Thursday, March 26, 2009

Economic Responsibility...Really Means Human Responsibility

Readers of this blog may have the impression that being economically responsible means amassing dollars as an end to itself, for it's own sake and nothing else. But really, where the rubber hits the road, being economically responsible means being responsible to those who need you, depend on you, who love you, or those whom you love.

Let me explain through a case one of my agents is working on.

The husband of the couple is in his late 40's, and is an attorney in a department of the federal government. His wife is a foreign national in her early 30's. She used to work part time. However, they just had a baby and now she will be home full time taking care of the house and child. The wife spoke to the agent about getting a life policy on herself and on her husband, since they have additional responsibilities with a new baby.

When the agent met with the couple, the husband balked at additional insurance on himself. He explained that he had a group policy for half his annual salary that he got for free through his work, and he didn't see any need in purchasing additional insurance, stating "that amount will just have to be enough." Furthermore, he didn't want to fork out any premium for a policy on his wife, stating "if something happens to her, I'll just give the baby to my parent to raise."

Now, you and I can throw around stereotypes about attorneys, or older American men marrying younger women from developing countries. But the reality is, no matter who the husband and wife are or where they came from, this husband wasn't willing to be fully responsible to his wife and child. The only help he was willing to give his young wife and new mother was a policy he got for free.

I don't know how much an attorney in a department of the Federal government makes. I know he's been in his position for more than 15 years. And knowing the GS levels, I'm figuring $120,000 to $140,000. So we know that cash flow is not an issue. In fact, I learned from the agent that the husband has a gym membership at one of the most expensive facilities in the area, drives an expensive foreign car, and regularly enjoys dining out a very nice restaurants.

It's sad that the wife left the meeting feeling very badly that her husband wasn't willing to shoulder what is a discretionary amount of money to be economically responsible to the two people who love and depend on him the most. In fact, the wife told the agent, "If something happens to him, I will just have to move back to my country. I can stretch the policy he has at work if I do that." Of course, living in a "third world" country with it's lack of economic opportunity, education, and health care wouldn't be a good thing for the child or mother, but that was the only viable option this young mother felt like she had. And more importantly, the only viable option the husband was allowing.

This is only an extreme example in the fact that the wife would move back to a third world country if the husband were to die. Sadly, the dynamic is not uncommon at all. We have cases, on a weekly basis, where one spouse won't give up pleasure based expenses, such as a motorcycle, ATV, boat, playing poker with friends, etc. to be economically responsible for his family.

The fact that the consequences of not enough insurance are so extreme illustrates a point in stark contrast: economic responsibility is really about taking care of your own life and the lives of those who depend on you.

So, how are you being responsible to those who depend on you? Or not?

Wednesday, March 25, 2009

"It's not return on my money I'm interested in, it's return of my money"

I recently stumbled upon this quote by Mark Twain and found myself comforted by its historic perspective. For those of you who don't know, Mark Twain lived from 1835 to 1910. Probably best known for The Adventures of Hickleberry Finn, Twain, really named Samuel Langhorne Clemens, is known as the father of American Literature []. He was a friend to presidents, artists, industrialists, and European royalty.

The comfort of Twain's remark is that we have been through economic crises before. Hype is nothing new. People with money have been given empty promises way before you or I were even a thought. Scammers promised high returns on money since there was some one to speak to. Investment schemes have gone bad over the decades. Our country has seen the end of many good times and the start of many tough times. People before have lived through it all. That's what's comforting.

Twain in fact experienced some dire financial times in his life. Perhaps this quote is born from some hard won lessons on his part. Whatever their source, Twain's remarks remind us of what is important in economic responsibility: preservation of capital first, growth second.

We can find many sources of inspiration and often they come from the 'non-financial' sector. Someone with as much life experience and perspective as Mark Twain can shine a common sense light on what means to be economically responsible.

Tuesday, March 24, 2009

"If your ship doesn't come in, swim out to it."

This quote is by the late Johathan Winters, probably one of the funniest entertainers ever. He was also a great observer of humanity. I think that's what made him so funny. Plus his own life story is amazing. He built one of the most successful comedy careers over decades. He has lived these words.

So what does this quote mean? Well, it means two things to me.

First, we've heard people say "I'm waiting for my ship to come in." That's kind of a passive way to approach life. Just sitting around waiting. We know lots of people like that. Their idea of initiative is to sit around. OK, maybe they'll buy a lottery ticket once in a while. But they see economic success as just something that happens to them without their initiative and without their control.

The second thing I pick up from this quote is that while desire and effort are important, equipping, planning, and good execution is critical to financial success.

It's not enough to want success. You have to want it enough to risk your comfortable and predictable spot on the dock. You have to want it enough to be willing to get in water. You have to want it enough to perhaps learn to swim, to train so you can swim better and longer, and to pick a good day to do it. You have to want it enough to have a good safety net or plan, so that if things don't go right, you can try again and not drown in the middle of your first attempt.

Let's face it, for most people, financial success is something we have to go out and get. So, to my fellow swimmers: let's train, make sure we pick the right times to make our attempts, and have our safety plans in place.

Being active, intentional, and deliberate--those are key parts of economic responsibility.

See you in the water!

No One Is In A Position To Be As Responsible with Your Money You

The money I earn is hard won. And I know I'm not the only one. In fact, at this point in my life I may not work as hard as someone who loads frieght trucks for a living (did that in grad school), waits tables or cooks in a restaurant (high school and college), landscaping (high school too), and a bunch of other professions I never had the opportunity to explore. But our earnings come from the strength of our backs, the creativity of our ideas, and the sweat of our efforts. We have a vested interest in being economically responsible.

Let me repeat something I mentioned in a previious this blog--this is not a policital soap box. Having made that disclaimer again, our elected policticians have their shorts in a twist at the bonuses paid to several dozen company executives, at the cost of a few hundred millions dollars. Has anyone missed the contradiction (some may call it hypocritical) that only a week before, the president signed a spending bill that I understand had over 8,000 ear-marks (pet spending projects put in there by both democratic and republican legistators to benefit businesses in their districts) that cost billions. And this bill was signed after a campaign that promised no ear-mark spending, also called "pork barrel"? I like the term "pork barrel" better--it's more descriptive of the purpose of this use of yours and my dollars--spending our money for their for political purposes.

The reality is no one is in a position to be as economically responsible with your money as you are. You earned it. You and your family depend on it now and in the future. They are your first priority. You have a critical interest in seeing that you keep more of what you earn, that your savings are safe, and that you and your family have a better tomorrow than yesterday.

What is the saying? "Charity starts at home"? We can change that to say "economic responsibility starts at home". And, if the blogs on this site peak your interest, give me a call so we can discuss your situation.

Monday, March 23, 2009

A Hair of the Dog that Bit You

I've heard that saying, haven't you? It's used when someone wakes up with a hang-over, and a "friend" recommends they have another drink to deal with the results of their binging. "Have a hair of the dog that bit you" they might say.

That's the same type of ill-conceived advice I've heard from pundits who say that spending is the way out of this economic crisis. Let's do more of what got us into this mess! Have another round of debt! As a country, we've been binging for a long time. If we haven't been buying ever more expensive homes, we've been taking out home equity loans on the increased "value" of the residence we're in to fund "life style" expenses: vacations and trips, new cars, etc. It's all fun and games until someone gets hurt.

Maybe there does need to be more spending in the national economy. I don't operate on that level. I'm interested in my own personal economy. And your own personal economy. Is that the right thing for you to do--spend more, and more, and more?

I never thought it made sense to spend to the limit of your income. There is nothing like knowing you can turn to a nice nest egg when times are tough. And I'm not talking about the equity in my home, either. As we have seen from the recent real estate market, the value of an illiquid asset shrinks with demand. Nope, I'm talking about liquid and safe instruments that can be tapped when and if needed.

Funny thing about saving more--we have more power and control over our circumstances. This is true, I think, both individuall and as a society. If we can have 6 months of very liquid investments, we could weather getting laid off a lot better. When we as a society save more, then the banks would have more cash, and wouldn't need (as much of) a bail out. Maybe it's simplistic, but it makes sense to me.

Economic Responsibility to me means always living well with in your means. As a person. A family. A society. We can't help what the greater society does. It's habits are shaped by advertising and business interests that have a vested interest in their own income, not ours.

But we can follow through on economic responsibility with ourselves and our own families.

You Want to Tax What? Government Gets Desperate

On March 16, I published a blog that addressed ways you can be better prepared for the upcoming tax increases []. In that blog, I made the point that it's only a matter of time before we see tax increases to fund the economic stimulus package, and also as a reaction to the downturn in the economy.

Well, ABC News recently published an article on line that identified some creative ways government is trying to raise cash flow []. The title of their online article is "You Want to Tax What? Government Gets Desperate".

Admittedly, this article describes what I call "fringe taxes": levies that hit only a part of the population. Mostly "sin" taxes. It's an interesting article. But it's just the beginning, I think. The reality is these taxes and fees can't raise enough money to be of great significance. But, they do get the population used to more expense, I believe.

Look--the government is likely to be first at the trough to eat. Their share comes off the top, what ever size they determine that share needs to be. Soon, I think, we will see proposals for broader taxes and reductions in exemptions to make the current taxes apply to more people.

Fore-warned is fore-armed. Sheltering your estate from a higher "death tax" through insurance, creating tax deferred wealth through annuities, sheltering cash in cash-value policies are just three very legal and common ways to keep more of what you have worked so hard to accumulate. It's the economically responsible thing to do.

Thursday, March 19, 2009

A Most Pitiful Sight

OK. I admit it. I'm a Diet Coke fiend. Chances are you will find me with a Diet Coke in the office, at home, and in the car. Sometimes my preplanning breaks down, and I find myself in the car without my cherished refreshment. When that happens, I usually pull into a convenience store to pick one up. It's an addiction really.

But that's not the pitiful part. This week I found myself in that situation. I was in a rural area and stopped at the first convenience store I came to when the addiction struck. When I went to the cashier to pay for the drink, there was a large plastic jar on the counter with pennies, nickles, dimes, some quarters, and a few dollar bills in it. A sign on the jar said "Help us help the Johnston family." Below this headline was the picture of a seemingly healthy man, looked to be in his early-30's holding a small child, and both were smiling. Below the picture, the text informed me that Mr. Johnston died unexpectedly and left a wife and 2 kids. The collection jar was placed there by his church to help the family. I asked the clerk if she knew the family, and she said she did. She said Mr. Johnston had no life insurance when he died.

What's pitiful is that this family's never going to be whole again. I'm not talking about the emotional void the family has. Nothing can fill that. Rather it's the economic desperation they're going through. Hats off to his church. They are doing what they can to help. (I found out the church had placed jars like this all over the area). But look at the reality. There might have been $25.00 in the jar, tops. And the jar had been there for 3 weeks. So let's say there were 40 of these jars total with a similar amount of collections. That's still only $1000. Hardly enough to sustain the family for any length of time.

The cashier told me Mr. Johnston came "in all the time." In the mornings, he would stop in for a coffee on his way to work. In the afternoon, he usually stopped for a snack and a drink on his way home. He filleds his tank a couple times a week. The cashier told me that money was tight for the family, as Mr. Johnston was the sole "breadwinner". Clearly this cashier was feeling bad about what happened to a community neighbor and good customer, and helpless to do anything more significant to help the family.

I dropped my 41 cents in the jar. (The drink was $1.59 including tax). And on the way out, I thought, "You know, this guy probably spent $5.00 a day on drinks and snacks at the convenience store. That's a hundred a month. For a young 30-ish man, that buys a damn nice life insurance policy." After I got back to the office, I ran an illustration for a 35 year old standard health non-smoker and found that this guy's snack money would buy a $844,835 term policy for 20 years.

You can tell this situation made me angry. All I could think of was the desperation his wife might be feeling right now. How often does she wake up at night, not because she's missing her husband, but because she's worried about how she'll make the rent or mortgage--if not this month, then the next? Or how many bills are piling up on her kitchen table? Does she worry about getting her growing kids new shoes or clothes when they need them? Is she able to go grocery shopping without using food stamps?

I'm sure Mr. Johnston thought he was taking care of his family. I could see from the picture he was a very proud father. And no one expects to die prematurely. But he did, and his wife and her little children are in a world of hopelessness that they can't easily get out of. And all they have now to help them are the good intentions of some good willed people and a pitiful few dollars in collection jars scattered around their county.

Reality is that money feels "tight" for most families. We all have a habit of living up to the level of our incomes. And maybe even a bit beyond it at times. But like Mr. Johnston, we usually have discretionary spending somewhere, even if it's only a few dollars a day. And that small amount applied to a life policy will leave our families a lot more than memories if we take an early and unexpected exit from this life.

Your Income: Your Family's Most Important Asset

Several days ago, I posted an article that addressed the importance of an income stream for your family ("The Rules Have Changed..." March 16, 2009), and consequently the importance of insuring that income stream in case the earner is not around.

Well, Time Magazine recently came out with a feature piece "10 Ideas Changing the World Right Now." The first idea is that "Jobs Are The New Assets"
[,28804,1884779_1884782_1884749,00.html?xid=rss-topstories]. The reason Time identifies "jobs as the new assets" is because they provide through their income stream, as they always have, the primary means of economic support for today and also the means to economic advancement and wealth creation for most people.

I mention this so you know my posts are backed by sound facts and ideas, and are not the rants of an insurance crazed professional!

Seriously, for Time magazine to label jobs as the "Number 1" world changer is very significant. When the value of everything else is in question, our jobs continue to provide cash flow to our families. A critical part of 'economic responsibility' is to treat our jobs as the assets they are, and be deliberate about our career paths, acquired knowledge, and the acquistion of additional knowledge. This helps promote future income growth for you and your family. Of course, insuring your income stream to your family in case the worst were to happen is so critical as well. This protects them now and in the future, so the plans they have--stay in the house, send the kids to college, retire at a decent age--can still happen whether you are around or not. This treats your income as the premier asset that it is.

Tuesday, March 17, 2009

Things That Money Can't Buy--Priceless

Any time someone writes a blog that has to do with finance and economics, the tendency may be to think that the most important thing in life is money. But really, in my thinking, money is a tool that finds meaning when used toward other aspects of life: things like family; developing your own purpose in life; spending time with those you love; and making contributions of time, energy, and resources to worthy causes. Each of us can probably add to this list.

Stanley Bing, author and columnist for Fortune Magazine, echoes these thoughts. "Look. Throughout the course of human history, life on earth has been a struggle, a disappointment to most, a tragedy to some, a triumph to a few. But for most of us, the small things in life make it worthwhile" [Stanley Bing, Fortune magazine, July 21, 2008]. Of course, the small things are not so small. Seeing your child take her first steps. Or graduate from college. Chaperoning your young teen on his first "date." Taking time to enjoy a simple home-cooked meal with the family. Playing catch in the back yard. Enjoying an afternoon at the museum.

Nothing replaces these times and experiences. No amount of money in the world. But money can help make them happen. And lack of it can prevent them. A father may not live to see his youngest daughter graduate college, but enough life insurance can make it possible that she will graduate instead of having to drop out due to lack of funds. It makes it possible for a surviving spouse and children to take time to enjoy a home cooked meal, instead of the spouse having to work two jobs to support the family.

This is what economic responsibility boils down to for me: making sure that priceless experiences can still happen for those you love, whether you are around or not.

Your Small Business--Your Family's Most Important Revenue Producing Asset

Small Business--it's what has made America great. The Labor Department reports that more people are employed in small businesses than in all of big business combined. That's a lot of employees. And a lot of business owners.

Most small business owners pour their hearts and souls into their enterprises. It becomes their way of life. Their business is probably the primary revenue and income producing asset for their families. But, and this is key, their families have so much more at stake than the actual take home salary of the owner. For instance, a business owner may be paying him- or herself a $50,000 or $75,000 salary, but the business may be worth hundreds of thousands, or even millions, of dollars. In fact, the tax incentives are for the business owner to pay him- or herself as little as is allowable by IRS guidelines, and keep as much in the business as possible.

So the small business owner must take the topic life insurance very seriously. Not only is the family's income in jeopardy if the business owner suffers a premature death, but the family fortune, as represented by the business' value, may be vulnerable too. The business may close its doors with out the owner. Or, it may have to be sold, and in such desperate times the family may not get the full value for the business. At the very least, if the family keeps the enterprise running, the volume of business would be expected to drop as a result of the change in leadership.

It's a shame when the surviving family doesn't get the full value of such an asset. It's also regrettable that the family doesn't get the full benefit of what the business owner spent his life building.

The proper life insurance can prevent this tragedy in two ways.

The surviving family could take the death benefit from the policy and hire the right kind of executive to run the business. This way, they are keeping the producing asset in the family. And, with the right person hired to man the helm, the business can be expected to continue to produce. In effect, this is key person insurance. The policy can't replace the lost mom, dad, sister, or brother, but it can replace the functionality of the owner in the business. To keep it producing income. To keep it's value up. To help it survive and be a legacy of the owner and the founder.

The second way is for the policy to pay the value of the business to surviving family. That way, they don't have to worry about continuing the business if they can't, don't want to, or don't have the ability to. For instance, we recently wrote a policy on a sculptor. He has a business that makes marble and granite architectural replacement pieces for historic and municipal, mainly state and federal, buildings. He and his talents are the business. Perhaps his spouse could find another sculptor to take his place. But people with this ability are apparently few and far between. So the plan is for the face value of the policy to compensate the survivors of the business owner if her were to die prematurely, as there would be little opportunity in selling the business.

Are you a small business owner? When did you last plan for the succession of your business? It may be your family's most important revenue producing asset.

Monday, March 16, 2009

The Upcoming Tax Increases....

OK, first the disclaimers.

First, I am not a politician. So this is not a politically partisan piece: I am not writing a commentary on the relative merits of the President's economic stimulus package.

Second, I'm not an economist. I just write from what to me is a common sense perspective.

Third, I'm writing for individuals, not the society at large. Which is to say that if everyone did what I am writing about, we'd probably be in a world of hurt, due to unintended consequences. But I am confident most people won't. Most people are more interested in consuming than saving. Most people operate for the short term, not the long term. Most people are only interested in what is right in front of them, not what is right down the block.

OK... enough. Now my premise: If you spend more money than you have, eventually you have to pay it back, and with interest. And there are only two ways to pay back extra spending (and interest): cut your spending somewhere else, or earn more money to make up the difference.

So it is with our federal government. The economic stimulus is calling for massive amounts of federal spending, most of it being borrowed. More is being spent than is being levied in taxes. Either the federal government will have to drastically cut spending in areas such as health care, social security, defense, and salaries, or taxes have to go up to pay for this mountain of debt we are accumulating.

Recently, Newsweek ran an article ( which stated that government spending is 47% of GDP with the current stimulus package. In other words, the federal government is spending 47% of everything that is being produced in the country right now.

To my layman's view, I would expect that eventually federal taxes will have to be raised to tax at least, on average, to 47% of your income. What would it be like to give half your income to the federal government? Is that economically responsibile Not if it's coming out of your own family's coffers.

Now, we don't know yet what kind of tax increases the federal government will impose. I expect higher income taxes, perhaps with lower bands. I expect higher unemployment taxes on businesses. In fact, some state governors want to refuse some stimulus money because their unemployment taxes will go up. We may see a rise in our social security taxes, maybe coupled with a reduction in benefits, or an extension of the age at which people become eligible for benefits. There some talk of re-instituting the "death tax." This means lowering the threshold of the value a person's estate so more estates can be taxed, perhaps coupled with higher estate tax rates. I've also heard that the capital gains tax might be increased.

Just be sure that the federal government will impose higher taxes. There is no free lunch. There is no free stimulus. The bottom line is that we know that money being spent today has to be paid back. And if the Federal government is spending 47% of GDP, then that would be a good approximation of how much of our own gross domestic production will be tapped for federal taxes. The economically responsible thing to do in my opinion is to anticipate the increase in taxes, and plan accordingly.

What are our options?

First, make sure you are enrolled in your employer's 401K if there is one. This is funded with pre-tax dollars, so it reduces your taxes today. Many employers also match part of your contributions. Your money grows tax deferred until you withdraw it at retirement.

Second, make sure you maximize your IRA contributions. Again, this reduces your taxes today, and grow tax deferred.

A Roth IRA is a good choice to grow investments tax free, although contributions are made on an after-tax basis.

If you are worried about the volitility in the stock market, an annuity may be a good choice for these investments. Ours guarantees a 3% rate, but currently pays a higher return.

Speaking annuities, non-qualified (meaning the contributions are not tax deductible) annuities still grow tax deferred. They're kind of like a Roth on steriods, in that you don't have a limit on what you can put into an annuity. So, if you are worried about how high taxes might go, you may want to look at an annuity, especially if you have more to invest than is allowed in a Roth. Look at it this way: if the income tax burden averages 47% of your GDP, a 4.6% yeilding annuity (our current rate) is like getting a taxable yeild of 6.72%.

Finally, people who want to avoid crippling taxes may want to consider a cash-value life policy. There are some very good--and legal--strategies so that life policy holders can accumulate and use their cash values in their life policies outside of the tax structure. And that is a good thing, especially if the tax structure gets more burdensome like we expect it will have to to pay off the massive federal deficit.

The Rules Have Changed Part 2: Covering Your Upside Down Mortgage

It was seductive.

The economy rewarded ever increasing home prices. You and millions of others were lured into the belief that if you continued to buy ever bigger or ever expensive homes, you would be rewarded with more and more net worth. There would always be a buyer willing to cash you out so you could walk away with thousands or hundreds of thousands in your pocket. Maybe you were one of those who bought two or more homes--one at the beach and another in the mountains--with the "knowledge" that you were moving faster down the road to higher networth because you had more than one property appreciating in value.

But now you've been caught with an illiquid asset that is worth less than what you owe on it. It might only be $10,000 or $20,000. But here in Northern Virginia, I personally know of many people who owe $150,000, $300,000 or even more than $500,000 on their homes than they are currently worth.

We know home prices will rebound. Eventually. We just don't know when or how long we will owe more than we can sell them for. But let me ask you a question: "What would happen if you or another income producing member of your household were to die before your home price rebounds? What would you do then?" Right now, the answer is that the surviving spouse will be left with a home they can't afford to pay for, and can't afford to sell because they owe more than it's worth.

What is a responsible solution? Not bankruptcy. That will ruin your credit for a long time. Plus, it's expensive in other ways. I've heard of quite a few stories bankruptcies that have hindered people from getting a promoion or a better job.

A ten year term policy to cover the difference in the value of the home vs. the mortgage is an good and inexpensive way to protect your family while you wait for home prices to rebound. Term policies are very affordable, and ten year policies are especially so. And, the younger and healthier you are, the less expensive they are.

It's worth looking into.

The Rules Have Changed......

For about 15 years, homeowners have experienced real estate as an appreciating asset. It's value went up every year. And, more importantly, there were plenty of buyers around willing to pay the increased price when a homeowner wanted to sell. For homeowners, it seemed like a sure thing. Many homeowners saw their increasing home values as a fund for their child's college, to help fund retirement, fund a consumptive lifestyle, or worst case to support a surviving spouse in case of premature death.

But the rules have changed. Anyone who has bought a home in the last couple years probably owes more than the home is currently worth. In fact, in many of the previously "hot markets", like the one I live in, prices have fallen so much that many people who have bought in the last 5 years may owe more than their homes are worth.

Real estate values will come back. We don't know how long it will take: it's an illiquid asset. Historically it's been artificial to use personal real estate as a bank or savings mechanism to replace investments. But, the unprecedented rise in real estate prices has been very seductive: just buy a bigger, more expensive, more prestigious home and you will have more money. What seemed like a perpetual rise in real estate prices rewarded consumption, sometimes conspicuous consumption. Everyone could look at what we're worth just by driving by. The seemingly ceaseless rise in real estate prices promoted the idea we were being economically responsible by consuming. Some people even extended this idea to second homes and vacation homes.

Well, the last couple years have been painful. The rules have changed. We see real estate in more realistic terms: a long term, and illiquid, asset. Personal real estate--our homes for instance--have taken on more of their original meaning--a place to live, to build a family, to feel secure in. The rules have changed, in that we see that to be secure, we have to pay attention to earning "new" money. The rules have changed, in that our economic future is tied to the ability to earn and save, not consume.

Insuring our family's income stream is more important than ever. Many families may not have sufficient equity in their homes to replace one of the wage earner's income. So life insurance carries with it fresh importance.

And, we've been reintroduced to the idea that to grow assets, we need to take money "off the top"--meaning before we spend it on other things-- for savings and investment. Many people have been soured by the huge declines in their mutual funds in the past couple years. So for these people, annuities--which shelter growth from taxes, plus carry a guaranteed return--are looking not only like very responsible investments, but also very attractive ones as well.

Tuesday, March 10, 2009

Adjusting to the New Times: One Example of Economic Responsibility

I got a call from a prospect recently. His wife just lost her job as the accounting supervisor at a real estate development company. He said he needed to get a life policy on himself as a result.

"Wow," I thought. "This guy just suffered about a 40% drop in his total family income," I guessed, "and he wants to add to his monthly outlay?"

"You know, most people want to cut out expenses when a spouse looses a job. But you're wanting to increase you monthly expenses?"

"No, not at all. We're going to reduce our monthly budget. We have to. That BMW I'm leasing is going back. That's $395 a month, plus tags, taxes, gas, and insurance. So I figure there's an easy $500 a month in savings. We've cancelled our vacation plans for this year. That'll save $4500. We're stopping eating out. That's worth at least a couple hundred a month. And my Harley's for sale. That should bring in 15 Grand. But you know how tough the job market is right now. And I'm the only provider for the family. It's hard now-- can you imagine what it'll be like for my wife and kids if I were to die? They'd be destitute."

I thought this was incredible. The man was looking at "the worst that can happen." It was bad for his wife to loose her job. It would be the worst if she had to head up the family in this economic climate and jobless.

Reality was the policy wasn't expensive for the man. Under $50 a month. But the face amount would replace his income. And, it bought better sleep every night for him and his wife...knowing that if the worst did happen, the family would be taken care of.

Saturday, March 7, 2009

A Foundation for Economic Responsibility: "What's the Worst That Can Happen?" --A Tale of Two Families

This simple question, "What's the worst that can happen?" is one of the primary foundations for us taking economic responsibility for ourselves. Not a comfortable question to ask. None of us want to admit that our lives can take a bad turn. However, to be able to answer this question, then equip ourselves for it, is a big first step toward being economically responsible.

So, what is the worst that can happen economically? Well, if we are part of a family, the worst is that our family is deprived of our income either because we died prematurely or became disabled. Not only will our family grieve our absence in their lives, but the lack of income will make their lives considerably worse.

Actually this happened last year to two acquaintances of mine. One was 42, the other 49. They died in unrelated accidents about 30 days apart. The first one left a spouse and three children: 20, 18, and 9. The other left a spouse and two daughters, 21 and 17.

The first one had a small group life policy--her annual salary--with her employer. It was enough to bury her and pay her final medical bills. Her spouse is trying to support his kids on 62% of their total family income. One is in college, the other wants to go. The tough thing is he can't stop working for any length of time. If he does, the family will financially fall apart. He can't take time off to be with his kids, especially the youngest who is having the worst time.

The second one had enough insurance to replace his entire income indefinitely. His wife invested the entire amount in a secure investment and is living off of the proceeds. The oldest has stayed in the private college she is attending. The younger one can keep her plans for college too. His wife doesn't have to work outside the home unless she wants to. So while his wife misses her husband, and his daughters miss their father, their lives are not financially devastated like the first family. There is an emotional hole because of the unexpected death, but not financial ruin.

The reality is most people do not have this economic foundation to the degree they need it. And while their economic houses look good on the outside, a lack of a firm foundation against "what's the worst that can happen" will lead to a collapse if in fact the worst occurs.

Finally, it's easy to deny the need for a firm foundation such as this. After all, like the foundation of a home, the relative strength or weakness of a foundation is not readily apparent, expect in times of stress. But,like a home's foundation, if you wait until you need this foundation for economic responsibility, then it's too late. The damage is already done.

Friday, March 6, 2009


Welcome to My Blog!

I've named this blog 'The New Era of Economic Responsibility." To some this may seem faddish, given our current economic climate. However, the topic has been of great interest to me my entire adult life. See, I've been blessed by two generations of fore-bearers who have lived responsibly, working and saving, so that they and their future generations would have something significant.

My paternal grandfather was an immigrant. He left school at age 8 to help support his family. Times were very tough. At age 21, his boss took him out for a steak dinner. My grandad said he was terribly embarrassed because he had never had steak before and didn't know how to eat it! I can't imagine. Yet, he always worked more than one job. He went to night school, got his high school equivalent, and eventually his bachelors and masters. He saved all his extra and invested wisely. He was a model of economic responsibility.

My dad was thrifty as well. I'm one of seven kids. There was money for all of us to go to college or other post secondary school if we wanted to. That gave not only me, but my brothers and sisters, a huge advantage in adult life. He lived the model of economic responsibility. Even today, having been deceased for 14 years, he is still taking care of my mom. She is in an excellent nursing facility, not having to worry about her monthly bills, because his investments--his life of economic responsibility--is taking care of all her needs.

Likewise, I have attempted to live according to these principles. In fact, I am in a profession that supports them--investments and insurance. I work for a company that has modeled these principles for over 105 years--it hasn't gotten involved in the sub-prime mess and the "mortgage backed" securities house of cards.

The goal of this blog is to share thoughts and case examples with you about what it means to live in an economically responsible way. Hope you enjoy it. Hope it helps you make better decisions. And, your comments are appreciated.

~Richard B. Osmann, Ed.D.