FPU Lesson 6 – The Role of Insurance

Insurance is a topic that few people enjoy, but its presence during key points of our lives can have a huge impact. It’s financially vital to understand and purchase the right kinds of insurance. Failing here can have huge repercussions. Below are my notes from the lesson, including the key points that I highlight from the video when leading the class, and some supplemental material that I think could help the class go further on this topic.

Lesson 6, The Role of Insurance

Key Points

Understanding and having the right insurance is playing good defense for your wealth. Insurance is all about transferring risk. Your emergency fund and monthly budget needs to be in place to manage the small stuff, but a medical emergency can devastate your savings. Pay a little every month in insurance to cover the possibility of a future crisis.

Learn the types of insurance you really need and get it now! There are so many kinds of insurance out there, but only a few of them are really necessary. The rest are a waste of your money. Cover the core risk areas, avoid the fluff.

Don’t fail to leave a legacy. Get a will. 70% of Americans die without a will, don’t be one of them. Setting up a will is neither expensive, nor difficult, so there isn’t a good excuse. Don’t leave your family in the lurch.

Challenges

Check Your Options. Your employer may not be the best way to get your insurance. If you lose your job, you can lose your health or life insurance. Plus, you might be able to get a better deal by shopping around.

Check Your Credit Report. Review your credit report at least once a year. You can go to annualcreditreport.com, choose your state, click ‘Request Report’ and follow the simple steps to get a current free credit report from one of the three credit agencies.

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Next week: Lesson 7 – Retirement and College Planning

FPU Lesson 5 – Buyer Beware

With the fifth lesson, we start putting up our shields and gaining power over our spending habits. Below are my notes from the lesson, including the key points that I highlight from the video when leading the class, and some supplemental material that I think could help the class go further on this topic.

Lesson 5, Buyer Beware

Key Points

Learning the methods used to market products to you can put you back in control. Major corporations and organizations spend millions of dollars determining the best ways to convince you to buy their stuff. Color (Century 21 signs are an ugly shade of yellow for a reason), repetition (who deserves a break today?), perceived value, product placement, and on, and on. What they’re doing isn’t necessarily illegal, or even immoral, but it’s important for all of us to be aware of  it.

Always talk to your spouse before making any major purchase. Each family has to determine for itself how much constitutes a “major purchase.” (On average, it’s about $300.) When you get ready to buy something over that number, though, everyone has to agree to the reasons the money is being spent. No exceptions.

Wait 24 hours before making a major purchase. One of the biggest traps we fall into in our culture is the false sense of urgency that is applied to everything in our lives. We’re always being urged to “ACT NOW!” It causes to move on a purchase before we’ve completely thought it through. By taking the time to sleep before you spend the money, you give yourself the chance to feel the true weight of that purchase.

Challenge

End Immaturity. On its own, “I want it!” isn’t a legitimate reason to make a purchase. Tell your inner child to shut up by memorizing and implementing these five key strategies:

1. Wait Overnight. (We’ve already covered this one.)
2. Consider Your Buying Motives. (Consumption will never result in happiness.)
3. Never Buy Anything You Don’t Understand. (If you can’t explain it, then you don’t understand it.)
4. Consider the Opportunity Cost. (If you spend this money here, what are you unable to use it for later?)
5. Seek Counsel. (Start with your spouse, but also have wise friends. Maybe even a financial coach is needed.)

Go Deeper

• Affluenza: The All-Consuming Epidemic by John de Graaf, David Wann, and Thomas H Naylor

• Stop Acting Rich: …And Start Living Like A Real Millionaire by Thomas J. Stanley

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Next week:, lesson 6 – The Role of Insurance (Everyone say “Yay! Insurance!”)

FPU Lesson 4 – Dumping Debt

The fourth week of FPU attacks the biggest problem most of us have when it comes to winning financially. Out-of-control debt. Below are my notes from the lesson, including the key points that I highlight from the video when leading the class, and some supplemental material that I think could help the class go further on this topic.

Lesson 4, Dumping Debt

Key Points

Consumer debt has only become accepted as normal in America over the last 40 years. The credit card has only been in existence since 1950. It wasn’t until after 1970 that their use became widespread. Your ‘need’ for a good credit score is a recent invention. The Sears catalog used to warn customers against buying on credit, and now it’s their biggest money-making department.

Don’t believe myths about debt. It isn’t part of a healthy financial plan. Debt is a product being sold. Remember that whenever they offer a financing option. You’re being sold a product that is tremendously profitable for them. You don’t have to have a car payment. “90 days same-as-cash” isn’t actually the same as cash. Your FICO score has nothing to do with your financial stability. You can live a perfectly normal life without ever touching debt.

Remember the importance of gazelle intensity. It’s very easy in our culture to wander into a crippling amount of debt. Between stupid loans and consolidations, you can suddenly wake up and find yourself under a mountain of payments. Escaping from that kind of mess takes focus, sacrifice, and intensity. The same motivation a gazelle has when it’s running for its life.

Challenge

Chop some plastic. The first step to getting out of debt is to STOP borrowing more money. This is the week we break out the scissors and ask the class if they’d like to cut up some credit cards.

Go Deeper

If you want a more honest picture of how debt and wealth really works, check out these resources:

• The Millionaire Next Door by Thomas Stanley

• The Truth About Money Lies by Russ Crosson

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Next week, Lesson 5 – Buyer Beware.

FPU Lesson 3 – Cash Flow Planning

The third week covers how to create a complete and thorough budget. Below are my notes from the lesson, including the key points that I highlight from the video when leading the class, and some supplemental material that I think could help the class go further on this topic.

Lesson 3, Cash Flow Planning

Key Points

Spend all your money on paper before the month begins. When it comes to cash flow planning, the emphasis is on the plan. Making a plan puts every dollar you earn to work towards some goal. It’s true that reality might interrupt your plan, forcing you to adjust, but having no plan to begin with turns what would have been an interruption into a crisis.

Use the envelope system for successful cash management. Debit and credit cards sell us on the convenience, but what the really do is numb you to the amount of money being spent. To gain control over spending, you need to see and feel the money leaving. Setting aside cash for items on your budget (such as groceries, restaurants, clothing, etc.) can help rein in costs in those categories.

Give your budget 90 days to really start working. It takes time for a new skill to develop into moderate proficiency. Don’t think you’re going to be the exception. Even four years later, my family is still learning ways to improve our monthly money management process.

Challenges

What Are Your Four Walls? Build a strong foundation for your budget by determining which things must be taken care of each month.

Balance Your Checkbook. Don’t fake it when things don’t add up. Making the effort here can really pay off.

What’s Your Car Worth? You’ll need to know to fill out your consumer equity form. The Kelley Blue Book website can tell you. (www.kbb.com)

Go Deeper

Here are some resources for helping you refine your family’s value system when it comes to life and money:

• Purpose Driven Life by Rick Warren

• QBQ! by John Miller

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Next week, Lesson 4 – Dumping Debt.