“How Much Life Insurance Do I Really Need?”

The question usually comes up in regard to insurance planning: “How much life insurance do I really need?” This implies of course that the belief is held that either the amount recommended is incorrect or perhaps the insurance isn’t needed altogether. 

We’ll go over a specific scenario below.

Richard writes in: “I’m 36, recently married, and my wife has two kids from a prior marriage. As soon as we started to get serious, we met with a financial planner and of course one of the first things the planner wanted to talk about was insurance. He immediately recommended a $1,000,000 term policy.

I have a policy for $50,000 at work, so I should be covered, correct? Why would my beneficiaries need more than that? It should cover burial costs and give them something left over too if I am to pass.”

Richard, thanks for writing in. For starters, the planner has one advantage that I don’t: the ability to ask you questions in a more direct format. 

That being said, I will speak first more generally and then get to specifics.

In general, if a person has a need for life insurance, their policy at work is usually not enough. 

The reason being is that yes, it could be enough to cover burial costs but usually if you have a need to do that, it means that you have other dependents that will rely on more than that and were likely relying on your income. 

Now this gets into the specifics as to whether your work policy is enough or not. Your planner likely asked if your new wife and her children are dependent on your income, or if your wife is able to support herself if something happened to you.

If your wife and new children are unable to support themselves in the event of your passing, they will need income replacement likely for perpetuity, not just a few years.

This is where the idea of a large term policy (around $1,000,000) comes into play. That large of a face amount placed into an interest-bearing account should give your beneficiaries a sizable income to help replace the income they lost from your passing. 

I hope this information helped, Richard.

 


Thank you for reading and feel free to leave a comment below to have your question featured. 

This article should not be considered legal or tax advice. Always consult a professional for advice on your specific situation.

 

“What is the First Step to Getting Out of Debt?”

Every one of us that has struggled to do something has had that moment where we say, “That’s it, I’m sick of this. I’m finally going to do it.” And that applies even more so when we’re talking about a person that has finally hit their breaking point and is ready to get out of debt.

Janice writes in: “Mike, thank you so much for what you do here. I’ve been following the blog and I need to know your thoughts on how to get out of debt. My husband passed a few years ago and I was left with a lot of medical debt from that.

I’ve tried a lot of different options, but I just need to know what the first step is. What can I do to make myself feel like I’m making progress instead of going backwards?”

Janice, I’m so sorry about your husband passing and I’m sure that wasn’t easy. The first step we take when we want to accomplish anything is to secure ourselves to brace for the journey. 

When you’re getting ready to go rock climbing you harness yourself in for safety. When you’re about to go for a road trip, you check the car has everything it needs and fasten your seat belt.

When we’re trying to get out of debt, we have to secure ourselves with a starter emergency fund. The amount of this will be different per household, but we usually recommend anywhere from $1,000 – $5,000.

Without a starter emergency fund in place, any setbacks you have will just slide you right back into debt instead of using the cash and you’ll have a different mindset about utilizing debt.

Now, of course before getting the emergency fund together, we have to make the budget and make sure there’s enough coming in and staying in after all minimum expenses are met so that we can even put together an emergency fund.

If it’s an income problem, there’s no easy way to say it; you either need a better job or a second (or third) job. When we’re deep in debt, we need to be intentional and focused.

I’m not saying you have to keep a second job forever or work a ton of overtime the rest of your life, but it is important that we get done what we need to.

Janice, I hope this helped. Let’s power through this and if you have any more questions, please feel free to write in.

 


To have your question featured, please leave a comment below.

This article is not intended to be legal, financial, or tax advice. For help regarding your specific situation, please consult a local advisor.

“Should I Loan Money to My Sister?”

Families can be difficult, and money can be even more difficult. But when you put the difficulties of both of these things together, the results can be catastrophic if not handled appropriately.

Mike writes in: “Hey there, I’m a new follower. I have a question about how to handle my sister and finances. She’s been asking me for money a lot lately and I’ve been giving her quite a bit of money. She’s never been great at handling her finances and I’ve always been a bit more of a saver. I feel like I have to help her out, but it’s getting to the point that I don’t know if I can keep helping her out.

My problem is that now her car broke down and it’s beyond repair. She has to buy a new one but she can’t get financing. She told me that if I loan her the money, she’ll never ask for money again. This sounds reasonable and I was hoping I could get your opinion on it.”

Thank you for writing, Mike. It’s great that you want to help your family and it’s a blessing that you can afford to. But I want you to take a step back for a second, Mike, and think about what you’ve been doing and if this is really helping your sister, or is it just encouraging bad behavior?

When you give her money, does she spend it wisely or does she come back to you the following week, in more debt, having more “problems,” and you’re there to help her out? Most of the time in these situations, it’s going to be the latter. 

Now, giving money to family members and loaning them money are very different things. When you give them money, you’re okay with them having it, no strings attached, and you won’t get mad at how they spend it, because it was a gift. 

When you loan them money, and you expect repayment, you get mad or frustrated when you see them enjoying themselves with money instead of repaying you with it.

Do you feel comfortable that giving your sister the money will result in her paying you back? When a family member gives a loan to another family member, it is generally a recipe for disaster. It can lead to broken relationships and hurt feelings. 

Any time you see them spend money while they’re still indebted to you, you’ll wonder in the back of your mind, “Don’t they know that they owe me money and that is my money they’re spending?” It will cause what seems like at first a minor strain on the relationship, but it will get worse.

If you ever loan money to family or a friend, know in advance whether the money is worth more or less than the relationship. If they cannot repay you, how will you handle it? Will you cut off ties or will you forgive the debt? You may be faced with that decision so prepare well in advance.

In case I did not make it clear enough, we here at Foxx are against loaning money to family members. We are against most forms of debt altogether, but when family members are in the mix, it only gets worse. 

Hope that shed some light on that, Mike. Thank you for writing in.

 


To have your question featured, please leave a comment below,

This article is not intended to be financial, legal, or tax advice. For help regarding your specific situation, please consult a local advisor.

How Much Should I Have in an Emergency Fund?

We’re all on the path to better ourselves financially, and a big part to that is having a safety net. When it comes to our finances, that safety net takes a few different forms; but usually this boils down to a form of insurance.

And an emergency fund is insurance against going into debt.

A question we get a lot is: “How much money should I have in my emergency fund?”

The good news and the bad news is the same in this case: There is no right answer. Everyone is going to be different. At its core, the answer to this question is “however much money you need to have saved up not to go into debt in the case of an emergency.”

But What Do the Experts Recommend?

Financial planners generally recommend that you save up three to six months worth of expenses in an emergency fund. It is important to remember that we’re talking about three to six months worth of expenses, not income.

Look at your budget and determine how much money you have going out in expenses that are required to live every month. This does not include money going toward savings, investments, charities, etc. That income is strictly surplus money in the budget.

What Do You Recommend?

Generally, we recommend the same as the experts. Three to six months should suffice most financial catastrophes. But we like to call the number that works for you and your spouse the Sleep at Night Number.

What number in your savings account helps you sleep at night? What number in your account helps you not worry about what your investments are doing? What number helps you and your spouse not feel stress about money?

That number is your sweet spot.

What number helps you sleep at night? Do you agree with the experts with three to six months or do you have a different idea of what should be in your savings account?

 


This article is not intended to be financial, tax, or legal advice. Please consult a local professional for help with your specific situation.

Should I Pay Off Debt and Invest at the Same Time?

We all want to pay off debt. And we all want to put more money into our retirement plans (401k’s, IRA’s, etc.). But do these two things conflict?

They shouldn’t. They’re both working towards the same goal: a better financial future for yourself.

So Do I Invest While I Pay Off Debt?

We hear the argument made all the time: “Why would I pay off debt at 3-4% interest when my investments make an average of 6-7% every year? I can make the minimum payments on my debt and invest and come out ahead.”

Look, we get that you can crunch the numbers. But this is personal finance. And it is important to remember that nothing in personal finance makes mathematical sense. Personal finance is almost entirely psychological, not numerical. And that statement alone is enough to make a person with a finance degree cringe.

If we made personal financial decisions based on what made numerical sense, we wouldn’t have debt in the first place.

So I Shouldn’t Invest While Paying Off Debt?

Yes. Saving and paying off debt are conflicting goals. This has nothing to do with the numbers making sense or that both of these actions help work toward your future.

They conflict because you can only do one thing aggressively at a time. If you try to pay off your pile of student loans at the same time you are trying to grow your investment portfolio, you will lose your mind. You will get burnt out and give up.

It is so important to feel small victories when working on yourself financially, just like it’s important to have small victories when dieting or exercising. This is where the psychological side of personal finance comes into play.

The balance in your 401k won’t matter when you have hundreds of thousands in student loan and credit card debt. The stress will pile up from the debt and your IRA won’t be there to comfort you until you turn 59 ½.

But what do you think? Have you gotten out of debt at the same time you invested? Do you think it’s more beneficial to focus on paying off debt before investing in mutual funds?

 


This article is not intended to be financial, tax, or legal advice. For help regarding your specific situation, please consult your local professional.