Financial Peace - Part 3

Aaaand, I'm back! Sorry to leave you hanging in the middle of a series, but we went on vacation!! I realize that might seem like an oxymoron- in the middle of me posting about saving money we went and spent a bunch on a road trip to California and back. BUT we had it all planned out to go and factored up the cost to decide if it was feasible to do it in the first place. :)  It was amazing and there will be more to come about that soon! But let's get back to business over here.

If you need to catch up, here is Part 1 and Part 2.

Week 6 - Buyer Beware
This was a rather short lesson, but very useful. Companies attack you from many angles to intrigue you into buying their products. They have many tactics such as product positioning in stores, TV and other media, and also financing as a marketing tool ("only 3 easy payments of $29.99!").
But, Dave says, you can always spend more than you make, so you must develop a power over purchase. To do this, use these steps, especially when making major purchases:
1. Wait overnight before making a purchase.
2. Carefully consider your buying motives. (No amount of stuff equals contentment or fulfillment!)
3. Never buy anything you do not understand!
4. Consider the opportunity cost of your money.
5. Seek the counsel of your spouse, if applicable.
Don't chase happiness with money; happiness is where you are right now!

What I learned from this lesson: Very true words were spoken here. I've definitely gone through phases (read: stress from school) where I would swing by a store on the way home from a bad day and buy myself a new top or something in the mindset that it would make me feel better. Not true - those feelings are only temporary (read: until tomorrow the next stressful school day... or tomorrow).
Jesse and I are both "researches" when it comes to buying, so we frequently abide by #1, and we rarely buy anything without doing #5 (even small purchases). Number 3 I liked and took it 2 ways: it is always worth reading the fine print to know what you are getting yourself into, and also check your options even on smaller items. For example, we just bought a cooler for our road trip, but we made sure to check our options and understand the differences between brands, sizes, etc. to get the best bang for our buck.

Week 7 - Clause & Effect
This week was a biggie. Dave covered the 7 basics types of insurance coverage: home, auto, health, disability, long term care, identity protection, and life insurances. Since this was a long lesson, I will briefly tell you what Dave suggested what the best thing to do with each and leave it up to you to look into it further if you want. I'm not a pro at this, and still have a lot to learn myself since I haven't had to deal with all of these yet personally. Please comment if you have questions or need clarification, or if you disagree and will explain why, I'd love to hear your opinion.

Purpose of insurance is to transfer the risk of a big event you can't handle on your own to someone else.
Home owner's/Renter's Ins - To keep your premium low, raise your deductible. This is possible if you have a full emergency fund. However, when you raise your deductible you are also increasing your own risk (meaning you are responsible for more of the cost if something does happen). Therefore, you should consider your risk and determine if it's worth raising your deductible to save on your premium. Also get a "guaranteed replacement cost" not an "extended" this will replace the house even it it's worth more than you paid. And extended replacement plan will not cover the full replacement cost, so you must update it each year to make sure it covers the value of your house.
Auto - Always have at least $500 property liability. Consider dropping collision on your car if its value is $6000 or less. However, unless you can write a check for a new car, don't drop collision.
Umbrella policies (home + auto) are good and often help save money.
Disability Ins. - You need this. Buy a plan that pays if you cannot perform tasks of your occupation = "own occ" plan. Beware of policies that do < 5 yrs (short term, 3-6 months, should be covered by your emergency fund). If your work offers this, buy it! Try to get 65% of your current income; buy with after-tax dollars so when it is paid back to you it is tax-free- you can live off of 65% off you previous income, which is close to what you bring home after taxes anyway. Also check the "elimination period" - the time between disability event and when they first start to pay - the longer the elimination period the lower your premium; if you carry a full emergency fund you can risk a longer elimination period.
Long-Term Care Ins. - This is to provide assisted living/nursing home care (or a better plan will provide in-home care). Do not waste your money on getting this until you 60th birthday, then get it! Before 60 your risk of needing a nursing home is low. The cost of a nursing home is very high, and will suck through most of your savings without a Long-Term Care plan. The last 6 months of your life could be more expensive than a decade of your life, prepare for this for yourself and your family!
Identity Theft Protection - You could spend 600 hours of your time working on this. Don't get a plan that just monitors your credit- you can do this yourself! Get one that includes restoration services to clean up the mess for you!
Life Ins. - to replace lost income due to death; most people have no idea what they own! There are 2 kinds: "Term" and "Cash-value." Only do Term Life (also called "term") - it is offered for a specific period of time, is cheaper, and does not provide a savings plan. Cash Value (may go by other names) is more expensive and funds a savings plan, however, it has a crummy rate of return; the insurance policy keeps the cash value  you've paid in (what goes into the "savings plan" they advertise) and only pays the face value of the plan; a bad plan! Instead, do a Term policy and invest the extra you would spend on a Cash-Value policy into a mutual fund - you come out way better in the end! Your plan should be 10 times your current income so that when the insurance policy gives 10% of the total policy it will be your current income.
Always take out enough to cover your spouse as well.
Health Ins. - Again, the key here to keeping cost low is to increase your deductible (or increase your co-insurance or maximum out of pocket cost). Co-insurance is often set up 80/20 (they pay 80, you pay 20%); if you take more of the cut, they take on less risk and it lowers your premium. "Stop loss" is your max our of pocket amount; increase this to decrease your premium. If your stop loss is $10,000 you would pay you deductible + your 20% of the 80/20, then after you pay $10,000 they will pay 100%. Dave's theory is that you shouldn't be worried about a $10, $15, or even $20,000 event if you have a full emergency fund. NEVER decrease your max pay - do not decrease the amount they will pay you, you may need this in case of expensive events such as chemotherapy. The best option for health insurance is an HSA (Health Savings Account) plan, which is a tax-free savings account that you can spend on medical expenses; it is paired with a higher deductible insurance policy and is often covered 100% after the deductible.
Insurance Policies to Avoid: Credit Life and Disability, Credit Card Protection, Cancer and Hospital Indemnity, Accidental Death, Pre-paid Burial policies (he suggests saving for your burial if you'd like, but don't pay into a policy to do it for you and don't pay for it until it happens).

What I Learn from this Lesson: This lesson was very informative for me. I knew nothing about life insurance or disability insurance before this, and his explanation of Health Insurance was also very good. Being in the healthcare field, I've learned that many people have no clue about their health insurance. Many think that just because they are paying into it the insurance policy should cover anything they need done. They also don't understand what their deductible is. And another 2 cents: it is not your doctor's office's responsibility to figure out your copay; many offices do this as a courtesy because it makes their life a little easier. Learn about your plan, you are paying for end! (End rant now.) This lesson helped us realize we needed to reevaluate what we currently have, and informed us of plans we will need for the future.

Week 8 - That's Not Good Enough
This lesson was all about how to get the best bargain. Dave suggests making getting a bargain a way of life. Remember: everything is negotiable - at some point everything you want to buy is on sale. He gave 7 steps to negotiation:
1) Always tell the truth.  2) Use the power of cash.  3) Be willing to walk away! (When you aren't, you've lost the ability to negotiate.)   4) Shut up. (Ask questions to gather information; silence is powerful and makes people feel awkward so the seller will likely ramble and fumble and talk himself down without you having to put much effort in).  5) Don't be afraid to say "that's not good enough."  6) Beware of the good guy (salesman)/bad guy (manager) approach. Go straight to the "bad guy."  7) Use the "If I... [buy this/do this], then you..[make deal better/throw this in]." They often will make this type of deal with you, or will come down off the initial price.
Other tips:
Always be patient.
Learn where to find the deals; a little effort up front will save you in the long run.
Trade something of value that you current have or a skill you can do/service you can provide.
Buy from individuals.

What I learned from this lesson: It was fun to hear Dave talk through this lesson. He shared several stories of his personal experience negotiating for products, including embarrassing his wife while buying her new a new washer/dryer set. He seems to be quite the pro at this, and the key appears to be confidence. I've not had too many experiences with situations to negotiate for products, but I do seek out deals and will decide on a product and wait for its price to drop before purchasing. I have also couponed a good deal in the past, and while it does take some time it is worth it (if you have the time to spare... right now, not so much for me).

I realize these posts are getting long. I hope some of you are enjoying them, and benefiting from them. I expect there to be at least one more, maybe two. These are a pretty good summary of what I learned from the program, but they are all inclusive. Please take some of his suggestions to mind, especially about insurance policies and then research on your own some to determine what is best for you.