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Financial Planning 101 "The Basics" - Protecting Your Assets


The majority of us here are either self-employed, small business owners or employees. We spend the majority of our time working hard, in an effort to make money and become successful. Our lives are consumed with two main goals: being better than our competition, and trying to handle adversity and avoid pitfalls like stolen content, new laws (2257), visa regulations, lawsuits, etc. What we fail to focus on is what we do with our money AFTER we make it. Many of us have never thought about the "financial" side of things, much less do we have the time to learn what should be done with the money made from our businesses and how to protect it, ourselves, and our family... today and several years from now.

This will be my first of several ?GFY educational series? posts, where I will be sharing my knowledge of financial related matters.

Please note: The information I will be sharing is based on US law. While some of the topics mentioned below may only apply to people living in the US, the general concepts may still be useful to everyone.

There are 3 main components to Financial Success.
1. Protect your assets
2. Plan for retirement
3. Accumulate wealth

For this first post I will be focusing on the first and most important component - protecting your assets. You already know how to make money. I am going to help educate you on making sure you don't lose it.

Protect your assets:

First of all, what are your assets? Obviously the money you have in the bank, your home, your business, any investments you may have, but don't forget the most important asset you have is you!

What good is it to bust your ass to make money just to have something happen to take it all away from you. Before you try to accumulate wealth you need to first put an iron shield around yourself, so all of your efforts are not wasted. If you do not take this first step you are basically playing russian roulette with your wealth / assets.

If you are successful then you have likely put in thousands upon thousands of hours to achieve that level of financial success. However, there are several things that can happen in a matter of seconds that can destroy everything you have worked for. The good news is that you can protect yourself from these disasters. You just need to know what they are and what you need to do to avoid them from happening to you.


#1 Health Insurance:

The most important thing you need is proper health insurance. Do you have health insurance? If you do, do you know what your deductible, co-pay and co-insurance rates are?

Did you know that medical bills from inadequate health insurance coverage (or no coverage at all)is the #1 cause of bankruptcies in the US. Have you ever thought what will happen if you get cancer, have a heart attack, or any other of the thousands of types of illnesses that can land you in the hospital with huge medical bills? And for those of you who say "I am young and in good health nothing will happen to me"... first of all that is very naive. Secondly there are several other things that can happen to you that
can cause you to have 100K's of dollars in medical bills such as getting into a car accident.

Two bad things happen to you when you end up in the hospital. Not only will you incur thousands of dollars in medical bills but you are also unable to work so your income is reduced or goes away all together. If you have accumulated any assets/wealth and you don't have health insurance you are one bad car accident or illness away from watching it all disappear.

Health insurance, relatively speaking is not THAT expensive. The cost will vary from person to person, depending on factors like your age, sex, occupation, current health condition, and coverage selected. Selecting the correct coverage is very important as well. You need to understand what your contribution will be as well as what your max out-of-pocket is in the event something terrible happens.

Also, it is very important that the coverage you select fits you the best so you can get the best bang for your buck. For example, if you are younger and in good health, in many cases it will be most beneficial for you to select a higher deductible since you are less likely to go to the doctor or hospital. A higher deductible will cause you to have a lower
premium (charge) each month. If you are self-employed you could then take what you would be saving each month and set up a Health Savings Account (HSA). HSA's are also tax deductible, so your contributions will become another write off helping you to pay fewer taxes at the end of the year. When you eventually do go to the doctor, hospital, dentist, eye doctor, buy prescription pills, etc. you can use the money from your HSA to pay for it. (I can go into more detail with HSA's later if anyone is interested.)

You ultimately need to talk to a health insurance agent who can look at the whole picture and help set up the best coverage for you. To give you a real life example, I am in good health (preferred status), 33 years old, non smoker, married (no kids) and pay $280 a month for a policy for my wife and I that has a 6K yearly deductible (high deductible), 80/20 co-insurance, with a max out of pocket of 10K. I also have dental insurance included as well. I contribute $200 a month to my health savings account which is basically paying myself (to be used for medical related bills) and taking a tax deduction on it.

#2 Disability Insurance:

Ok, so above I explained only half of the equation of "what happens if I become ill or get into an accident". Proper health insurance will limit your risk and protect your assets by covering the majority of your medical costs. But, what about your income? If you are disabled for a long period of time, or worst permanently disabled, how will you continue to make money?

This leads me to the next thing that everyone should have ? disability insurance. Health insurance protects you from large hospital bills. Disability insurance protects your income if you are unable to work for an extended period of time, or forever depending on the seriousness of your injury/illness. Who is going to run your business if you lose your vision, the use of your hands, or any other injury that will prevent you from working. If
you stopped working today, how long would you be able to survive? How would that affect your family or anyone that relies on you financially?

Let me repeat: health insurance protects you from medical bills. Disability insurance protects your income. Typically you are able to protect about 2/3 of your income, but you can do a lesser amount if you feel that is all you need to live off of. You would also receive the disability proceeds tax free. Disability insurance in most cases is available to age 65 and you can even set up an optional rider for you to get some or all of your money back depending on the claims you made.

Keep in mind disability insurance is not for minor injuries. It is for major injuries where you would no longer be able to work. For example, if you become paralyzed, blind, or confined to a hospital for several months etc... major medical conditions to prevent you from working, disability insurance would kick in to replace your monthly income.

Real life disability insurance example: I just recently changed to a new disability policy for a lower amount of coverage, but added a rider (option) that provides a refund of premiums. I pay $119 a month for $4,000 month coverage till age 65. Since I am 33 years old, if I were to become permanently disabled tomorrow and unable to work, this policy would pay me out a total of $1,536,000 over the next 32 years. For my particular policy, at age 65, i will be refunded all of my premiums minus any distributions I may have received.


#3 Life Insurance:

Life Insurance can be used for many things. It may prove to be beneficial to you both while you are living and after you are gone. For this post I will be focusing only on the benefits of life insurance once you are deceased. The main purpose of life insurance is coverage for premature death. (To protect your family / beneficiaries once your income is gone.)

Health insurance protects your from potentially losing everything due to medical bills if you were to become very ill or have a bad accident. Disability insurance will protect your income if you were to become permanently disabled from that illness or accident. Lastly, Life Insurance will protect your future lost earnings for your family's sake once you are gone.

There are two main types of life insurance: Term and Permanent. Term life insurance is very affordable. It's cost depends on your age, medical condition, etc. In future posts I will explain the differences between term and permanent insurance and the benefits of each. Later on I will also explain benefits you can receive from your own life insurance policy while you are still living.

The younger you are, typically the cheaper life insurance is for you. In some cases you can lock in your premium until you are 65 - 100 years old depending on the type of policy. You are never too young to get life insurance.

"cliff notes"
#1 Health Insurance - protects your assets from medical bills.
#2 Disability Insurance = protects your income if you become disabled and can not work.
#3 Life Insurance protects your family if you die premature, especially if you haven't acquired a lot of wealth for them to live off of for the rest of their lives.

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ICQ: 86364801 Email: will [at] innovativeassets [dot] com