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The Pyramid of Personal Finance

There are other pyramids out there, but this one I developed myself when I was a financial advisor. My company had given me one to use and I didn’t agree with everything on it and felt like it was missing some key components, so I adjusted it accordingly. Here is a copy of the pyramid, and I will go over each section in depth.
 
Section 1: Just starting out
If you have neglected your personal finances, or if you are just starting out on your own, you probably fall into this category. I will try to break it down into parts.
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A. Insurance (Everyones favorite type of salesperson!)
P&C Ins. (or renters ins.)-If you own a home and have a mortgage, you must have insurance, same for cars in most states. However, you want to make sure you have enough coverage. Do not skimp on coverage and limits. For auto insurance go for the highest limits you can afford. As long as you have a good driving record the higher limits ($1 million or $500,000) don’t always make a huge difference. If you rent, you MUST have renters insurance. I personally know 2 people who have been robbed and you are not covered unless you have renters insurance. It is usually very cheap ($10-$20/month), so there is no excuse for not having it.
Health Insurance- You may think you can’t afford health insurance, but the truth is you can’t afford not to have it. Full coverage insurance can be very expensive, however there all alternatives. You can always go with a high deductible plan and use an HSA to pay for healthcare costs.
Long Term Disability- Probably the least known insurance. People assume if they become disabled that the government will take care of them. First of all, do you really want the government to take care of you? Second, if you know anyone who has gone through it, trying to get on social security disability income can be extremely difficult. Also, depending on your “credits”, you may not receive near as much as you need. Long Term disability is based on your current income and depending on the policy will provide you income until age 65. The cost is based on your risk, so the more dangerous the job the more expensive. However, for most people it is very affordable ($18-$25/month).
Life Insurance- Life insurance gets a bad name because of pushy salesman, but it is so important. If you have anyone who depends on you (children or spouse), then you need life insurance. Be sure to go for term, not whole. Term insurance is much cheaper and because there are so many companies the rates are very competitive. For example, I have $1 million, and only pay $38/month. My wife has $500,000 on her for $23/month. How did I come up with these figures? First, you must determine what your value is economically speaking. It may me morbid, but necessary. For me, we considered how much we would need to pay off the mortgage, put enough in savings for a large emergency fund, have enough to fully fund our kids college, and have enough for my wife to live on and go back to school. Term policies are typically for 10, 20, or 30 years. So if you get a 20 year policy in your 20′s, and then (as long as your are healthy again) in your 40′s, by the time you are in your 60′s you shouldn’t need it anymore as you should be financially independent.
Long term care (if you are over 60)- If you would prefer to have your choice of care when/if you become unable to care for yourself, then I suggest purchasing long term care insurance. Statisitcs show a very small amount of people needing care before age 60, so you can probably wait until you are closer to that age to purchase it. Be prepared, it is expensive, but how much is it worth to not be put in a welfare nursing home?
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B. Budget
Make and follow a budget, its the single most important thing you can do to become financially responsible, save money, and accomplish your goals. Going along with this, once you have a budget you need to save up $1000 as a starter emergency fund. By emergency I mean you do not spend this money unless it is an emergency, and if you do spend it, you stop everything and build it back to $1000 asap. Always having $1000 in the bank gives you peace of mind because most true emergencies do not cost over $1000. If it does I suggest shopping around, because even major car repairs, a/c repairs, etc, can usually be done for a fraction of the price by finding individuals rather than going to a shop or big company.
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C. Stop borrowing money!
You can’t get out of a hole if you keep digging out the bottom. Is that how the saying goes? Anyway, no matter how well you budget and save, if you keep piling up credit card and/or student loan debt and taking out loans for cars then you are not really accomplishing anything. Borrowing to buy a house is a little different, but you should still be smart about it. Just because the bank will loan you a certain amount, doesn’t mean you need to borrow that much. A good rule of thumb is for your house payment to be around 25-35% of your monthly income.
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D. Will/Legal Stuff
Every adult (18 or over in case you are wondering) should have a will. Shocking! Something like 80% of people do not have a will. It takes a few minutes for most people to fill it out and then you can take it to a notary and make it official. Why do you need a will if you are 18? The main reason everyone needs a will is to avoid any potential problems in probate court and make your real intentions known. You should also have a living will so you can state what you would want to happen in the event you can not make a decision for yourself. For those who have more assets and children, you may want to consider a living trust as well. Bottom line, find a good attorney that can become your family attorney and get this stuff taken care of. Once it’s done you just have to review after major life events or when you want to change it.
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Section 2: Debt Free!
By debt free I mean debt free except the house. That will take a little longer. Once you have paid off all of your other debts, your next goal is to increase your starter emergency fund to a fully funded emergency fund. Depending on your situation you want to save 3-6 months of your household expenses into a savings account. This account should have 1 day liquidity, meaning you should be able to get to it right away (no cd’s).
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Section 3: Fully funding retirement and educational savings
At this point you want to start fully funding your retirement at about 15% of your income. The next step is to be saving kids college, I recommend ESA’s or a 529 plan depending on your situation. Once you have these things started its time to start paying off that mortgage! By the way if someone tells you not to pay off your mortgage because of the “tax writeoff” just walk away from them mid sentence. Well, you don’t have to be that rude but do not listen to them. That is one of those old wive’s tales just like a dog’s mouth being cleaner than ours. Just use common sense, they’re not. And not paying off your mortgage to save on taxes is just foolish, and here is why. First, you only save on taxes if you itemize which most people do not. Second, even if you do itemize you only save on the amount of taxes you would have paid on that amount (because it decreased your income by the amount of taxes paid). So if you paid $10,000 in interest and you are in a 15% tax bracket, then you would save $1500 in income taxes. So what people are saying is you should keep sending the mortgage company $10,000 a year to avoid paying the government $1500 more in income taxes a year.
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Section 4: Financial Independence!
At this point you have zero debt, including no mortgage! You are fully funding retirement and education funds, and you have a large emergency fund. Now you have so much extra money you don’t know what to do with it. This is where you start investing outside of retirement, this could be done in mutual funds, real estate, or whatever else you wanted. This would also be a great time to ramp up charitable contributions, or maybe even start a foundation.
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HAPPY EASTER!!!

Message to Claire:
Wow, so much has changed in the last few months. The word explosion we read about around 18 months certainly happened. Your mom cannot get over how cute it is when you say “bubble”. You are getting better at saying phrases like “I sit”, “I want nana”, and “I dont know momma” which we think means you don’t know where momma is. We are getting so much closer to our best friends first child being here, and I think you and him will be best friends. It will be fun to see how you handle being around a newborn baby. Hopefully wel,l since you may have one in your own house soon. Sometimes I wish you could just stay this young forever so I wouldn’t have to go through the teenage years, but then I know you will be a good kid. I still haven’t decided what age I will have you read all of these, I guess im just going to wing it. Just remember no matter what you do or how much you think you hate us sometimes, we will always love you. That being said, try not to be too crazy. 
Ryan DeLeon in Being Smart with Money,Budgeting,Getting out of debt,investing,Life Insurance,Saving for College,Saving Money,Wills on April 08 2012 » 2 comments

Random Advice and Things to Share

Quick blog today, hopefully can do a longer one soon. I just wanted to share a few things I have found recently. First is for anyone who buys music through Itunes. I love Apple products, however they do not have a monopoly on the digital music market, although it may seem that way. Amazon, where I buy just about everything, also has a digital music library. What’s the difference? Amazon is routinely 30 cents cheaper even on brand new songs than Itunes. It takes about 5 seconds to import the songs into Itunes after purchasing them on Amazon. Yes 30 cents isn’t much more, except when you multiply it by 100 songs it starts to add up. More importantly, why pay more for something when you don’t have to?

Secondly, I heard about this new product called Liquipel. It literally makes your Iphone (and several other types of phones) waterproof. This is amazing. I have personally lost 1 iphone due to water damage, and that is 1 too many. The price is a little steep ($60), although it depends how prone to water damage you are. Obviously nobody does it on purpose, but everyone has accidentally got in a hot tub forgetting your iphone is in your pocket (right?). Click on this link Liquipel and buy it if you think it’s worth it, and I might even get a referall bonus!
Third, and this is completely random. I have had to deal with hospitals, insurance, etc, the last few weeks as my dad was sick in the hospital. Here is a tip, (for those over medicare age) make sure if you are planning to go with a cheaper medicare replacement plan that it covers everything you want it to cover. Mainly skilled nursing, my fathers plan did not cover this completely and medicare would have. Just something to think about. In general pay attention if you are shopping for health insurance on the open market.
That’s it for now, hopefully a longer blog later this week.
Ryan DeLeon in Being Smart with Money,finding deals,Saving Money on March 13 2012 » 0 comments

What Should You Spend Your Tax Return On? (hint: NOT a big screen TV)

Treat your tax return money (and any money you receive) as earned income, not as if it’s extra money to have fun with. It should go into your budget and should be used to pay down debt, build up your emergency fund, or to go towards your other financial goals. This does not mean you can’t spend it on anything fun, but not when it would be financially irresponsible. If you’re living paycheck to paycheck, or have mountains of debt, why all of the sudden is it ok to spend $1000 on a tv, or a vacation? The government isn’t just handing out cash to people as early Christmas presents. For most who earn over 40-50k, your tax refund represents your over payment of taxes throughout the year. So essentially you give the government an interest free loan all year, and then they give it back to you in a lump sum. Wouldn’t you rather have that extra money in your paycheck?

 

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Ryan DeLeon in Being Smart with Money,Parenting,Saving for College,Taxes on January 30 2012 » 0 comments

What is Quirky? And why YOU should sign up!

I am the type of person who constantly has ideas, but rarely does anything with them. With Quirky, you can submit for idea (for a $10 fee), and then let the community decide if it’s good enough to produce. Then Quirky produces the product and sells it on their website and in partner stores like Bed Bath and Beyond. Pretty awesome idea for a website. What’s even better is that if none of your ideas ever make it you can still make money. You earn what’s called influence by voting on other products to be produced, commenting on products, and helping to price products. Depending on your level of influence on the product being created, you can get a percentage of sales.

Currently I have 2 ideas submitted, please check them out, sign up for Quirky (it’s free), and vote for my ideas!

http://www.quirky.com/ideations/151851

 

http://www.quirky.com/ideations/150700

 

Also, I recently began freelance writing for Yahoo! via the Yahoo! Contributor Network. Basically, I write an article and if it is good enough it gets published and I get paid based on how many hits it gets. Please go check it out and let me know what you think: 10 Tips for a Successful Budget in 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ryan DeLeon in Getting out of debt on January 08 2012 » 0 comments

Occupy Wall Street – Focus Your Attention Elsewhere

So, I had a full length article written about the whole Occupy Wall Street movement. Then I realized, it was pointless. So I wrote a completely different one focusing on a more positive approach. This movement has demands that can never be met (fixing poverty, greed, war, wealth inequality, etc). What have we learned from all of history? These things will always exist. We are not all economically equal, some people are capable of doing (or willing to provide) much more than others. They should be compensated accordingly. Start redistributing their wealth to people who didn’t earn it (even more than what is already done) and you start to remove the incentives to create and provide great products and services. This idea that the wealthy people of the world somehow cheated everyone else to get there and they owe the rest of us is ridiculous.

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Ryan DeLeon in Finding a Job,Government,Paying Cash on November 15 2011 » 0 comments

The Dancing baby!

I am working on a long article about the Occupy Wall Street Movement, hopefully be finished soon. In the mean entertain yourselves with this! Claire is showing off her dance moves!

15 month old baby is a great tiny dancer!

Ryan DeLeon in Getting out of debt on October 28 2011 » 0 comments

Life isn’t fair, Deal with it

Anyone who has ever been around little children has heard the famous phrase “that’s not fair”. Usually followed by some complaining about something of little importance. For kids it is an important thing that everything is fair. As parents we usually give in to these demands to keep the peace. But are we really doing what’s best, or are we doing are kids a disservice?
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Ryan DeLeon in Parenting on October 02 2011 » 0 comments

The Greatness of Audiobooks!

Its been a while…again. These 70-80 hour work weeks are not very condusive to frequent blog writing. I view this blog as more of a wealth of information for my daughter (and future children) now more than anything, but I hope it reaches a few more people and has been informative. I would like to take some time to talk about audiobooks. For me, these have been a lifesaver. I have time at both my jobs to listen to my iphone with my headphones on, and I have taken full advantage of it. I have listened to such books as Boundaries, Salary Tutor, Seal Team 6, the entire Hunger Games series, and currently I am listening to Atlas Shrugged. This is all in the past few months and I may have forgotten some. I could never sit down and read all of these books with my schedule. But listening to them in the car and while I work allows to me to multitask. I have purchased my books through audible.com, I signed up accounts for my wife and I when they had a 2 free audiobooks with each new account deal. I plan on catching up on all the titles that have been recommended to me but I have not had time to read. If you dont have time to read or even if you want to be able to multitask I highly recommend downloading some audiobooks either from audible or Itunes.

Ryan DeLeon in Getting out of debt on August 21 2011 » 0 comments

How to save for kids college

The day has finally come, Claire is officially walking all over the house. It’s very strange to see such a small person walking. She has been saying Mama and Dadda for a while now, and she is now fluent in gibberish. With her first birthday coming up in August we decided to get her college fund started. I wanted to share an idea with everyone, not sure how it will work but I will let you know. We are going to start an ESA (Educational Savings Account) and ask family and friends to contribute to it instead of giving gifts. We really don’t need any more toys or clothes.

There are 2 different types of college savings options; ESA, and 529. I prefer the 529 for children but we can go over both options so you can make an informed decision.
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Ryan DeLeon in Saving for College on June 22 2011 » 0 comments

Unemployed? Drop in income? No problem!

Wow, my last post was on April 29th! Sorry for the long delay, I will try and make time to get at least 1 post a week done from now on. The reason for the layoff in posts is due to my employment situation. My wife lost her job right before Claire was born and we have decided to do all we can do to allow her to stay at home with her. This means I have to increase my income in any and every way possible. I have been searching for a new full time position with no luck; however I have yet to put my plans into action that I have learned from “48 days until the work you love”. So, and this leads me to my advice for anyone in a similar situation, I have taken a different route to increase our income.

I built another website (www.deleontiling.com) to advertise my remodeling business. A few weeks later I received a call from a local builder and he hired me to finish a tiling job at one of his houses, and then informed me that there were 3 more houses which need the same tiling work done. These are huge jobs, 3 bathrooms, an entryway, and a kitchen backsplash. They pay pretty well and it will give us a cushion to allow me to decide what it is I’m going to do going forward.

Work in Progress

There’s a good place to go when you’re broke, TO WORK!

So if you’re are currently unemployed or just need some additional income, don’t just sit there and apply online for jobs, it doesn’t work. Get out there and start working. Mow lawns, anyone can do it and you can’t beat the hourly rate you earn. In your spare time read the book by Dan Miller that I mentioned above, it has great tips for determining what it is you’re called to do, not just what you think you should be doing, and how to start that career.

Garage Sales

I’m currently working about 75 hours a week, so I have not had time to organize our annual garage sale. Somehow we manage to hold onto enough stuff or accumulate enough to have a garage sale every year it seems like. If you need some extra cash I recommend putting your big ticket items on eBay, Amazon, or craigslist first. If they don’t sell there, you can throw them in the garage sale, but don’t give stuff away you know is worth something. Anyway, even our smaller sales are usually good for a few hundred bucks, although we did have the disaster of 2007, where we spend $35 on a newspaper ad (now you just list it on craigslist), and made about $50 for the entire day. The year before we made $700, so it tends to even out. On the flip side, if you really have some spare time, you can go to garage sales and get deals on things to resell, I have done this sparingly and always made double to triple on things I purchased. Just make sure you have a pretty good idea it will resell, or it will end up in your garage sale later.

Pursue your Ideas

I am currently in the planning process of developing my own ipad/iphone app. I encourage people to pursue their ideas, but not to the point where it puts your family in jeopardy. Don’t go opening a Smoothie King franchise for $250,000 on an SBA loan, way too risky. But if you want to spend $500 cash to start something up, go for it. I’m hoping my app sells but if it doesn’t it won’t hurt us financially; it’s a risk but a small one.

Overall my message is don’t give up, and don’t whine, your attitude affects your life more than you think. Employers can tell in an interview if you’re sulking and depressed. Just because you can’t get your 60k job back doesn’t mean you’re too good to take a lower position. Do what’s necessary for yourself and your family; if that means working 3 jobs then do it. If that means going from a desk to construction, do it. None of this will be permanent; things will turn around, especially if you remain positive and focused.

Message to Claire: Don’t be a whiner. Nobody likes someone who complains all the time. Read the book QBQ, and follow it. The basic premise is don’t ask what someone else can do to fix your problem, ask what you can do to fix your problem. Take responsibility for your actions and make things happen for yourself. That doesn’t mean you can’t accept help from friends and family, but don’t be a drain. Don’t be the person who has to do everything themselves to a fault, and don’t be so dependent on others. A lot of this is on your mother and I to raise you right, this blog will hold me accountable.

 

Ryan DeLeon in Finding a Job,How to earn extra money on May 29 2011 » 0 comments
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