Friend of the blog Matt sent in a great question this week:
Hi Jesse – do you have any recommendations when it comes to life insurance? I know Term is the way to go, but that’s about all I got…
I scanned your blog posts and didn’t see anything too specific with it but if you have any guidelines for pricing or coverage recommendations, please let me know!
Matt
Matt’s Right. We Want Term!
Matt’s right. Term life insurance is the best option in 99.99% of cases.
Other types of life insurance (Whole, Variable, Universal, etc.) are bloated products that are “pushed” and “sold” far more often than they’re genuinely sought after. These products try to combine investing with insurance and end up being overpriced versions of each.
Some things aren’t worth combining!
The smarter option is to buy insurance that only acts as insurance and then use your remaining money to invest in pure investments. Term life insurance is just that life insurance product. All it does is provide money to your beneficiaries if you die. If you don’t die, it doesn’t pay. It’s simple.
But Do We Need Life Insurance?
How do we determine if someone needs life insurance?
I use the same framework I would use for anyinsurance question (home, boat, pet llama insurance, etc.).
Are you exposed to a financial risk that you could not comfortably recover from using your current asset base?
Let’s say your house burns down. Does that present a financial risk you could recover from using your current assets (cash, investments, etc)? If you answer no, then you need home insurance. (If you have a mortgage, your lender likely mandates you have insurance so they’recovered should the house burn down).
If your wedding ring got stolen, does it present a financial risk you could recover from? Personally, I wear a ~$200 tungsten carbide wedding ring. If my finger got stuck in a tragic 3-ring binder accident while compiling someone’s financial plan, I could replace that $200 ring without issue. I do not need ring insurance. Granted, the cosmetic costs of finger reconstruction might make me wish I had better health insurance…
Back to the point: that’s the framework to use! Does the downside risk present an insurmountable financial burden to you (or your beneficiaries?)
The answer for many younger readers with dependents (spouses, children) is a screaming YES. As in, “If I died and the family lost my income, it would be very financially uncomfortable for many years!”
But how much coverage do you need?
My Preferred Methods: Income Replacement and “DIME”
The two methods I prefer (and suggested to reader Matt) are the Income Replacement method and the DIME method.
Income replacement suggests you replace your income for a certain number of years, typically until your children reach a particular age or until your spouse reaches retirement age.
In my personal case, I wanted to replace my income until my youngest child (who is still technically hypothetical) is out of the house. I chose a 30-year term policy equivalent to ~20 years of my income (with a small discount rate for future years). No matter when I get hit by that proverbial bus, 20 years of income should cover my youngest child until they’re out of the house.
The DIME method adds up any outstanding debts, add in your income for a certain number of years, then adds your remaining mortgage, and finally adds on future expected education costs. Debts, income, mortgage, education.
The DIME method double-counts a few things. For example, I’m using my income to pay my debts and mortgage. I shouldn’t need to double-count them. Nevertheless, I like the idea of itemizing the biggest future expenses (college costs, mortgage payoff, etc.) and ensuring your life insurance policy can cover them.
The Best of the Rest
Other strategies I’ve seen for sizing life insurance policies include:
The Human Life Value (HLV) method. It asks an individual to consider their annual income for each year until their retirement, add in other benefits and bonuses, subtract the income used for their personal consumption, and then discount future income to today’s value.
Done correctly, this method should provide the beneficiaries with a lump sum of the resources you would have expected to provide to them over the remainder of your working life. It’s just a bit too complicated and mathematical for most people to get right.
The Budget-Based method simply multiplies your household’s monthly expenses by the number of months you expect those expenses to be maintained. It’s similar to Income Replacement, but looks at expenses rather than income.
Lastly, the “Rule of Thumb” (which I think is a poor name!) suggests you multiply your income by 10. Very much “one size fits all,” which is why I don’t like it.
Granted, one detail to note is that most life insurance sizing strategies are intentionally conservative, leading to policy sizes that are large enough during the highest-risk years but end up being too large as time goes on.
For example: a young family might need a $2M, 25-year policy on each parents. But by the time the kids are in college, that $4M of total coverage is surely too much.
Thanks for the question, Matt!
And to all of you: term life insurance is a smart financial planning move. But I hope none of you ever need to collect!
Thank you for reading! If you enjoyed this article, join 8500+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week. You can read past newsletters before signing up.
-Jesse
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Navigating personal finance can be tough for young adults, especially with limited education on the topic in school. Sound financial advice is crucial for making smart decisions about budgeting, credit, and investments. Learning these skills early helps avoid debt, poor money management, and financial mistakes. Here are the top 10 best financial advice tips for young adults to set you on the right path.
1. Create a Budget
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Creating a budget is key for managing your money. It helps you track your spending and ensure you’re not living beyond your means. A simple step to managing your money properly.
To learn more: How to Budget Money
2. Manage Your Debt
Image Credit: Towfiqu Barbhuiya.
Managing debt is crucial. Keeping debt low and paying it off quickly helps maintain a healthy credit score and financial stability. As a young adult, it best to stay away from the temptation to spend on credit.
To learn more: How to Get Out of Debt in 5 Easy Steps
3. Invest Your Money
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Investing is vital for a secure future. Start early and let your money grow over time. It’s all about patience and consistency. Start by investing a minimum of 10% of each paycheck.
To learn more: The Simplicity of Investing
4. Start Saving Now
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Start saving early. Even small amounts can grow over time. An emergency fund can provide a safety net for unexpected expenses. Use a money saving challenge to make saving more fun!
To learn more: Top 20 Epic Money Saving Challenges Unveiled to Save Money
5. Limit Your Expenses
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Limiting expenses helps save more money. Track all your spending, even small purchases, to understand where your money goes. This will help you to invest the rest!
To learn more: How to Budget Money on Low Income: 20+ Tips to Cut Spending
6. Build Passive Income Streams
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Building passive income streams can boost your financial stability. Find ways to earn extra money through hobbies or skills.
To learn more: Find a Side Hustle that Works for You
7. Create a Cash Reserve
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Having a cash reserve prepares you for unexpected expenses. Save three to six months’ worth of income for emergencies.
To learn more: Breaking Down the Purpose of a Rainy Day Fund
8. Learn About Taxes
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Understanding taxes is important. Know the difference between your gross and net pay to manage your finances better.
Learn More: Difference Between Earned Income, Passive Income and Investment Income
9. Consider a Term Life Insurance Policy
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A term life insurance policy is affordable for young adults and provides financial protection for your future family.
10. Take Action
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Taking action is essential. Set clear financial goals, break them into steps, and stay persistent to manage your finances effectively. Don’t delay starting your financial stability!
Learn More: 10 Smart Financial Goals That You Need
Find More Ideas for Young Adults
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These tips for young adults will help you manage money well and not make the mistakes many others were guilty of. You can build a strong foundation with money. Make your finances a priority and you can quickly reach financial independence.
To learn more: Financial Advice for Young Adults: 10 Easy to Follow Money Management Tips
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
If you have a whole life insurance policy that pays dividends, you may have the option of purchasing paid-up additions. Paid-up additions in life insurance are small additional amounts of coverage bought with your life insurance dividends.
Paid-up additions let you increase your death benefit — the payout your beneficiaries could receive if you die — without raising your premiums, because your dividends pay for the additional coverage in full. The extra coverage can help your life insurance keep up with inflation.
You’ll need a participating life insurance policy to earn dividends. Participating life insurance policies are available through mutual life insurance companies, which are owned by policyholders rather than shareholders. Dividends are never guaranteed, though some mutual life companies have a long track record of paying them.
If you use policy dividends to purchase paid-up additions (PUAs), you won’t need to provide new proof of insurability. This means you can get the extra coverage even if you’ve developed health problems. The additional insurance you can purchase is based on your age at the time the dividend is issued.
Alternatives to paid-up additions in life insurance
There are several alternatives to using dividends to purchase paid-up additions in life insurance. For example, you could choose to:
Receive the dividend payment as cash.
Use it to reduce your life insurance premiums.
Pay down outstanding policy loans.
If you’re shopping for life insurance and want the flexibility to increase your death benefit, there are several other ways to do so without a paid-up additions rider.
Your 40s can be a pivotal decade in your life. It’s typically a time of peak earnings, growing family responsibilities, and an increased focus on long-term financial stability. You may have a house, kids, and a busy job. College expenses may be looming. Maybe you’re hatching a plan to start your own business or buy a beach house that’ll one day be your empty-nester home.
To navigate these years successfully, it’s essential to make strategic financial moves that can secure your future and make your plans and dreams a reality. Here are some critical financial planning tips to consider as you move through your 40s.
7 Financial Moves to Make During Your 40s
In your 40s, you’re old enough to know what you want and likely have enough earning years ahead to achieve your goals — if you manage your money right. The following strategies can help you build wealth in your 40s.
1. Maintain or Replenish Emergency Funds
Life is full of unexpected twists and turns. Not all of them are fun, such an expensive car or home repair, a medical emergency, or losing your job. An emergency fund offers financial stability during a stressful time. It also saves you from running up expensive debt that could derail your financial goals.
A general rule of thumb is to have six to 12 months’ worth of living expenses stashed away for the unexpected. If you already have an emergency fund but it has been partly or fully depleted, you’ll want to prioritize replenishing it to maintain financial security.
Consider setting up automatic transfers into savings to build your emergency fund consistently. Keep these funds in a liquid, easily accessible account, such as a high-yield savings account, to ensure you can access the money quickly when needed.
2. Manage Your Debt
Debt management is a crucial aspect of financial planning at any age, but it becomes even more critical in your 40s. Since high-interest debts, like credit card balances, can significantly hinder your ability to save and invest for the future, you’ll want to prioritize paying them off as quickly as possible.
One strategy that can help is the avalanche payoff method. Here, you list your debts in order of interest rate from highest to lowest, then put extra money toward the highest-interest debt, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra funds toward the debt with the next-highest rate, and so on.
Alternative approaches to paying down high-interest debt include getting a low- or no- interest balance transfer credit card or taking out a personal loan for debt consolidation with a lower rate than you are paying on your cards.
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3. Revisit Retirement Saving
In your 40s, you’re roughly at the midpoint between entering the workforce and traditional retirement age. How you invest and save for retirement at this point in your career can strongly impact your future assets and ability to one day retire comfortably.
If you’re not currently contributing to a retirement plan, such as a 401(k) or individual retirement account (IRA), now’s a good time to start. If you have been, it’s time to assess your progress. Consider how much of a nest egg you will need to retire and, using an online retirement calculator, whether your current plan will get you there.
If you’re behind on your savings, consider stepping up your contributions or, if you’re already contributing the max allowed, making “catch-up” contributions down the road. Starting at age 50, the IRS allows higher maximums designed to help people catch up on their retirement savings goals.
4. Plan for Childrens’ College Expenses
If you have kids, planning for their future education expenses may be top of mind. College costs continue to rise, and early planning can alleviate future financial stress. If you haven’t started saving for college expenses, you may want to explore opening a 529 college savings plan, which offers tax advantages and can be a flexible way to save for educational expenses.
An online college cost estimator can help you determine how much you need to stash away each month or year, based on the year your child will likely attend college and the type of school they might choose.
Just keep in mind that it’s important to balance college savings with other financial goals, like retirement. As kids get closer to leaving the nest, you may also want to encourage them to apply for scholarships and grants, and explore financial aid options.
5. Choose or Reevaluate Insurance Coverage
Insurance is an important component of financial planning in your 40s. You’ll want to evaluate your current insurance coverage and make sure it’s adequate to meet your family’s needs. This includes not only health and home insurance, but also life and disability insurance.
Life insurance provides financial security for your family should you die prematurely. If you don’t currently have a life insurance policy, consider purchasing one. If you do have one, you’ll want to make sure your policy’s coverage amount is sufficient to cover your family’s current living expenses, outstanding debts, and future financial needs, such as college tuition for your children.
It’s also a good idea to review your disability insurance, which protects your income if you’re unable to work due to illness or injury. Many companies provide a policy through work. However, you may want to consider supplementing employer-provided coverage or, if you’re self-employed, getting your own policy. This offers a different, but equally important, safety net for you and your family.
Recommended: Which Insurance Types Do You Really Need? Here Are 6 to Consider
6. Invest Outside of Retirement
While retirement accounts are crucial, investing outside of retirement can diversify your portfolio and help you achieve goals that may be five or 10 or more years away, such as a downpayment on a vacation home or a child’s wedding.
Though investing carries risk and can be volatile in the short term (which is why you generally don’t want to invest funds you’ll need in the next few years), an investment account has the potential to grow more than other types of accounts over the long term. Consider taxable investment accounts that align with your risk tolerance and financial objectives.
7. Meet with a Financial Professional
Getting expert advice on managing your finances can be invaluable at this stage of life. Whether you opt for regular meetings or simply go for a one-time consultation, a financial professional can provide valuable insights and help you navigate complex financial decisions.
An advisor will typically look at your whole financial picture and assist you with creating a comprehensive financial plan. This may include optimizing your investment strategy and ensuring you’re on track to meet your goals, including retirement, investments, and college savings.
The Takeaway
It’s never too late to take control of your finances. In your 40s, you are likely entering your prime earning years, so it’s a good time to focus on paying down debt, preparing for the next chapter of your children’s lives, and saving and investing for your future retirement. With some wise money moves, you’ll be set to make the most of this decade and beyond.
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FAQ
What financial goals should a 40-year-old have?
Ideally, a 40-year-old will want to focus on several financial goals. These include:
• Establish or maintain an emergency fund with three to six months’ worth of essential living expenses.
• Reduce financial burdens by paying off high-interest debt.
• Ensure you’re on track with retirement savings by maximizing contributions to retirement accounts.
• Start or continue saving for children’s college expenses through plans like 529s.
• Consider investing outside of retirement to diversify your portfolio and build wealth.
How much should a 40-year-old have saved?
By age 40, financial advisors often recommend having three times your annual salary saved for retirement. This benchmark ensures you’re on track to meet long-term financial goals and maintain your desired lifestyle in retirement.
In addition, you’ll want to maintain an emergency fund with three to six months’ worth of living expenses.
Savings outside of emergency and retirement, such as investments in taxable accounts, can further enhance financial security. The exact amount can vary based on individual circumstances, income, lifestyle, and future goals.
How can I build my wealth in my 40s?
To build wealth in your 40s, you’ll want to focus on several strategies:
• Maximize retirement account contributions, taking full advantage of employer matches.
• Pay off high-interest debts to free up resources for savings and investments.
• Establish or maintain an emergency fund to cover unexpected expenses without derailing financial goals.
• Consider additional income streams, such as side businesses or rental properties.
• Diversify investments across stocks, bonds, real estate, and other assets to balance risk and growth potential.
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Extended term insurance is a way to use the cash value of a permanent life insurance policy to buy a term policy that lasts for a set number of years and has the same death benefit
. It can be useful if you can no longer afford your life insurance premiums but you still need the coverage.
Most permanent life insurance policies, like whole life insurance, charge higher premiums than term life and use part of this money to build cash value over time. These policies typically contain a “nonforfeiture” clause, which means you won’t lose the cash value that’s accumulated if you cancel the policy or allow it to lapse.
Extended term insurance is a nonforfeiture option that lets you keep your life insurance coverage for some amount of time, even though your permanent policy ends. It replaces your permanent policy with a term policy, typically of the same face amount, paid for by your accumulated cash value.
The length of the term depends on how much cash value the policy has, as well as your age when you stopped making payments. If you have an outstanding policy loan, your insurance company will deduct the amount from its cash value first. The insurer will use the remaining amount to determine how much term life insurance you qualify for
.
Pros and cons of extended term life insurance
The advantage of extended term insurance is that you can stop paying premiums and keep some coverage in place. If you die during the policy’s term, your loved ones will still receive a death benefit, which is the payout from a life insurance policy.
The downside is that you’re replacing permanent life coverage — which is typically meant to last your entire lifetime or until an advanced age — with short-term coverage. If you outlive the policy’s term, the policy will expire and your survivors won’t get a payout when you die.
If you decide you no longer need coverage or you can no longer afford premiums on a permanent policy, you’ll also typically have the option of trading in the policy for its cash surrender value.
A family income rider in life insurance is an extra feature that provides a monthly income to your family if you die while the rider is active. This life insurance rider is an add-on to a life insurance policy.
Most life insurance death benefits are paid in a lump sum. But if you’re concerned that your survivors may have difficulty managing a large amount of money in the long term, you could opt for a family income rider so that benefits are disbursed in monthly installments.
How does a family income rider work?
You can often include a family income rider to your term life policy at very little cost — or even no extra cost. This is because if you die during the term, your insurance company will probably have to pay a death benefit. But if the insurer hangs onto part of the death benefit and makes the payout gradually, the company can still earn interest on some of the money for a while.
The term of a family income rider begins when you add the feature to your policy. For example, if you included a 15-year family income rider on your policy and died 10 years later, your beneficiaries would receive income for the remaining five years. Usually, your family would receive a specified portion of the death benefit each month. At the end of the term, any remaining death benefit is paid in a lump sum.
Some carriers only offer a family income rider as decreasing term life insurance, which means the total value of the death benefit gradually drops throughout the policy’s term.
Like other life insurance death benefits, money your survivors receive through a family income rider generally isn’t subject to income tax. However, any interest earned from the death benefit is considered taxable and needs to be reported to the IRS.
Inside: Becoming financially sound is the first step towards proper money management. Learn how do I get financially sound in the next 30 days.
One of the smartest moves that you can make with your money is to become financially sound.
This is the one concept that should be taught before you even move out of the house or start your first job.
However, most of us wonder what it truly means to be financially sound.
Before we dig in and answer that question, let’s discuss the benefits of being financially sound.
Being financially sound means that you are wise with your money.
You exercise proper money management techniques and consistently save for your future.
While these concepts are very simple in thought, many people struggle to become financially sound. Most of the reason why is people typically start in debt way before they even start to earn an income.
In this post, we will detail exactly what you need to do today to become financially settled. Plus, the good news for you is you can accomplish this quickly – specifically become financially sound in the next 60 days.
Are you ready to become financially sound?
Why is it Important to Be Financially Sound?
One of the things that we constantly stress here at Money Bliss is by having money, the doors of opportunity open up.
When you don’t have money, you are left either going into debt, full of stress, exhausted by worry, and constantly wondering if you can get out of your current situation.
You need to learn how to become financially sound.
Growing up, you may have lived in a household that was constantly broke and far from examples of proper financial management of money. So, the concepts of becoming financially sound are more intriguing to you and important to learn.
On the flip side, you may have had parents who manage their money so well, you never had to worry about it. Yet they never taught you those solid money principles.
The most important reason to be financially sound is to have the money you need to do the things that you need (and want) to do.
Whether that is paying your bills, going on vacation, or giving back to a charity.
The other reason is more is a feeling of being financially sound. By becoming financially sound, these types of situations will be your life:
Not constantly stressed about money.
Do not have to worry about stretching money to your next paycheck.
Actually have money at the end of the month.
You can sleep at night knowing your finances are in order.
To be financially wise with your money, you need to prioritize your personal finance situation.
Over time, you can slowly adapt and improve your money position over time.
How do I get Financially Sound?
The good news is you can become financially sound in less than 60 days.
Becoming financially sound helps you understand why things need to happen and what needs to be done, and then put the steps in place to accomplish them.
At this stage, it is more of a money mindset change than it is about reaching specific financial goals.
1. Emergency Fund in Place
An emergency fund is just that – money set aside for an unplanned, unknown, catastrophic event that you need money for.
Ultimately, the goal is to never touch your emergency fund. But you have money set aside, just in case.
The “just in case” you want a new pair of shoes, or you want to take that vacation with friends; that is not an emergency.
A true money emergency is when you have not established a sinking fund available and you need to have unplanned maintenance done on your car. Another example is one of your loved ones is sick, and you need to take time off work to help care for them.
An emergency fund is money set aside for an unplanned, unknown situation.
By having an emergency fund in place, you can weather the storm and get through it without hurting your monthly finances.
2. Stop Living Paycheck to Paycheck
Living paycheck to paycheck means you have to wait until the next paycheck to take care of your bills and obligations. That comes with a lot of stress and worry.
By quitting a lifestyle of living paycheck to paycheck cycle, you can get ahead of your bills by at least one month.
Can you imagine the possibilities if you break the cycle of learning how to stop living paycheck to paycheck?
One of the best ways to do that is to actually have a spending freeze and to track your spending. That will help you eliminate unnecessary expenses while you get your finances on track.
To be able to get ahead by one month of a paycheck will make you financially sound.
3. Spend Less Than You Make
This concept is very simple…
Your expenses are less than your income.
However, many of us live a bigger lifestyle than we can afford and this will cause you financial detriment.
You must learn how to live below your means! This is different from within your means.
When you live WITHIN your means, you are spending exactly what you bring home in pay.
By living BELOW your means, you can save money and increase your savings percentage each year.
If you spend more money than you make, you are absolutely financially unsound.
4. Insure Yourself Properly
One of the biggest financial mistakes is not having the proper insurance that you may need.
Yes, the purpose of insurance exists as a security blanket in case something were to happen; you never know when your insurance may come in handy.
For example, you might have a horrible windstorm come in and a tree falls over onto your car. Well, that would be covered under your car insurance policy (or possibly the homeowner’s property where the tree fell).
Maybe your loved one got sick unexpectedly and did not survive, there would be a life insurance policy in place to help the heirs financially move forward with that loss of income.
In order to be financially sound, you need to review your insurance policies at least yearly.
You need to make sure that you are properly covered with insurance. Various types of insurance you may need include home, auto, life, health, disability, or long term care.
Always review your policies to see if another carrier is cheaper, you need to increase your insured levels or see if there are any more discounts that you qualify for now that you have not qualified for before.
5. Invest Time in Learning More about Finances
You need to become a constant learner with money.
If you put learning about money on the back burner, you will never reach your money goals that you have for yourself and you are guaranteed to never have a net worth of millionaire dollars.
You must invest time and energy into learning about personal finances.
The great thing is free to go down to a local library, and check out some of the top all-time best personal finance books available. Make it a goal to read one book a month. And if that’s too much, then make a goal of reading one money management book every quarter.
Here are some of the best ways to become a constant learner:
Join our email list for Money Bliss. We constantly send out great tips to help you advance your situation.
Listen to a podcast.
Choose one of the best finance books and find unparalleled success with money.
Find somebody on YouTube that you want to watch and learn.
Invest in the top investing course and learn how to win in the stock market.
Here’s my challenge to you… If you are willing to spend an hour, two, or more hours entertaining yourself with Netflix, sports, or YouTube, then you have the time to invest in your financial future.
6. Eliminate Wasted Money Situations
One of the most common mistakes that I see happen over and over is the amount of wasted money that happens in our society.
If you were letting dollars slip between your fingers because you are too lazy to cut out expenses, then that means that you are not financially sound.
Being lazy with your money will leave you financially unsound.
Do you know how you spend your money? Are willing to pay a higher price for something knowing you should actually pay less for it? Do you continue subscriptions because you do not want to call customer service and cancel?
If so, then you are giving away your hard-earned cash.
Start with a money mindset change.You work hard for your hard earned cash.
So, you need to quit wasting money and start keeping as much of it as you possibly can. Learn how to save money fast on a low income.
7. Pay Yourself First
This is the best money management tip I got from financial experts.
Pay yourself first.
That means when you get paid, you instantly move money into a savings account, an investment account, or a retirement account.
Start planning for your future today. You don’t wait until tomorrow. You don’t wait until you have more money.
I can tell you from personal experience… my biggest money mistake was waiting until I thought I had enough money to start saving and paying myself first. And now, thanks to the compounding interest, I have to contribute WAY more than if I would have just started saving money at a younger age and started investing it more aggressively.
8. Get Out of Debt
Make a plan to get out of debt.
I am not saying right now that you need to get out of debt in the next 30 to 60 days. Specifically, start to craft a plan to help you get out of debt shortly.
You are unable to move forward financially if you have debt on your shoulders, it will constantly be dragging you behind. You will not be able to increase your bank account balance and net worth like you would want to when you are in debt.
Figure out ways to get out of step and stick to that plan to pay off that debt.
It may take you three months to pay off your debt, it may take you a couple of years to get out of debt. The amount of time that it takes to pay off your debt does not matter. It is the fact that you were making a plan to actually pay off your debt.
And then later on, when you move to become financially stable, that is when your debt is completely paid off.
If you are reading this and saying “well, I don’t have to worry about this, I don’t have any debt.” Stay that way to be financially sound by saying no to debt.
Don’t go into debt, any more than you already are today.
Debt Resources:
9. Increase Your Income
A great principle to help you with money management is to make more money.
The more money that you have in your income bucket, the more you are able to save. Then, you have money available for other things that you want to do in life.
Find ways to increase your income:
Whatever it is you need to do, you need to find ways to increase your income.
10. Make Smart Financial Goals
One of the steps to becoming financially sound is knowing where you want to go next. And not be satisfied where you are today.
You want to learn to be financially sound and then move towards becoming financially stable, and then, ultimately financially secure. It’s a three-step process to get to where you want to go.
You can start today by making your first smart financial goal.
For me, my first one was starting an emergency fund. Then, I moved on to getting out of debt. Currently, my goal is to increase my savings percentage each year.
My smart financial goals do not have to be yours. You have to do what you want to do and makes the most financial sense for you.
Financially Sound Means Proper Money Management
Money management is not taught. More often than not, it is learned typically through the case of hard knocks.
One of the concepts above that we consistently talk about is making learning about personal finances a priority.
And that’s because you can read everybody else’s stories and not make the same financial mistakes. That my friend is huge.
If you want to maximize your finances the best way possible, then learn from others and do not make the same financial mistakes.
Learn the concepts of money management:
How to save consistently
How to reduce your expenses
Stay clear of debt
Live within or below your means
Become a smart investor and so much more.
Here on our site, Money Bliss, you can find plenty of tips to help guide you.
Imagine Your Life as a Financially Sound Person
For just a moment, I want you to close your eyes and think how life is today for you.
Are you filled with stress, worry, and anxiety? Not sure if you can pay rent the next month or have enough for food? Maybe you aren’t making the progress financially that you want to.
If that is you, think about what your life would be like if you became a financially sound person.
Maybe you’re reading this and you’ve been blessed financially, but your spending is still out of control. Even though you make a six figure salary, you are still scraping by at the end of the month and waiting for your next paycheck.
Imagine what your life could be like if you were a financially sound person.
It all comes down to basic financial money management.
You have to spend less than you make and you have to save money for a rainy day.
You can accomplish anything as long as you put your mind to it.
Now, are you wondering…. When can you say that a person is financially stable?
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
Preneed insurance is a small whole life insurance policy that you purchase through a funeral home to prepay your final expenses. Unlike a standard life insurance death benefit, which goes to your survivors when you die, a preneed insurance payout goes to the funeral home you’ve selected.
People often buy preneed insurance because they’re worried about burdening their loved ones with funeral costs. The median cost of a funeral with a viewing and burial was $8,300 in 2023, according to the National Funeral Directors Association
. Some typical expenses that preneed insurance covers include:
Funeral home costs.
Embalming, preparing and transporting the body.
Casket or urn.
Death certificate fees.
How much does preneed insurance cost?
Preneed insurance allows you to lock in today’s rates for a funeral and burial and pay for these expenses in monthly installments. Plus, it’s usually easier to qualify for than a standard life insurance policy. However, you’ll often pay higher premiums for less coverage than you would for life insurance. You could even wind up paying more in premiums than the funeral actually costs
Washington State Office of the Insurance Commissioner. Funeral Insurance. Accessed Apr 9, 2024.
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Not all prepaid funeral plans fall under the preneed insurance umbrella. Some funeral homes offer the option of paying expenses in an upfront lump sum. When funeral costs are paid with a single premium, the funds are deposited in a trust account rather than being used to buy a life insurance policy.
The cost of preneed insurance will vary based on your age, where you live and what type of final arrangements you want. Typically, premiums cost between $125 to $300 per month and are paid over three to 10 years.
If you’re considering preneed insurance, read the details of the contract carefully. Some services may be guaranteed, which means the funeral home will cover the expense regardless of how much it costs when you die. Other services are nonguaranteed, which means your loved ones may have to cover the difference between the cost of the service and what your plan covers.
Alternatives to preneed insurance
If you’re considering preneed insurance, there are a few alternatives you should be aware of. Final expense insurance, also known as burial insurance, is designed to cover your funeral and other end-of-life expenses, but nothing else. The death benefit is often higher than you’d get through a preneed policy, and it goes to your survivors instead of the funeral home.
If you have enough money to cover funeral expenses, you could also set up a savings account with a payable on death designation and make a loved one the beneficiary. The money will automatically transfer to the person you designate when you die, and they can use that money for your final expenses.
Learn more about life insurance for final expenses
Increasing term life insurance is a type of insurance where you can increase your death benefit over time without new underwriting. This kind of life insurance is relatively rare.
The most popular form of term life policy is level term insurance, where the premium and the death benefit remain fixed throughout the term. However, some people buy increasing term life insurance because they anticipate needing more life insurance in the future. For example, you might purchase this kind of policy if you expect to earn a higher salary, plan to start a family, anticipate more financial responsibilities in the future, or are worried that inflation will erode your death benefit’s value.
Some increasing term life policies offer fixed premiums, but many increase premiums as the death benefit increases. If your premiums are fixed, they’ll typically be higher than level term insurance premiums.
Depending on the insurer, your death benefit may increase by a lump sum or a specified percentage each year. Some policies may allow for incremental increases on a different schedule. Your insurer may limit coverage increases to the early years of the policy, such as the first five years. In that event, your coverage will continue for the length of the policy’s term, but you won’t be able to automatically step up the death benefit.
Increasing vs. decreasing term life insurance
In contrast, some people buy decreasing term life insurance, which is the opposite of increasing term life insurance. Over time, the death benefit on a decreasing term policy becomes smaller. This coverage is usually cheaper than increasing term life insurance or level term insurance because the death benefit gradually shrinks. The premiums generally are level, so you are paying the same amount for less coverage over time.
People sometimes buy mortgage protection insurance, a form of decreasing term life insurance, to pay off the balance of their home loan if they die.
Alternatives to increasing term life insurance
If you expect your life insurance needs will go up over time, an increasing term life insurance policy isn’t the only option. Here are some alternatives to consider.
Guaranteed insurability rider: This life insurance rider allows you to increase coverage periodically without a new medical exam or underwriting. You’ll pay higher premiums if you choose to step up the death benefit. A guaranteed insurability rider is relatively uncommon on term life insurance policies.
Cost-of-living rider: A cost-of-living rider allows you to increase the death benefit to keep pace with inflation.
Purchase additional term coverage: Another option is to purchase a new term life policy as your coverage needs increase. The downside is that you’ll need to undergo new life insurance underwriting. Also, even if you’re healthy, life insurance is more expensive as you age, so premiums will likely be higher.
A 20-year-old worker has a 1 in 4 chance of becoming disabled before reaching retirement age, according to the Social Security Administration.
Insurance can provide valuable financial protection against loss of income while you’re disabled.
One option is purchasing life insurance with a disability income rider. A disability income rider is a life insurance add-on that provides you with a monthly benefit if you become disabled. Usually, the monthly benefit is a specified percentage of your policy’s face amount. For example, if you have a $250,000 life insurance policy with a disability income benefit of 1%, you could receive $2,500 a month if you meet your insurer’s criteria for disability.
If you’re diagnosed with a qualifying disability, you’ll typically have a waiting period (sometimes referred to as an elimination period) before you can claim the disability income benefit. For example, if your policy rider has a 90-day elimination period and you’re severely injured in a car accident, you would need to wait 90 days before you would start receiving payments. Some policies will pay benefits for a limited period only, such as 24 months.
If you purchase a disability income rider, it’s important to know how your policy defines disability, as the definition varies by insurer and can be different for two policies with the same insurance company. You may be ineligible for this life insurance rider if you work in a high-risk occupation, like law enforcement, firefighting or public utilities.
An alternative to a life insurance disability income rider is a stand-alone disability policy. Many employers offer disability insurance as a benefit. You can also purchase an individual disability policy if your workplace doesn’t offer coverage or if you want to supplement an existing policy.
Learn more about disability income and life insurance