What can these observations from fitness world tell us about the financial world?  Resolutions don’t work.  I think they are worthless.  Usually I make stupid resolutions that are bound to fail… I resolve to eat nothing.  I resolve to rule the world.  I resolve to make a fortune this year.  Nope, those didn’t work. Instead, I am much more fond of goals.  Goals, unlike resolutions, set progress mile markers.  Goals are the vehicle toward your future, not the destination.  While I may want to be filthy rich, this is not a good goal.  A good goal would be to increase my income by 20% and decrease my expenses by 10% this year.  That goal is attainable, definitive, and calculable.  This goal puts me on the road toward being wealthy. 

However, even though this is a good goal I can’t just say my goal is an overall net increase of 30% and be done with it.  We can’t pat ourselves on the back and expect that come next year, this will be done simply because we will it.  No, we must plan plan plan.  Think about what smaller steps are necessary to reach that goal.  What are the ways in which we will increase income and decrease expenses?  Each smaller step under our main goal may need several baby steps. 

Then, once we have all these steps and sub-steps and baby-steps we can place self-made deadlines.  For instance, If I want to increase income by 20% in one year, it might be a good idea to decide I need to increase it by 10% by the year half-point (June).  Now, suddenly I have a sense of urgency.  When I needed 20% by January I could put it off, work on it later.  But once I give myself a deadline of June, I feel like I need to get this ball rolling.

As an example, here are a few of my 2009 goals with their corresponding steps.

Goal 1: Finally be Debt Free (minus the mortgage)
Step 1: Pay off Student Loan (Deadline: April)
Step 2: Pay off Car Loan (Deadline: December)
Step 3: Vow to never buy things I can’t currently pay for in cash.  And follow through. (Deadline: Ongoing)

Goal 2: Save for Retirement
Step 1: Max out IRA contributions (Deadline: October)
Step 2: Research moving to Vanguard (Deadline: March)
Step 3: Make move to Vanguard (Deadline: June)
Step 4: Create my own diversified portfolio after thorough research (instead of using a targeted retirement fund) (Deadline: December)

The Art of Nonconformity has a great excel template to put your goals down on electronic paper and review how far along you are periodically.  I love this template, it really got my gears turning and inspired me to fine-tune my goals.

Opening the account was much easier than I expected.  First I started at the CNN Money Guide for 529s.  This site gives you the link to your state’s 529 Program.  Once on my state’s site all I needed to do is open an account under my own name and social security number.  There is no fee or penalty to transfer the account to another person’s name, so when we do eventually have a child, we will transfer the plan.  You can read this article to see Why you should start a 529 Plan for an unbord child.

Now all that is left is to make an initial deposit into the account and set up an automated deposit of a relatively small about each month.  Since we are starting so early, we can deposit small amounts each month and allow the compounding interest to work it’s magic.  And now that I’ve taken one small, baby-step toward being finacially ready, I am starting to feel better.

Before I was content with having credit cards paid off, a nice savings, and slowly paying off other debt like low interest student loans and car loans. And the mortgage? Oh, I can pay that off eventually. But put baby into the equation and it ALL must be paid of NOW, not tomorrow, not next week, NOW I say!

So I began making my little list of goals and putting a timeline to them. But no matter how I finagle it, I am not happy. I want to have no remote possibility of slight financial stress that future baby could be exposed to. I don’t want to fight with my husband over it, I don’t want baby to ever feel the pressure of financial tension, and I want diamond encrusted toys for said baby! In short, I want more than could ever be attained while still fertile, and worse I seek a perfection that even an old, infertile millionaire cannot attain.

Now that I have my piles of scrap paper with charts and numbers and calculations that prove I am a crazed, delusional, perfectionist incapable of attaining my overly ambitious goals…I have come to phase two: acceptance of my inevitable failure at reaching my goals and wallowing in self-loathe at this fact. Hopefully tomorrow I will move onto phase three: slapping myself silly then coming up with a humanly feasible plan that leaves us in a “good” financial place instead of a “perfect” one.

Any advice from parents? How were you able to feel financially ready for a baby? Or am I crazy to think there is such a thing?

While listening to all this doom and gloom coverage one morning I heard that Warren Buffett is making 10% interest off of General Electric. So GE is paying 10% interest. Can you imagine what average Americans will now have to pay for credit interest? I can see how anyone getting by from month to month using a credit card to fill the gaps is going to have a problem. However, that still left me wondering about people who don’t use credit cards, unless paid in full each month?

Then last night I watched Suze Orman, and she broke it down for me. Since there is less capital in the economy and less credit to go around, not to mention the fear that no one will pay their credit, the average American will see their credit limit decrease soon. There will be a freeze on credit limits, and in many cases we will get one of those long legalease letters that has in it’s fine print that the credit limit on the card has been decreased. For people who are using these cards and not paying them off, that means you may be at your max. Even if you are not at your max, your debt to credit limit ratio will now be higher, thus affecting your FICO score, and thus raising your car insurance premiums, making it even harder to get a loan, and generally giving you a gray financial cloud above your head.

My main concern with this crisis is the loss of jobs. Loosing a job would make finances hard for just about anyone. Unemployment is scary, even with an emergency fund. Personally, I am trying to spend less than usual and save even more lately. My hope is that this now $800 billion dollar bail out/pork barrel bill will at least save American’s their jobs.

The good news is that from everything I can find, it is possible to buffer yourself from this type of crisis through good financial planning. Getting out of debt, saving an emergency fund, diversification- all of these things that make good financial sense during normal times are doubly good during a crisis.

Here are a few things I learned through this process to get the best rate for the best life insurance policy:

• Select a Term Policy:  These will have the best rates, and the best bang for your bucks.
• Select a Good Insurance Company:  Search for a good rate with a company that is well established.
• Tell the Truth on the Application: Remember the insurance company can get access to all your past diagnoses and treatment, so don’t lie (it’s illegal).  However, if they ask you about the last 5 years, only go back 5 years- no longer.  So tell the truth but don’t tell them what they aren’t asking for…
• Be Prepared for the Exam:
  • Fast 8-10 hours before the exam
  • Stay away from caffeine 24 hours before the exam.  This can elevate your blood pressure.
  • Stay away from alcohol 72 hours before the exam.  This can mess up your liver enzymes.
  • Try to stay away from pain meds, sinus meds, and any herbal medicines 24 hours before the exam.
  • Do not exercise in the day of your exam (before the exam that is).  This can cause increased protein in your urine.
  • Try your best at a healthy diet the week before the exam.  Lowering the salt and excess fatty-foods will help.
  • Do NOT go on a crash diet before the exam, this will just throw your body out of whack.
  • If you get sick, even a small cold, cancel the exam and reschedule when you are 100% well.
  • Just like all those college exams, get a good night’s sleep before.
  • If you haven’t already- STOP smoking.  (This should be done 6 months - 1 year before the exam)

One final thought- if you’ve been thinking about going to the Doctor for a problem, but haven’t made it there yet, wait to make the visit after applying.  Of course, if it is something serious- by all means, go to the doctor!  In my case, I had been having breathing trouble, but figured it was my life-long asthma that got out of control.  I waited until after this entire life insurance process was over before seeing a doctor and I am glad I did.  Now the doctor is saying it looks more like emphysema, which I am sure would have kicked me straight out of the Super Preferred tier.

In the end, my home did make it out intact.  We had roof damage, two trees uprooted, and lost part of our fence.  When you look down my street and around the neighborhood, our loss was quite minimal.  Many houses have trees that tore gaping holes in the roof and we saw many homes with roofs that caved in entirely.

During the storm, as I saw each shingle fly off, I thought about that blasted hurricane deductible and I thought about how having to buy a new roof I wasn’t intending on replacing.  Of course we are fortunate that we can afford it, but it annoyed me that I might have to put other goals on the back burner for a while. 

Today, 6 days after the storm, my home is still without electricity.  We had to move temporarily to my in-laws, who have electricity.  It is estimated that it will take 3 weeks from now (4 weeks total) before my neighborhood has power.  Our area in town resembles a third-world country.  Long lines outside grocery stores, rationing of grocercies and gas, lines a mile long to get gas.  My husband has been working 12 hour shifts since the week before the storm, and got his very first day off in two weeks yesterday.  Today, Sunday, he is back at work.  Now all I can think about is having him here with me.  The deductible and the roof seem like distant memories that are of no concern any more. 

My husband will be taking home a nice overtime paycheck next week.  Usually, this would make me giddy with delight, but today I’d pay any price just to have him with me and forget about the stupid overtime.  My husband was the one that taught me how important family is and to never put money before family.  Today, I am reminded of this important fact.

Let’s start with reasons it might NOT be worth it:

1. My premium doubled after Katrina.
2. My area’s premiums were the highest in the nation to start with.
3. I got a laundry list of new exclusions in the mail shortly after Katrina.
4. Katrina ushered in this new form of a deductible called a “Hurricane Deductible.”
   If my home is damaged by a hurricane, my deductible is now a whopping 5% of my home’s value versus the normal 1% for every other claim. On a $300,000 home that is a hurricane deductible of $15,000…the average Katrina claim was $15,399.
5. If you do file a claim, they could cancel your insurance, or you could be uninsurable.
   My condo was broken into a few years ago. Naturally, I called my insurance company- that’s what I pay for, right? Well, after that I was uninsurable…after ONE claim. The only way we got insurance on our new home was by putting the insurance on my husband’s name instead of mine.
6. We have to pay extra surcharges (5%) in our state to pay for all the uninsured people.
7. Flood insurance is prohibitively expensive in my area, so if my roof is blown off and it rains in my house, too bad for me.
8. Did you see how the insurance companies responded to claims from Katrina? Enough said.

Reasons Homeowner’s Insurance is important:

1. If my home was flattened to the ground, could I afford to finish off the mortgage AND buy a new home? Defiantly not

This reason alone makes the steep premium worth it, even though it still leaves me bitter and angry…

To be honest, the state of homeowner’s insurance in the gulf-south is so horrendous I am amazed we allow this to happen. We should have took to the streets and rallied against the insurance companies after Katrina. We should have held politicians to the fire and forced them to take a stand toward these insurance companies. Instead, we were depressed and defeated. This time around, the insurance problem may be, I hate to say it, WORSE. It has been reported that insurance may not cover as much as for Gustav as it did after Katrina. And the poor wittle insurance companies are whining because Gustav might cut into their profits. boo-hoo.

This weekend I met a woman whose house was accidently demolished in New Orleans post-Katrina. Her home was not destroyed by the storm/flood and with new sheet rocking on the bottom floor, it was salvageable. Then one weekend she drove up, and all her neighbor’s homes were still in the same spot, but her home was completely missing. It sounded like something from a dream/nightmare. You drive up and your house is just GONE. The sad part? Insurance doesn’t cover this and you are forbidden by the law from suing for this. She wasn’t the only one. Several people experienced this horror. What would be your financial outlook if suddenly the home you had paid off for your whole life vanished? For many people their home is their most valuable asset. This is certainly a good lesson to diversify, although that may be the only positive from this deeply saddening story.

I hate to pick on my family, but here I go again… I have an aunt that lives on a small income and has prescription drugs she must take for her health. Several time she has complained about the cost of these drugs, and since she doesn’t have health insurance due to the travesty of our health care in the U.S. (don’t get me started)… her medicines take up a large chunk of her monthly budget. I decided that I would try to research if she could get any of her medicines through one of the many drug companies or drug assistant programs. She read me the names off the medicine bottles and I began searching the internet. I didn’t find anything particularly helpful, and then I thought about Wal-mart. She was getting her drugs from a small locally owned pharmacy, so I wondered if by chance any of these medicines were on the $4 list. Lo and behold- they were! Everyone of them! I was so excited, I wanted to jump for joy. I could help someone I love save about $100-200 dollars a month. So I called her up and told her the good news. Only it wasn’t good news from her perspective. She said that she hates going to Wal-mart, and feels unsafe going there. I was dumb-founded, she would rather pay $60+ per Rx for the convenience of going to a small pharmacy that is maybe 4 miles closer.

I am the exact opposite when comes it to convenience. I would drive half-way across the world to save $0.50. I’ll withstand 30 people deep lines, kids yelling in my ear, parking lot from hell…. all to save a buck.

This week I brought my dog to the vet. It’s the cheapest vet in town, and they have good service. I drove my car an extra 20 miles to get to the vet. It took me an hour getting there in hellacious traffic and a half hour getting back. My dog barked the entire hour and half just to let you know. In my ear. And secreted her lovely anal secretions of fear all over my jeans… Thanks minnie. I endured all this to save $20. Was it worth it?

Since I love math, lets do a quick calculation. Say your hourly pay rate is $20/hr. Say it takes you an extra hour in hassle. Say you save $20 total on this vet visit. You’ve just broken even and now you have a headache that won’t go away from the annoyance. On the other hand, if you’re saving $60 instead of $20, the savings is more clear.

The bottom line is that it’s a good idea to really think about what you are saving versus loosing. You could be valuing your convenience at a much too steep price, like my aunt. Or you could be selling your valuable time and convenience for much too cheap a savings, like me. As with all things in life, a nice balance between the two should save your money and your sanity.

My general debt pay-of plan has been to pay off my “worst” debt first. So I thought I would pay the off credit card, then the student loan, then the car loan. For some reason, these were in order of “I want to get rid of now” to “I can live with paying for this”. This was also the order of smallest to largest balance, which follows Dave Ramsey’s traditional Debt Snowball.

But why was I following this method? I had been conditioned to thinking I would always pay for a car note like a mortgage. This was stupid. The student loan, although higher in interest than the credit card, I thought should be paid off later because of it’s tax advantages. The credit card debt made me feel like a bad, stupid person, so i wanted it gone first. All these ideas that were forming my decisions didn’t come from concrete facts or numbers, they came from emotions and feelings.

Then I found a site that lets you calculate and track your debt snowballs. While inputing data I noticed you could select either “Interest Order” or “Balance Order”. This choice got me thinking.

The What’s the Cost website says:

“Logic says that you should pay off your debts in interest order: paying the debts with the highest interest first, while paying the minimum on your other debts. However, it’s been pointed out that some people prefer to pay off there smaller debts first, regardless of the interest rate.”

Once I wrote down the numbers, the interest rates, and the tax rates I saw everything in black and white and clear as day. I should be paying the largest interest rate debt first. The credit card had the lowest interest rate even when bearing in mind the tax advantages of the student loan. So, this one should be paid last even though I feel icky for having it. The car loan had the highest interest rate so it should be paid off first and I hope to never have a car note after that. Another error in my emotions- the tax advantages of the student loan seemed inflated in my head before I did the actual calculation. But now that I saw it on paper, I realized these emotions were clogging up my rationale and it would be much more practical and efficient to go from highest to lowest interest rate. Without realizing it, I had stumbled upon a debt reduction method called a Debt Avalanche.

Paying off debt is always good, no matter what method you use. Any method of debt reduction is better than no method! But I would also suggest taking a long-hard stare at the numbers using something like the Debt Snowball Calculator to be sure you are happy with your debt repayment plan.

• I decided on the amount.
  I went with $250,000. For our situation, I think this will work. You can find more about how much life insurance you need at All Financial Matters

• I got quotes.
  • My Home/Auto Insurer, State Farm: I contacted my agent and asked for a quote. Simple.
  • Online Insurance Companies: I went to Zander.com, lifeinsure.com and compared quotes.
• I decided on the Insurance Company
  My rates were mostly between the $18-25/month range. I went with State Farm for a number of reasons. For one, I trust them. I know that if I have any questions, I can call someone and get a human right away. Also, their exam and medical digging seemed simpler and easier than the other guys. It’s not that I am sick and trying to hide it, but I have complicated issues that in no way will make me die earlier. I just don’t want some idiot who doesn’t know what the hell a heme group is to make a dumb decision that I’m unhealthy when I’m not.
• I filled out an application with the agent. My agent was nice enough to meet me at the Starbucks just down the street to fill out the application and get everything started.
  This included:
  • The usual paperwork with name, address, and signing.
  • Medical questions: Do you have diabetes, high blood pressure, heart disease, etc. What have you been to the doctor for in the last 5 years… That was a task.
  • Lifestyle questions: Do you jump from airplanes, scuba, jump off bridges for fun?
  • Then I gave him a check for the first month’s estimated payment. He let me pay the best-case-scenario price, but it may be higher depending on how risky they think I am.
• I had a Medical Exam done.
  This included:
  • Blood test for cholesterol and other levels.
  • Urine test. Not sure what for. Maybe a drug test?
  • Weight and Height.
  • Blood pressure.
  • Pulse.
• Now I am just waiting on the results of the exam/underwriting to see what my rate ends up being. However, since I already paid my first month when meeting the agent, my coverage has actually already started.