. If a catastrophic event happens (tornado, fire, etc.), you want to make sure it is protected properly. I hear people say, “Pete, I have replacement cost on my home, so I’m OK!” The truth is likely that you DO NOT! Most insurance policies are written to cover reconstruction cost, not replacement. There are also penalties if not insured to full reconstruction cost. Check your policy, or have a professional check it for you.
3. When it comes to catastrophic events, accidents and lawsuits can be financially devasting. Property damage and bodily injury liability are wild cards and can escalate quickly. Recently, a young woman posted some derogatory remarks about a purchase she had made over the internet. The remarks went a bit far, and she was sued for her slanderous remarks. She decided that she did not need personal injury coverage, and the judgment ensued for about $300,000. We see similar financial ruin when limits of auto liability are woefully low (e.g. $100,000 or less). Don’t skimp on liability!
4. Often, there is one member of the household who brings in the largest percentage of the household income. If you have two, count it as a huge blessing. But in either case, ask the question, “If something catastrophic happened to the person(s) earning the income, what would happen to the standard of living of the household?” In tip No. 2 above, we said that the house was often referred to as the largest asset; I would contend that you and your earning power is your largest asset (e.g. if you make $100,000 year for 20 years = $2 million). If that went away through a catastrophic event, make sure you have a plan.
5. Income, savings (e.g. retirement) and taxes—they all go hand in hand, right? We have all heard the saying, “Only two things you have to do in life—die and pay taxes.” While that may be true, you certainly don’t want to pay the government more than you have to, since they do so well with what we pay them now. There are legal strategies that allow you to keep more of your money. Set a goal to find out and implement how to have a stream of tax-free cash flow in your retirement years.
In our current culture, there is a lot out there to cloud our vision when it comes to your insurance and finances. There is the gecko, the elephant, the zebra, the emu and others all vying for your business. It’s a real zoo out there! If you use these tips and spend a little time preparing, you’ll be able to appreciate the zoo without becoming a part of it.