bw challenge write up

The #BuildWealth Challenge Results Are In

How did this #buildwealth challenge come about? Simple, I was trying to determine what financial areas were causing the most issues for people. Was it a lack of understanding of the complexities of the various insurance and investment-related products? Or was it dealing with basic money management skills and credit? I set out to see if I could get 500 people (ended up with 510) to respond to my brief survey.

Please note that I am not an academic, and this research project wasn’t as thorough as I would have liked. I didn’t capture any detailed demographic information (I got plenty of feedback about that); however, the respondents of this survey come from various age ranges, ethnic backgrounds, educational backgrounds, professions, etc. Despite all of that, I think the results we very revealing about the relationship people have with money. I have plans for future #buildwealth challenges. I will most certainly do a better job of capturing more detailed information.

Without further ado, let’s jump into the results!

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I know some may argue that they track their financial success somehow, but I felt strongly that someone’s net worth tells the “real” story. You can determine your net worth by using a simple formula, Assets – Liabilities = Net Worth. This formula can be found on an important financial document called a balance sheet. Please familiarize yourself with this document because it’s a significant first step to getting your financial house in order. Completing a balance sheet will require you to gather all your financial information as it applies to what you own (assets) and what you owe (liabilities). Think of this (taking inventory) as the all-important first step on the road to financial rockstar status.

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For starters, the fact that two people skipped this question is kind of crazy. I’m not sure what to make of it. For the 9% who put “neither,” that intrigued me because it says a couple of things; 1) they don’t have the slightest clue about where their money goes on any given month, or 2) they just don’t care about knowing where their money goes. So, who is in control, you or your money? People feel like they are living check to check because they haven’t taken the time to do some form of a budget, which would provide some level of control. If the old school way of budgeting doesn’t work for you, try the 50/20/30 plan or some other budgeting method. The key is to figure out what method works for you and stick to it. Also, don’t be so hard on yourself if you can’t master the budget right away. Keep in mind that you have to crawl before you can walk.

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Understanding the importance of credit is critical to living a decent life in this country. I was happy to see that over 60% of the respondents were in the good/great category. For the small percentage who stated they have “no idea” about their status, I hope they exercise their rights by obtaining one free credit report (no score) from each of the three credit bureaus once a year. The interesting thing about credit is that you can screw it up, then clean it up, then screw it up again, then clean it up again. And you can repeat that for as long as you would like. Once you clean up your credit, unless there are some unforeseen circumstances (i.e., job loss, divorce, becoming disabled), it should not be hard to maintain a positive credit standing.

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This question wins the prize for “most skipped,” and that wasn’t a big surprise. The way the question is phrased probably has something to do with it, as I didn’t specify what type of insurance. Plus, most people don’t truly understand why insurance is the cornerstone of their #buildwealth plan until something goes wrong. Let me ask a question. If you were going to build a house, where would you start? If your answer was anything other than the foundation, we need to talk! When it comes to building a home, a solid foundation sets the tone for the remainder of the house.

Regarding your #buildwealth plan, not having a strong insurance foundation may jeopardize your saving, investment, and retirement plans. If you were to get seriously sick or injured, your bills don’t stop just because you’re not working. Unless you have adequate savings, I seriously hope you have the proper amount of disability insurance. How about if your spouse/significant other (who happens to be the breadwinner) dies unexpectedly? Again, unless you have savings or other assets that you can liquidate immediately, I seriously hope you have enough life insurance. I’ll stay away from medical insurance because I know everyone who has medical coverage is grateful. Clearly, the insurance conversation isn’t a fun one to have, but hopefully, I’ve shed some light on how insurance can affect your overall financial well being.

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There’s going to be a day when you don’t want to get up and go to work. When that day occurs, hopefully, you have more than enough money to survive. Retirement, whether you’re just starting your career, a seasoned professional, or winding things down, should be on your radar. The younger you are, the more time you have, the older you are, the less. It’s scary to know that some people have worked 30 or 40 years and have nothing to show for it. Or they are in their early 70’s or even 80’s and “have” to work because they can’t afford to.

Having your retirement plan in order is of the utmost importance. Back in the day, your employer typically took care of retirement planning for you; however, the responsibility now falls on your shoulders. Many companies have done away with pension plans (because they are expensive to manage). The long-term viability of social security seems to be an issue. Still, I’m optimistic that our government will figure out how to make it last. Some employers don’t provide a retirement account. That’s okay because there are plenty of avenues for you to open one up on your own. There isn’t a good excuse as to why you shouldn’t have an account (be it with your employer or on your own) that’s dedicated to retirement. If you are one of those struggling with the question of “how much should I save for retirement,” the answer is simple…A LOT!

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Risk is another area that more of us need to discuss when thinking about our #buildwealth plans. Let’s get one thing clear; there is risk in every single type of account that exists. The big question when it comes to risk is how much can you tolerate? If you’ve ever worked with an investment professional or opened any type of investment account, you’ve taken a risk questionnaire. Some experts will say that if you’re young, you should be aggressive, and if you’re older, you should be more conservative. And, of course, there is everyone else in between. The theory makes sense because if you’re young and you’re investing aggressively for the long-term, you will probably be satisfied with the growth in your account despite the ups and downs of the market. Just search for any historical data about the stock market’s long-term performance, and you will understand. On the flip side, when you’re older, you may be relying on those funds to live; thus, it’s all about preservation. You might not be able to live comfortably if a major dip in the market occurs, and your account balance is cut in half.

Managing risk will ALWAYS be a work in progress for everyone. Life will cause you to think differently about risk. When you’re young and single, you make different choices in relation to someone who is older and has a family. When your salary is $150,000/year, your investment decisions are different from earning $80,000/year. When you are an educated investor, you’ll tend to make riskier investments instead of a novice investor. I could go on with examples, but you get the point. Be mindful of the risk that you’re taking and make sure you are the one that’s driving your decisions on risk and not your emotions or some outside influence.

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Wealth Building Strategies Your Advisor Didn’t Share With You

Many people don’t know (and probably don’t care) that September is Life Insurance Awareness Month. It’s the one month out of the year that life insurance gets its time in the sun. I want to share some alternate uses for life insurance that many advisors never share with their clients to pump up this incredible product.

1. The Roth Alternative 

The “Roth” IRA was created back in 1997, and it was set up to provide an individual with tax-free money during their retirement years. Other employer-sponsored retirement plans (401k, 403b, 457b, etc.) also adopted the Roth feature. Currently, if you have an IRA or employer-sponsored retirement plan that has “Roth” in front of it, you’re telling the IRS to tax the money that’s currently being contributed into that account. And, if you follow a few simple rules, you can receive your distributions tax-free during retirement.

There were only two problems with the Roth IRA specifically: 1) if you earn too much money, you are not allowed to open one, and 2) the contribution amounts are limited (2020 limits – $6,000 if you’re under age 50, $7,000 if you’re 50 and over). Income limits don’t apply to employer-sponsored plans, and the contribution limits are higher than an IRA, but they still have a cap.

With these problems known, people began to search for another way to invest their money for retirement. They hope to receive tax-free money during their retirement years, and the solution – a properly structured permanent life insurance policy.

2. Create Your Own “Bank”

You will not have to concern yourself with setting up a physical (or online) financial institution for starters. Also, for the sake of keeping things simple, this strategy involves you utilizing a properly structured permanent life insurance policy. Here are the primary reasons people consider creating their own “bank” or what some call the “family bank”:

  1. The cash value usually earns a much better growth rate than any solution you would find at your financial institution (High-yield savings/checking or CD’s).
  2. The growth, as well as distributions you take, are not taxed as long as a small amount of death benefit stays in force until you pass away
  3. When you borrow money, your full cash value continues to grow inside the policy despite any loans you have against the policy

For each of the alternate uses of life insurance I’ve shared with you, I highly recommend that you speak with a financial advisor or insurance agent. These strategies are not typically shared with the general public. Once you connect with a financial advisor or agent, you will now be equipped with some good material to discuss at your next appointment.

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Life Insurance – Term versus Permanent

For most people, the question shouldn’t be about which one to choose because both types of life insurance are designed to help meet different types of needs. A combination of the two is appropriate for many people. Let’s take a closer look at both.

Term insurance usually provides the largest amount of insurance protection at the lowest initial cost. For this reason, term is what most people start with. Because term policies end at a specific point – the end of the term – they work best for protecting large needs with specific endpoints. For example, a parent of a young child might purchase a 20-year term policy to provide protection until their child is over 18 or out of college. Then, the child might be responsible for getting his or her coverage. Other periods that you might consider term insurance include the time:

    • you plan to continue to work and have others relying on your income
    • remaining on your mortgage
    • remaining on an outstanding business or other loans

Permanent insurance is designed to last as long as you live and typically makes a great supplement to term insurance. You may want insurance after your term coverage ends, either for life-long or unplanned needs or needs with an unpredictable or extended end date.

Good reasons to have permanent insurance include helping to take care of:

    • someone who becomes or may still be dependent on you (either financially or for care, or both) such as children who are not yet independent or who have special needs
    • the costs associated with your death (final expenses) such as a funeral or memorial costs, outstanding medical bills, and estate taxes
    • a once-temporary need that you have extended – for example, a refinanced (and possibly extended) mortgage, a home equity loan, a delayed retirement date (meaning extended income-earning years), or a new business
    • your grandchildren
    • your “second” family from remarriage
    • someone, such as a parent, who has developed a condition and who now requires your care