THIS OR THAT?

There are so many choices in life especially when it comes to finances.  These choices can lead to wealth or they can lead to a continuous cycle of just enough to get by.  One of those choices that everyone will make in their life at least if they don’t live in a major metro city like New York where transit rules is when to buy a car.  Not only when to buy a car, but how to pay for that car.  If you only look at car commercials you would think the only option a person had was to finance the car they wanted.  Why do these commercials only show how you can get a car payment or a lease?  Because that is where the car dealership or the bank can soak all the extra money out of you in the form of interest.  The car companies are clever with their commercials because they make the person watching the commercials feel that they NEED that car and that the car will raise their status in the world.  Unfortunately it actually does the opposite.

After looking at a few of these car commercials, I have seen monthly payments of $399, $569, even one that was $749.  Who would pay $749 a month for a piece of scrap metal?  That is the rate of a two bedroom apartment in the south and you can actually live in an apartment!  I use to be part of the car loan crowd in 2007 when my husband and I signed our names to a $20,000 car loan for a Chrysler 300.  The car company appealed to our desire to impress others.  As a result of this vanity my husband and I landed on the wrong side of “this or that”.  We chose this (car loan) and missed out on that (paying off a college loan fast).  See we also had a $25,000 college loan as part of our debt and if we were smart instead throwing our money away each month in the form of a car payment ($400) we could have been paying that student loan off.  It got to a point when I looked in the driveway at that car all I could see was a missed opportunity to be debt free!  Just like us whenever you choose a car payment you are missing out on a brighter future financially because you are spending money that could be used for something more valuable like investing.  For example take our $400 car payment that we paid on for two years.  If we would have invested that same amount over the same period in a mutual fund that has a 10% return on investment then our family would have over $10,000.  If we would have stayed on the loan company’s five year schedule and invested that same amount we would have saved over $30,000!  When I seen these numbers I decided to pay off the Chrysler and to only pay cash for used cars in the future.  I also found out that millionaires only drive used cars and let others take the depreciation hit by buying new.  

We now only drive paid for cars and as a result money that used to go to car payments is now going to saving for the future.  If you have a car payment you have to ask yourself “this or that” and realize what you are missing out on.  Do you have a car payment and there’s no extra money to save for retirement, for college education, or insurance then it is time to say do I want “This” a car payment on something that goes down in value everyday or “That” a financial future where there is no struggle and your family has generational wealth?

WHAT A RIP!

There are a lot of items out there on the market that are blatant rip offs and people would never dream of spending their hard earned money on them, but there are other products that are not so clear and people end up wasting valuable income for decades.  One product in particular is life insurance.  Of course not all types of life insurance are rip offs, but there are a couple that stand out and they need to be avoided at all cost.  The first insurance is any policy that covers a child in the event of their death.  First and foremost any life insurance that is taken out should be for the sole purpose of replacing that person’s income in the event of their death.  God forbid that a child should pass away, but there is no income that needs to be replaced because children don’t contribute financially to the household.  Different companies push life insurance to parents by pointing out that not only will they receive a death benefit if the child passes away, but they also have the opportunity save money within the policy for college.  This policy sounds fantastic on the surface, but when you look closer it is a total RIP OFF!  I looked into one popular company and entered my son’s age which is four years old to see what kind of savings I would come away with when he turned eighteen and it was time for him to go to college.  The policy quoted if I put $51 in monthly for fourteen years I would come away with $10K in savings not including the death benefit.  $51 a month for fourteen years ends up being $8,666 by itself which means the savings only grew by $1,334.  How about a different option for that $51 a month?  Instead of putting it in this life insurance I will invest it in a mutual fund that averages 12% return on investment for the same fourteen years and instead of having $10K at the end I will have $22K!  I think that is a great return for my son’s college fund.  As you can see there truly is no need to take out life insurance on a child.

The next type of life insurance to avoid is Whole Life or Cash Value.  This is another life insurance which tries to convince people to save money within it, but also has a terrible return on investment.  Recently when I was upping my Term Life insurance the agent for the hundredth time tried to sell me Whole Life insurance on my four year old son.  Whole life is not needed for anyone no matter the age, but especially not a four year old.  I politely took the quote because I wanted to see exactly how much a rip off it really was.  The policy would cost me $306 a year for a $50K death benefit.  After forty years the policy would only have accumulated $12,240.  After FORTY years he only has $12K that is RIDICULOUS!  $306 a year comes out to be about $25 a month, so if I invested that same amount in a mutual fund with a 12% average rate of return for the same forty years at the age of 44 he would have over $294K!  So which do you think is the better offer?  On top of the terrible return on investment if you pass away before taking the cash value out, the insurance company gets to keep your money and they only pay your family the death benefit you signed up for.  Now that is a RIP OFF!

If you are in either one of these policies do you plan to get out?

Till next Wednesday!