2 Much Cents Update

First of all, let me thank you if you are reading this. 2 Much Cents has gotten much bigger than I could have ever hoped or dreamed, and a large part of that has to do with the suggestions, opinions, and ideas I have received from readers like you. But we’re not done – we’re just getting started!

The reason for today’s post is to let you know about two exciting developments coming up on this blog: “The Lightning Round” and “Now What? Series.”

• The Lightning Round
• Between now and Friday night, August 31, 2012 at 11:59 p.m., I would appreciate it if you would send me any financial question you may have. Don’t worry, there is nothing too simple, and if you ask something out of my league, I’ll tell you that, too. I promise to eventually answer every question I receive, but I will post at least 5 of the questions with 5 answers next week. Whether you decide to submit a question or not, you will want to check it out because I can almost promise that someone out there has the same question, curiosity, or need that you do. Also, if you don’t want your question posted or if you would like to remain completely anonymous, please let me know when you ask your question (otherwise, your first name will appear in next week's post). Feel free to contact me by posting on this site, emailing me, calling me, Facebook messaging me, sending me a telegraph, or any other means of communication you can think of. This was a suggestion from one of my readers, and I think it could be a really good opportunity for me to learn what financial topics you would like to know more about. If it goes well, perhaps we’ll have a “Lightning Round” a couple of times a year.

• Now What? Series
• If you’re like me, you probably cringe when you hear a speaker, teacher, or preacher say they are going to start a series. Well, cringe away, but please hear me out. Also at the suggestion from one of my readers, I am going to offer general, how-to road maps for 5 different stages of life that I hope will help you achieve your financial and life goals. Over the next several weeks we will cover:
1. “You Graduated from College, Now What?”
2. “You Just Got Married, Now What?”
3. “You Just Had a Kid, Now What?”
4. “You’re an Empty-Nester, Now What?”
5. “You’re Retired, Now What?”
• Sure, I’m only a veteran of stages 1 and 2, but I have plenty of experience with clients, family, and friends in stages 3-5 that I’d like to share. If you find these how-to road maps helpful, I hope you’ll consider them in your life and pass them on to other people you know who might benefit from them.

Sorry if you were looking for financial advice today, but I wanted to give everyone a heads up for what is coming down the pipeline with 2 Much Cents. Tell you what, I’ll guarantee that the first person who sends me a question for next week will see their own question on “The Lightning Round” post.

Go ahead. I’m waiting…

Have a great week!

-Tom

Surviving Mayhem

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I like the one where your blind spot is personified. I also like the one where you get to be inside a deer’s head. My favorite one, though, is where they show how to disarm a good guard dog. Yes, I’m talking about the successful series of Allstate commercials, but more importantly, I’m telling you that Allstate is absolutely correct when they warn that “Mayhem is everywhere.” These commercials that you and I enjoy are only funny because the horrible things being shown aren’t happening to us. If they were happening to us and we were uninsured, or even underinsured, we wouldn’t be laughing near as hard.

With Allstate’s ominous warning in mind, let’s take a brief look at car insurance, homeowners insurance, and umbrella policies. This will by no means be an exhaustive or personalized analysis, but it should give you some things to consider to make sure that you and your family can survive whatever "mayhem" life throws your way.

• Car Insurance
• Everyone should have car insurance. Most states even require it. 
• Car insurance is frequently quoted like “50/100/50,” meaning you would be insured for $50,000 per bodily injury, up to $100,000 for total bodily injuries, and $50,000 for property damage. There is no magic set of numbers for me to suggest, but make sure you have a reasonable amount considering your assets. Going with a higher deductible will help keep your premiums reasonable and allow you to increase your coverage amount.
• You will likely want to have collision coverage (what you need when your car collides with another car or object) and comprehensive coverage (think theft, weather, anything but collision). You may also want to consider paying a little extra for uninsured or underinsured motorist coverage (coverage that will look out for you if it’s the other person’s fault, and they don’t have adequate insurance) if it’s not required in your state.
• One other topic to mention here is rental car insurance. Renters frequently go back and forth on whether they should agree to all those additional charges at the rent-a-car desk, but the answer is that you should do your homework before you travel. Many insurance policies and even credit cards already protect you and your rental car. Saying yes to whatever product the rental car agent is offering you could mean throwing away money towards duplicate coverage. Look at your policy or call your insurance/credit card company before your trip so you know what to say at the desk!
• Homeowners Insurance
• Everyone should have homeowners insurance. Your mortgage holder probably requires it, even though state law actually does not.
• You need to think about the value of your home, the value of your personal possessions in your home, and the potential for accidents that could occur in your home when you are considering what size and type of policy you will need. A good insurance agent will be able to help tailor a plan to your specific needs, but insuring your home for 80% or more of its market value or replacement value is not uncommon. In some cases, your insurer will require that you have insurance up to a certain percentage of your home’s value or else they will prorate payments to you in the event that some peril occurs. In English, if the insurance company requires you insure 80% of your home’s value and you only insure 60%, you can roughly expect to be reimbursed for only three-fourths (60% / 80%) worth of your claims!
• If you have a pool, are renting out your home, or have a specific item of particular value like an engagement ring or firearm, you may want to consider additional coverage or higher limits for those items under your policy.
• You want to always make sure your homeowners policy is adequate, but not excessive, so review it at least once a year as property values fluctuate. Just as with car insurance, going with about as high of a deductible as you can afford will help keep your premiums down. You may also want to go ahead and put in that security system you've been considering, as most insurance companies will give you a discount for adding this degree of protection to your home.
• Umbrella Policies
• Umbrella policies (sometimes called PUPs or Personal Umbrella Policies) are up there with sliced bread in my book. Put simply, you need one! These policies have large coverage amounts and are relatively inexpensive. They are usually sold in increments of $1 million.
• I know a $1 million insurance policy may sound crazy to some of you, but you can likely get this type of policy in conjunction with your car and homeowners policies for only a few hundred dollars more a year. The reason you should strongly consider an umbrella policy is because it is very easy for even the most careful person to underinsure a particular peril or inadvertently pass on a certain type of car or home coverage. It’s also possible that if you were sued, the liability could go way beyond your car and home coverage limits or even beyond your current assets if the judgment also applied to your future earnings. I really think it’s worth it if, for a few hundred dollars, you can almost completely erase your insurance risks and put your liability worries at ease!

I know this is a lot to consider, but protecting your and your family’s hard-earned assets is very important. You don’t tug on Superman’s cape. You don’t spit into the wind. You don’t pull the mask off that ol' Lone Ranger, and you don’t mess around with Mayhem!

-Tom

Passing On Your Digital Assets

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Your online billing accounts, PayPal account, Amazon account, Gmail account, Yahoo! account, the pictures on your desktop, your videos on YouTube, your blog, your Facebook, your Twitter, your LinkedIn... When you die, what is going to happen to your “digital assets?”

The current laws governing the treatment of digital assets are frequently unclear, and in most states, nonexistent. Many websites will not provide access to family members after the original user passes away, and those that do often require paperwork and death certificates. When most people pass away, nothing is going to happen to their digital assets, and that is probably not a good thing. Your digital assets need even more protection after you’re gone to protect your identity, to protect your financial assets, to protect your content, and most importantly, to protect your privacy.

By simply taking the time to create a master list of your accounts, usernames, passwords, and wishes, you can make sure that the angry e-mail you drafted but never sent stays your secret. By creating a central database on a memory stick and putting it in your safety deposit box, you can guarantee your Facebook page doesn’t show that picture of you in Vegas as a memorial forever. By telling your spouse the password to your Excel file that lists all your PINs, you can ensure your memoir doesn’t remain permanently inaccessible (like Leonard Bernstein’s is on his old computer). By using the secure services of one of the many “afterlife data companies,” or by following any of the other examples above, you can provide your executor or family members the information they need to fulfill your last digital wishes.

As our culture continues to become more information-driven, digital assets will become more personal and even more valuable. However you prefer to handle passing on your digital assets is up to you, but please develop a plan and keep it updated. If you don’t, it could be a “fatal error.”

- Tom

Good Idea, Bad Idea

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It kills me how complicated people try to make finances and investing. Spend less than you make, save and invest what you don’t spend, and if you want a higher standard of living, work more and have a little good luck. Sometimes, I feel that about covers it. Sure, there are conundrums like credit default swaps (there’s no link because trust me, you don’t want to know!), thoughtful considerations like how you are going to put your children through school, and big decisions like whether to take a lump sum payment or choose an annuity at retirement, but financial planning and investment strategies do not always have to be on the same playing field as nuclear physics!

Today, we are going back to the basics, as I’ll share with you a number of simple, yet not always obvious, financial truths. I’m going to borrow the always-funny, segment-filler “Good Idea Bad Idea” from Steven Spielberg’s animated series, Animaniacs, to talk about some prudent investment principles that everyone should at least consider. Here goes:

GOOD IDEA: Have 6 months to a year’s worth of living expenses in cash.
WHY: Having an adequate rainy day fund can be a lifesaver when something unexpected comes up, and can even give you an added sense of peace when the stock market is being unusually volatile.
POSSIBLY A BAD IDEA: Have 6 years’ worth of living expenses in cash.
WHY: Have you seen interest rates? Your rate of return on your CD or checking account is not going to keep up with inflation over time. If you don’t increase your returns by investing in some stocks and bonds, you will eventually lose spending power compared to others who did invest in stocks and bonds.

GOOD IDEA: Invest in Apple in January 2009 (around $100/share).
WHY: In hindsight, the stock was about to begin a 3-year climb to around $600/share.
POSSIBLY A BAD IDEA: Invest in Apple in August 2012 (around $600/share).
WHY: The stock might go up some more, but it might not. Either way, you’ve already missed most of the ride. Does investing in anything that has increased 6 times in value already really seem like a good idea? Ask some people who bought highly-appreciated real estate in 2006 and 2007 for their thoughts if you don’t believe my warning.

GOOD IDEA: Have a well-diversified portfolio with no individual stock holding greater than around 10%.
WHY: Enron, Worldcom, and Lehman Brothers. They went bust; your diversified portfolio would not have.
POSSIBLY A BAD IDEA: Invest heavily in one or only a few stock holdings, particularly if you have an emotional tie to the stock.
WHY: Enron, Worldcom, and Lehman Brothers. They went bust; your undiversified portfolio could as well, and I don’t care what company you’re talking about! Enron’s own employees couldn’t believe what did happen could have happened either.

GOOD IDEA: Fight the urge to make your investment portfolio more conservative (more bonds, less stocks) after a market downturn or sell-off.
WHY: You rode the elevator down, you might as well ride the elevator back up. After you recoup most of your losses, reevaluate your strategy if you can’t stomach the thought of living through another sell-off.
POSSIBLY A BAD IDEA: Panic at the bottom of a market downturn and exit the market or make your investment portfolio ultra-conservative.
WHY: You just got hammered. Why do you want to get hammered again by making fewer returns than everyone else when the market bounces back and gains positive momentum? Over the long term, it will bounce back.

Look, I could very well be wrong about holding a ton of cash, buying Apple, diversifying your portfolio, and changing strategies after a market downturn being bad ideas in your particular situation. However, to effectively invest over the long run, I really believe you need to focus on the tried and true rules, not the exceptions - even if they’re popular!

I hope you found some of my financial truths meaningful and will remember them in the future. In the epic cartoon-ending words of Porky Pig, “That’s all Folks!”

-Tom