Safety Issues

This seems counter-intuitive. We want to pay down our debts first, yes? Well, yes, but we want to keep our debt separate from our home, and most of us have a mortgage for a long time, unless we make quite a bit of money and are disciplined about paying the mortgage down using an acceleration program of some sort. Many people think they are out of debt if they only have a mortgage. Historically, it's only been since early last century that people didn't save up to buy a house, but had the bank own it and they paid for it for years to come. “The American dream." So we want to make sure our home is safe. One, we use a HELOC to keep our equity fully funded. Why? Why would we take another loan out on our house? Because we want to keep it safe. While we're paying it down, we take and increase our HELOC. We can use that money for investing, or let it be our buffer. But think about this. If two houses are in foreclosure, and both are worth $250,000, is the bank going to foreclose on the one with the mortgage of $20,000 left to pay or the one with $260,000 (they paid more than it is now worth). The family with $20,000 left has been very good until Dad lost his job. They have no HELOC. You would think the bank would be good to them, but no, it is their house the bank will go for first. Why? Because they can get the most back on it. On the other house, they will lose money if they foreclose. They can't possibly get back on it what is owed. So the bankers will work with that family to make sure they get their money. Lesson: Contrary to popular belief, and most financial advisors advice, one should keep one's home either at full equity or zero equity.

Of course, the other way to keep your house safe is home-owner's insurance. The issue here is that most of us has insurance agents that are out to make more commissions and get new business, not keep up with old customers. It is a rare agent who checks in with their customers yearly (as they should) to make sure there are no major changes in the house such as remodels, upgrading a bathroom, or major purchases that need extra coverage. You need to be vigilant and make sure you have enough coverage. And not just for your home. Cars are another place people either have too much or too little. As your car ages, you need less coverage for collision and comprehensive, but again, few agents will check in with you every year or even every five. You should check in about every three years to go over any changes. For families with more to lose (and anyone with $100,000 yearly income or $1,000,000 net worth should be thinking in these terms), umbrella policies are critical. Ask your agent for more information.

Health insurance is a necessity, but many Americans are without. There are more conversations about this, thank Heaven, but we are still far from being covered. There are more choices about health care than there used to be, from emergency only (used to be called catastrophic) to HMO's. This is a much longer discussion than I can cover here.

An insurance we all should be thinking about is long-term care insurance. It's estimated that one third of us will need some long-term care before we die (generally right before). As a statistic, we are very likely to need it. It is expensive, and there are loads of types out there. Again, this is a longer conversation than I can provide in this page.

There is a marvelous software out there called LEAP. It analyzes all of your finances, starting with your insurance, then on to your savings and investments. It checks to make sure you have enough insurance and not too much, before it checks on your other finances. Only a very few insurance agents or financial advisors have LEAP. Check your town. The agents who use it are supposed to do the analysis for free, because it generally will indicate you need to shift something somewhere, so your agent will make the money in the commissions. But it's worth it. LEAP maximizes every dollar you make and use.