Financial Sense Volume 1 Issue 2

More Myths and Truths of Personal Finance

Debt Reduction

Myth: Only the rich can be debt free.
Truth: Anyone can be debt free. True debt reduction is plain common sense and hard work

Are you willing to get another job and work a few 80-hour weeks? If you are in financial stress because of something you've done, you need to get yourself out of the mess by working. If you think that it is too hard, you will never get out of the debt that you brought upon yourself. Laziness is a sickness, and it will get you absolutely nowhere in life. We all make mistakes (including myself), but the question is whether you are willing to take responsibility for your mistakes? You need to learn from your mistakes or you and your children will be doomed to repeat the cycle. How badly do you want to be out of debt? Then there are lazy people who look for a quick fix, such as debt consolidation or debt management. Real debt help is not quick or easy. Laziness is a character flaw. You need to be willing to work and sacrifice in order to fix the situations that you created with your own irresponsibility. If you are not willing, then you cannot be helped.

Life Insurance

Myth: Cash value life insurance, like whole life, will help me retire wealthy
Truth: Cash value life insurance is on of the worst financial products available.

Sadly, over 70% of the life insurance policies sold today are cash value policies. A cash value policy is an insurance product that packages insurance and savings together. DO NOT INVEST MONEY IN LIFE INSURANCE; they have Horrible returns! Your insurance agent will probably show you wonderful projections, but none of these policies have perform as projected. Here is an example to help you understand: If a 30 year old man has $100 per month to spend on life insurance and shops the top 5 cash value companies, he will find he can purchase an average of $125,000 in insurance for his family. The pitch is to get a policy that will build up savings for retirement, which is what a cash value policy does. However, if this same guy purchases 20 year level term insurance with coverage of $125,000, the cost will be only $7 per month, not $100. Just think, if he goes with the cash value option that $93 per month should be going into a savings, right? Nope, all of the $93 would disappear in commissions and expenses for the first 3 years. According to Consumer Federation of America, Kiplinger's Personal Finance, and Fortune magazines, the return would average 2.6% per year for whole life, 4.2% for universal life, and just 7.4% for the new and improved variable life policy that includes mutual funds. The problem is that you can invest in mutual funds outside of these policies that average 12% per year.
Here is another hidden catch. With whole life and universal life, the savings you finally build up after being ripped off for years actually doesn't go your family upon your death as you might think. The only benefit paid to your family is the face value of the policy, the $125,000. The truth is that you would be better off to get the $7 term policy and put that extra $93 in a cookie jar! At least after 3 years you would have $3,000, and when you died your family would get your savings. So when you are decided on life insurance for your family, just think of this simple line, Buy term and invest the difference.

Money and Relationships

Myth: My spouse and I shouldn't talk about money because it only leads to fights.
Truth: You can't have a great relationship until you can communicate and agree about money.

Larry Burkett, financial author, says, "Money is either the best or the worse area of communication in our marriages." Statistics show the #1 cause of divorce in our nation is money. When it comes to money, men tend to take more risks and don't save for emergencies. Men use money as a scorecard and can struggle with self-esteem when there are in financial problems. Women tend to see money more of a means of security, so they will gravitate toward the rainy-day fund. Because of their need for security, ladies can have a level of fear or even terror when there are financial problems. Men and women are different in how they view money, and it is largely because they process problems and opportunities from different vantage points. On top of the fact that men and women are different, opposites attract. Chances are, if you're married, one of you is good at working numbers, the nerd, and the other one isn't good at working numbers ,the free spirit. That isn't the real problem. The problem is when the nerd neglects the input of the free spirit or when the free spirit avoids participating in the financial dealings altogether. For in Matt. 19:5, its says, "...For this cause shall a man leave father and mother, and shall cleave to his wife: and they twain shall be one flesh?" Just as a husband and wife should be one with each other, the same they should be one with their finances. One bank account for both, knowing together what transactions are being made, and more importantly making big financial decisions together.