You are going to die.
That's a fact. Sorry to be the bearer of bad news. Just because you are young does not mean you aren't going to die. But, you can be smart about your death. It's called life insurance.
Many people my age do not have life insurance. It's an extra expense, and they don't think about the costs still present after the die. Here are my top reasons to get life insurance.
1) You have a mortgage
2) Your kids are expensive
3) The average cost of a funeral is about $7500 http://www.ehow.com/about_5196905_cost-average-funeral.html
If you own a house, and you do not have the money in the bank to pay it off, you should have life insurance. It's not as if the bank forgives the debt when you die. If you want to ensure that your family doesn't get foreclosed on because they can't pay the mortgage, you should get enough life insurance to cover the mortgage.
If you have children, and you can't pay the cost of their college education and other expenses out of money you already have, you should get life insurance. A college education costs hundreds of thousands of dollars (see my posts on 529 Plans), and unless you would prefer that your child not go to college, having a life insurance policy large enough to cover their expenses is a good plan.
Finally, get enough to cover the funeral. You don't want to end up like Donny from the Big Lebowski, with your ashes covering John Goodman and Jeff Bridges. http://videosift.com/video/The-Big-Lebowski-Scattering-Donnies-Ashes
Here's the bright side. If you are reading this, chances are you are young, in good health, and have good habits. You can get a large policy, for a long period of time, for not too much money. I have a large term life insurance policy for 30 years, and I pay a very manageable amount per month. For a discussion of the difference between Term Life Insurance and Whole Life Insurance: http://www.smartmoney.com/plan/insurance/term-or-whole-life-8011/ By the end of the term of this life insurance policy, my kids will be out of college, and I'll likely have paid off most of my primary residence. Then, when I need to renew my policy, I can get a much smaller amount because I will not have large financial obligations coming down the road.
Life insurance is smart, in particular if you own a home or have children. Face the facts: You're gonna die, and life is expensive. Now do something about it.
Friday, March 30, 2012
Friday, March 16, 2012
Apple Computer
The iPad3 comes out today, the 3rd release of an ipad in two years. Thousands will buy it, many of whom bought the Ipad2 last year and the original ipad in 2010. So, people may be spending more than $1500 dollars in two years on a tablet computer, and its newer models. http://www.apple.com/ipad/
In this post, I'd like to advise readers to be more discerning about buying Apple products. I remember reading an op-ed a while back about how Apple is more like a religion than a company http://www.washingtonpost.com/opinions/apple-is-a-new-religion-and-steve-jobs-was-its-high-priest/2011/10/07/gIQAjYlgTL_story.html, and i think it is true. Many Apple adherents have a tendency to be fanatics, and will not consider other similar products from other companies. Samsung recently mocked these qualities in advertisements http://mashable.com/2012/01/20/samsung-apple-super-bowl-ad/.
I would suggest looking to another frame of reference when determining whether or not to make an Apple purchase. Baseball has a statistic known as VORP, or Value Over Replacement Player http://en.wikipedia.org/wiki/Value_over_replacement_player. In short, is what you have worth more than the average, and how much more? Apple's primary product lines include tablet computing, personal computing, mobile telephones, mobile music players, digital music, and a variety of other revenue streams. It is necessary to apply VORP to Apple purchases. How much more is it worth it to buy from Apple than a replacement?
In digital music, there is very little value. The itunes store has many popular songs available for $1.29, and are write-protected so they are not transferable between accounts. Meanwhile, Amazon mp3 has the same songs available for 99 cents, and they are not write protected. http://www.amazon.com/MP3-Music-Download/b?ie=UTF8&node=163856011. Further, they are saved to a cloud drive, and can be downloaded to a player or accessed from the cloud. The VORP of the itunes store is zero.
In the interest of brevity, I am not going to go through this analysis for each of Apple's product lines. Generally, when I make technology purchases, I try to compare the specifications and attributes of the products on websites like cnet.com, to determine what is best for me. In my opinion, Apple's VORP in digital music, personal computers, tablets, and mobile phones is very low. Apple's products are more expensive than their competition, and often do not carry all of the features, such as the problems viewing flash video on Apple products (Apple has since provided workarounds http://www.macobserver.com/tmo/article/adobe_delivers_flash_video_to_iphone_ipad/, but this still presents a consumer frustration).
In the interest of comprehensiveness, if you have not read the article on the conditions of the factories supplying Apple, you should. http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?_r=1&pagewanted=all. Things like this affected product lines from Kathy Lee Gifford and Nike, and Apple shouldn't be treated differently.
Additionally, in an effort to be even-handed, there isn't a very strong competitor or "replacement player" for the ipod. Microsoft attempted to create one with Zune, but that was ultimately unsuccessful. http://www.time.com/time/specials/packages/article/0,28804,1898610_1898625_1898633,00.html. Unless you download all of your music to a cloud and can play from that cloud remotely, the ipod is probably the best option.
Don't just go out and buy from apple. Do a VORP analysis, looking at an Apple product's attributes and drawbacks, and whether or not it is worth the price over its competitors. You may find yourself getting an excellent alternative product and saving money at the same time.
In this post, I'd like to advise readers to be more discerning about buying Apple products. I remember reading an op-ed a while back about how Apple is more like a religion than a company http://www.washingtonpost.com/opinions/apple-is-a-new-religion-and-steve-jobs-was-its-high-priest/2011/10/07/gIQAjYlgTL_story.html, and i think it is true. Many Apple adherents have a tendency to be fanatics, and will not consider other similar products from other companies. Samsung recently mocked these qualities in advertisements http://mashable.com/2012/01/20/samsung-apple-super-bowl-ad/.
I would suggest looking to another frame of reference when determining whether or not to make an Apple purchase. Baseball has a statistic known as VORP, or Value Over Replacement Player http://en.wikipedia.org/wiki/Value_over_replacement_player. In short, is what you have worth more than the average, and how much more? Apple's primary product lines include tablet computing, personal computing, mobile telephones, mobile music players, digital music, and a variety of other revenue streams. It is necessary to apply VORP to Apple purchases. How much more is it worth it to buy from Apple than a replacement?
In digital music, there is very little value. The itunes store has many popular songs available for $1.29, and are write-protected so they are not transferable between accounts. Meanwhile, Amazon mp3 has the same songs available for 99 cents, and they are not write protected. http://www.amazon.com/MP3-Music-Download/b?ie=UTF8&node=163856011. Further, they are saved to a cloud drive, and can be downloaded to a player or accessed from the cloud. The VORP of the itunes store is zero.
In the interest of brevity, I am not going to go through this analysis for each of Apple's product lines. Generally, when I make technology purchases, I try to compare the specifications and attributes of the products on websites like cnet.com, to determine what is best for me. In my opinion, Apple's VORP in digital music, personal computers, tablets, and mobile phones is very low. Apple's products are more expensive than their competition, and often do not carry all of the features, such as the problems viewing flash video on Apple products (Apple has since provided workarounds http://www.macobserver.com/tmo/article/adobe_delivers_flash_video_to_iphone_ipad/, but this still presents a consumer frustration).
In the interest of comprehensiveness, if you have not read the article on the conditions of the factories supplying Apple, you should. http://www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-for-workers-in-china.html?_r=1&pagewanted=all. Things like this affected product lines from Kathy Lee Gifford and Nike, and Apple shouldn't be treated differently.
Additionally, in an effort to be even-handed, there isn't a very strong competitor or "replacement player" for the ipod. Microsoft attempted to create one with Zune, but that was ultimately unsuccessful. http://www.time.com/time/specials/packages/article/0,28804,1898610_1898625_1898633,00.html. Unless you download all of your music to a cloud and can play from that cloud remotely, the ipod is probably the best option.
Don't just go out and buy from apple. Do a VORP analysis, looking at an Apple product's attributes and drawbacks, and whether or not it is worth the price over its competitors. You may find yourself getting an excellent alternative product and saving money at the same time.
Friday, March 9, 2012
Paying Off Debt
Debt is the albatross for young people these days. Often, we're leaving college or grad school with more than 100k in debt. http://www.forbes.com/2009/03/10/college-graduate-school-loans-personal-finance-retirement-grad-school-debt.htmlWhile this is daunting, this debt is an investment in future earnings and options. However, there are a number of excellent options in debt repayment which could help you to greater financial flexibility faster.
First, get rid of all of your private and personal debt. That means credit card debt, car debt, and any private loans. Credit card debt and car debt can be avoided with effective budgeting, restraint in shopping, and avoiding overspending. Private loans are a different story. Often, these loans will carry a higher interest rate, and thus, be more costly than government subsidized loans. There are two ways to manage this money. One, try to avoid it by working while you're in school, and thus avoiding the need for private loans. A second option is the immediate termination of the private loan through no-interest methods. One way which can work is by asking for a salary advance from your job. Your employer will dock your pay to cover it, but you're not paying out over 13%. http://www.thefreemortgagecalculator.com/interest_rates/Personal_Loan.html
If a salary advance is not available, perhaps a no interest loan from family or a close friend may be an alternative. But getting rid of that high interest rate is crucial.
In terms of federally subsidzed loans, look into consolidating your amounts and getting the lowest interest rate possible. http://studentaid.ed.gov/PORTALSWebApp/students/english/consolidation.jsp?tab=repaying The goal is to ensure you get the lowest interest rate possible. Also, at the same time, don't just pay the minimum. Find out how much you can afford to pay off monthly, and do your best to devote a lot of cash to that. The money you are paying in interest is for the privilege of having enhanced earning power, and you should do everything in your power to make that cost as small as possible.
If you have a very low interest rate (some Stafford loans are around 2.4%), don't concern yourself with paying that off on a rushed schedule. You may be able to get a better return for your money in other investments, and so, it would be a prohibitive opportunity cost to pay off the debt rather than get that return.
Also, remember that there are potential loan forgiveness programs and loan repayment options offered from employers. Ask your HR about whether or not your job can help you out. Further, mortgage interest and interest on education loans may be tax deductible, depending on your income. Research this to see if you qualify, and if so, take advantage of these deductions.
Do your best to remove the bad debt (debt with high interest, no tax benefits) as soon as you can, as long as you are not sacrificing more lucrative opportunities. You can find yourself debt free much sooner, allowing you greater financial freedom.
First, get rid of all of your private and personal debt. That means credit card debt, car debt, and any private loans. Credit card debt and car debt can be avoided with effective budgeting, restraint in shopping, and avoiding overspending. Private loans are a different story. Often, these loans will carry a higher interest rate, and thus, be more costly than government subsidized loans. There are two ways to manage this money. One, try to avoid it by working while you're in school, and thus avoiding the need for private loans. A second option is the immediate termination of the private loan through no-interest methods. One way which can work is by asking for a salary advance from your job. Your employer will dock your pay to cover it, but you're not paying out over 13%. http://www.thefreemortgagecalculator.com/interest_rates/Personal_Loan.html
If a salary advance is not available, perhaps a no interest loan from family or a close friend may be an alternative. But getting rid of that high interest rate is crucial.
In terms of federally subsidzed loans, look into consolidating your amounts and getting the lowest interest rate possible. http://studentaid.ed.gov/PORTALSWebApp/students/english/consolidation.jsp?tab=repaying The goal is to ensure you get the lowest interest rate possible. Also, at the same time, don't just pay the minimum. Find out how much you can afford to pay off monthly, and do your best to devote a lot of cash to that. The money you are paying in interest is for the privilege of having enhanced earning power, and you should do everything in your power to make that cost as small as possible.
If you have a very low interest rate (some Stafford loans are around 2.4%), don't concern yourself with paying that off on a rushed schedule. You may be able to get a better return for your money in other investments, and so, it would be a prohibitive opportunity cost to pay off the debt rather than get that return.
Also, remember that there are potential loan forgiveness programs and loan repayment options offered from employers. Ask your HR about whether or not your job can help you out. Further, mortgage interest and interest on education loans may be tax deductible, depending on your income. Research this to see if you qualify, and if so, take advantage of these deductions.
Do your best to remove the bad debt (debt with high interest, no tax benefits) as soon as you can, as long as you are not sacrificing more lucrative opportunities. You can find yourself debt free much sooner, allowing you greater financial freedom.
Sunday, March 4, 2012
Another Piece on Home Buying
A great peice in The Atlantic on buying a home. Thank you to Jed, for bringing it to my attention.
http://www.theatlantic.com/business/archive/2012/03/getting-ready-to-buy-a-house/253927/
http://www.theatlantic.com/business/archive/2012/03/getting-ready-to-buy-a-house/253927/
Thursday, March 1, 2012
Practical vs. Beautiful in Baby Purchases
I have a son who is 16 months old, and I have spent a ton of money on him. We've been through a mountain of bottles, toys, clothes, and all sorts of accessories. I have learned one simple lesson. Never buy anything which does not seem incredibly practical.
A good anecdote is the crib. We have a very nice crib made by some french company, whose instructions are in french. When it came time to lower the crib, it took approximately four hours to loosen bolts, re-align the frame, and then re-tighten bolts with an Allen wrench. Some other cribs can be lowered with very simple latches. But we chose beauty over practicality. Additionally, we have bumpers in our crib, which are nice, but impossible to wash. They need to be washed from time to time, due to vomit, or stains or who even knows. But they are super bulky. I wanted to buy wonder bumpers http://www.gomamagodesigns.com/wonder-bumpers, which prevent suffocation and if they need to be cleaned, can be washed very easily. But our crib could not accommodate wonder bumpers. Take note, that the baby bargain book http://www.amazon.com/Baby-Bargains-Secrets-furniture-maternity/dp/1889392405 will recommend a 99 dollar ikea crib, which you can dress up however you want. But no, we have wasted money and time.
Another place to be super practical is clothes. My kid has a large head, so any kind of clothes with a tight head opening can be a real pain in the butt to put on. But anything which buttons or fastens up the middle is a dream. If your child is in the top 50% for head size, this may be an important factor for you. Remember, with most baby clothes, there is a yelling, screaming, human doing their very best to avoid putting on whatever you want him or her to wear. So, if you want to save yourself tons of headaches, buy clothes with fasteners and not with an army of buttons. But the goal is to get the child dressed, and if you are too exhausted from trying to dress the child, then you don't want to go show them off anyway. Also, whatever you buy is going to have to stand up to a ton of washing, with extra rinsing. Don't buy anything frilly or delicate, because it'll get torn to shreds.
A final thought is toys. There are tons of toys out there, and kids go through them super fast. Instead of buying toys outright, without knowing whether or not your baby will be interested in them, look into subscribing to http://babyplays.com/. If your child loves the toy, go buy it. But if he or she seems to ignore it and not be interested, then you may have saved yourself a fair bit of money. You could waste hundreds or thousands of dollars on toys, and have maybe a 50% success rate. This is an option to try before you buy.
Think about the goals behind these purchases. Envision the whole picture. It is very easy to waste money in this realm, but by asking a ton of questions, and finding the products which fit your individual needs, not just whimsical excitements, can save you a lot of cash, frustration, and energy.
P.S.: If you would like to know the questions my wife and I have learned through the process, contact me privately.
A good anecdote is the crib. We have a very nice crib made by some french company, whose instructions are in french. When it came time to lower the crib, it took approximately four hours to loosen bolts, re-align the frame, and then re-tighten bolts with an Allen wrench. Some other cribs can be lowered with very simple latches. But we chose beauty over practicality. Additionally, we have bumpers in our crib, which are nice, but impossible to wash. They need to be washed from time to time, due to vomit, or stains or who even knows. But they are super bulky. I wanted to buy wonder bumpers http://www.gomamagodesigns.com/wonder-bumpers, which prevent suffocation and if they need to be cleaned, can be washed very easily. But our crib could not accommodate wonder bumpers. Take note, that the baby bargain book http://www.amazon.com/Baby-Bargains-Secrets-furniture-maternity/dp/1889392405 will recommend a 99 dollar ikea crib, which you can dress up however you want. But no, we have wasted money and time.
Another place to be super practical is clothes. My kid has a large head, so any kind of clothes with a tight head opening can be a real pain in the butt to put on. But anything which buttons or fastens up the middle is a dream. If your child is in the top 50% for head size, this may be an important factor for you. Remember, with most baby clothes, there is a yelling, screaming, human doing their very best to avoid putting on whatever you want him or her to wear. So, if you want to save yourself tons of headaches, buy clothes with fasteners and not with an army of buttons. But the goal is to get the child dressed, and if you are too exhausted from trying to dress the child, then you don't want to go show them off anyway. Also, whatever you buy is going to have to stand up to a ton of washing, with extra rinsing. Don't buy anything frilly or delicate, because it'll get torn to shreds.
A final thought is toys. There are tons of toys out there, and kids go through them super fast. Instead of buying toys outright, without knowing whether or not your baby will be interested in them, look into subscribing to http://babyplays.com/. If your child loves the toy, go buy it. But if he or she seems to ignore it and not be interested, then you may have saved yourself a fair bit of money. You could waste hundreds or thousands of dollars on toys, and have maybe a 50% success rate. This is an option to try before you buy.
Think about the goals behind these purchases. Envision the whole picture. It is very easy to waste money in this realm, but by asking a ton of questions, and finding the products which fit your individual needs, not just whimsical excitements, can save you a lot of cash, frustration, and energy.
P.S.: If you would like to know the questions my wife and I have learned through the process, contact me privately.
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