Wednesday, May 28, 2014

The 10% Rule

I've read that 70% of lottery jackpot winners have spent all of the money in five years.  Five years.   Can you imagine someone winning a $300 million lottery price and being broke in five years?  It seems to be all too easy if 7 out of 10 people do it.

Whenever I come into some extra money, I have a 10% rule. 10% of it can be spent on what ever I want. No questions asked; no justifications. That 10% is pure fun money.

The remaining 90% though, has to be spent in a more practical manner. I've never won the lottery but I believe the same principle, if applied, would keep that 70% of people from being broke.

This rule lets me have some fun when I get unexpected money while still maintaining a control over my financial future.   In most cases, the extra money would go on the mortgage or into the car fund but maybe we will decide to refinish the floors or fix something instead.

The point is to look at the windfall with an eye to the future and not just blowing all of the money.

Whether you come into $300 or $300 million, you should first stop and think before spending a dime of it.  Alternately, you could take that 10% and have some fun and then settle down and take stock before going any further. Do not spend more than the 10% without having a plan!

Keep in mind, the government generally gets its share.  Plan to give the tax man 40%; plan on 10% for yourself. You now have 50% of the money gone; just like that.

If you have any debts, pay those first. Next, set up a nice retirement account for yourself. Preferably something that you absolutely can not take the money out of the account early.

If you take the yearly payments, do not borrow against future payments. Spend it only as you get it.

You probably will immediately think about buying a house and a car.  You may want to just buy the biggest house or most expensive car. Check if that is really what you want though. Does your family of four need a 10 bedroom house? Probably not. You will most likely be better off buying a nice 4 bedroom house in a nice neighborhood.

Do not start giving money to anyone until you have set up your financial plan. If you win the lottery, you will immediately get calls from people you barely remember saying they need money. It is tempting to help them out and it would be a great thing to do for those in need but you need to get your own financial house in order first. There will be plenty of time to give money to charity.

Also, don't be surprised if people lie to you about needing the money because they think you now have plenty to share. 

Wednesday, May 21, 2014

Buy Some Art

Buy some art. I don't mean spend all of your money on Picasso paintings. I mean have something around you that is beautiful or thought provoking or makes you cry or scares you.  You get to decide what is beautiful; what makes you think.

Get it from flea markets or yard sales. Pick up sculptures or paintings at art schools.  Find things on Ebay or at Target. If you don't have the money, spend the time.  Only pick things that speak to you.

Do not try to pick based on what you think would look nice on the wall or table. Do not pick what is sophisticated or grown up. Hang a Star Trek collage on your wall or a Monet. As long as it speaks to you.

If you are artistic, make it yourself.

It is not about the cost of the item. I'm not talking about making an investment in your financial future. I am talking about making an investment in your soul.

Your soul needs beauty. It needs something that provokes a reaction. It needs to feel something.  Art is the best way to do that.

It can be one incredible piece that grabs you every time you see it or it can be a series of pieces. It can be something that sparks a story or a memory in your mind.

The Great Wave of Kanagawa by Hokusai is one of my favorites. I have a tribute painted by an artist I know upstairs right now.

I have a print of a Chinese landscape painting. I spent $5 on it at a yard sale and $20 to get it matted and framed. It hung on my bedroom door for years.  My husband's favorite painting is an oil that we bought already framed for $8 at a yard sale. 

Do not let money stop you from finding what speaks to you. If you have the money, spend it or don't but if you do not have much money, do not let that stop you from finding something that touches your heart and soul.

Wednesday, May 14, 2014

Your Home Insurance vs Acts Of God

There seems to be this ongoing myth that "acts of God" are not covered by your home insurance policy. This is not true. Acts of God are not automatically excluded from your policy.

Your home insurance policy either has a set list of things it will cover (also known as Basic or Broad coverage) or else it says it will cover everything that is not excluded (also known as Special.)

Basic Coverage:
Fire, Lightning, Explosion, Smoke, Wind/Hail, Riot/Civil Commotion, Aircraft, Vehicles, Vandalism/Malicious Mischief, Sprinkler Leakage and sometimes Sinkhole collapse and Volcanic Action (depending where you live).

Broad Coverage:
All of the above plus
Falling Objects (such as a tree falling on your house), Weight of Ice and Snow, Water Damage except flood or ground water.

Special Coverage:
Covers everything that is not specifically excluded. Typical exclusions include flood/ground water, wear and tear, pest and vermin infestation, acts of war, earthquake and ground movement, nuclear war, government seizure. Check your policy or call your agent for more information.

In other words, you have coverage for fire, whether of the wildfire or household variety. You have coverage for wind, hail, hurricanes and tornadoes unless you live in an area that has a lot of them in which case check with your insurance agent to make sure it is not excluded.

You probably have coverage for lightening, for burst pipes, for vandalism, for theft, for a tree falling on your house. The average home policy has coverage if a vehicle or an aircraft hits it; although it may exclude a vehicle owned by you.

You almost certainly do Not have coverage for earthquake, flood and ground water, pest and vermin infestation (such as termites or mice) or anything that can be chocked up to plain old age or wear and tear.

When something happens, I suggest you contact your insurance agent to make sure you know if it is or is not covered. It is generally a few minutes on the phone that costs you nothing. Do not be afraid to call and ask if something is covered before you assume that it is just an act of God.

While you are at it, you may want to check if your home policy provides debris removal and ordinance & law coverage. Debris removal is what pays to remove the rubble that was your house after a covered loss. It is not automatically or fully covered. Ordinance & Law coverage is what pays the extra costs if the town comes along and forces you to build differently because of some law or ordinance that came into affect since you built your home. Your policy is based on the cost to rebuild your house just as it was without regard to any changes you may be forced to make or extra costs to remove what was there. These are two important coverages. Do not wait until after a loss to find out that you do not have these very important coverages.

Wednesday, May 7, 2014

When Is It Time To Try Something New?

My husband would very much like me to quit my day job and work on following my passion instead. I am much too practical to drop a steady paying job--even if it sometimes drives me crazy--for something that is unlikely to provide any immediate income. In fact, doing this would cut our household income about 40%.

The problem is, with my full time job, my almost hour each way commute and maintaining a house, yard and exercise, I don't have a lot of energy left--mental or physical--to dedicate to trying to turn my writing hobby into a career.  I think it would be fair at this point to call me more of a dabbler.

I won't do my current employer the disservice of complaining. That is not the point anyways. The point is that my husband wants me to take a giant leap of faith and hope the money follows and I've never been one for blind leaps. I am the practical type. The kind of person who looks for the stairs or the parachute before making that jump. But am I doing myself a disservice? 

He is absolutely right that my job absorbs most of my time and energy right now; that I have been known to come home horribly stressed out. Does it necessarily follow though, that the lack of that job would mean I would get more done and success would follow? I might end up sitting around for hours getting nothing done through sheer inertia. Ever heard the saying, "If you want something done, ask a busy person?" Ever found yourself spending hours doing nothing knowing full well you have things to do? 

So when is it time to try something new?  When it makes sense financially? When I have more time? When I am mentally prepared?  If we only used those benchmarks, a lot of things would never get tried; never get done. A lot of babies would never be born.

When it comes down to it, I am just not prepared to make that leap at this time. I have started towards my goal. I have some books out and several more waiting for some serious editing. I have taken some baby steps.

I need to take some adult sized ones.

However, I am just not ready to take that giant leap.  Maybe I'm wrong to wait, to try to do it in pieces, but that is who I am.  I'm a practical dreamer. I just hope I am not being so practical that I forget the dreamer part.