Oct 8, 2013

Principle 12: Protect Your ASSets and Income

You Only Need to Get Rich Once

/enter stage left man in suit with soap box.  He calmly gathers himself as he places it on the ground and takes a bold step onto the box.  He closes his eyes for a moment, and begins to speak.


Hello there!  If you're anything like me, you have grown to be very cautious in your outlook of the world.  The Madoff scandals, political gridlock, and rising white collar crime rates alarm you, and you'd like to assure you're doing everything you can to protect your wealth.

But even the insurance industry is full of scams.  What type of insurance do you need for your family?  I will address this in what follows, but let me begin with a few reminders to hopefully help you avoid massive losses, and I'll close with a few proven methods to "plug the leaks" in your path toward financial independence.

1. Run Away From Get Rich Quick Schemes

This one's a no-brainer, but it's worth a paragraph of discussion.  The other day a client told me about some inside information he had on the "Denar Reset."  I'm assuming this has something to do with the Iraqi currency, and I told him to RUN AS FAR AWAY AS YOU CAN from this.  At least twice a week, someone comes into the bank after responding to a Craigslist add with a check for $5000 they'd like to deposit.  It usually takes some additional questions to find out that they are required to deposit it, and send a portion of the check, usually $2000 to $3000 via Western Union, and "keep" the rest.  Yes, the check they deposited "bounces" and they end up owing the bank money if they withdrew enough cash to bring their balance below zero.

Instead of relying on these and other types of high risk schemes, invest consistently and for the long-term in solid low-cost mutual funds like those found at Vanguard, Fidelity, or Charles Schwab.  If you must speculate, say, with the purchase of some individual stocks, do so with less than 5% of your portfolio, and be sure to cut your winnings and limit losses. 

2. Get Married only once

Many people don't quite understand that a divorce can be the most expensive event in your lifespan.  If it helps you sleep at night, get a pre-nuptial agreement, especially if you have substantial assets you've accumulated prior to the marriage, or if you have been married once before and you'd like to assure assets get passed to your children, a trust might make sense. 

3. Umbrella or Personal Liability Insurance 

Buy a blanket insurance policy equal to the greater of your net worth or 1 million dollars.  You may be surprised at the low monthly cost of something like this.  Doing so will put a "buffer" between your income and assets and would-be lawsuits.  

You'll never be able to fully eliminate risk in your life, but there are ways to minimize or protect yourself against it.

4. Have ENOUGH Insurance

Ask yourself this question: If TODAY something happened to your car, health, or house, would you be able to cover it?

In some cases, you can self insure by having a sufficient emergency fund, but in the cases of your car, health, or house... don't mess around.  Make sure you have enough coverage.  Chances are you have these types of coverages already, but ask questions and think of scenarios to ask your insurance agent.  If nothing else, it'll help you sleep at night.

One more area you may want to consider is disability insurance.  If you were severely hurt and unable to work, it would be nice to continue getting a paycheck.

5. Life Insurance 

I'm putting this one in an entirely different category as there is a lot of confusion out there on how to best protect your family.  Universal, Variable, Term... what do these all mean?

I'll give you a valuable tip.  Don't even bother with anything other than TERM.  If you have a family to protect, go online and look for a 20 year term offering 5-7 times your annual gross household income.  This will likely cost you less than $35/month, and if something were to happen to you, it is nice knowing your family will likely be able to pay off the mortgage and have assets in place to begin to rebuild.

The monthly cost of TERM life insurance is far cheaper than other offerings, so take the excess monthly payment amount you'd pay for variable or universal life and invest it into your 401k or IRA.

One site that I used to get a free quote was Fidelity Life.  They'll give you a nice starting point in your research, just type in your info and it'll give you a ball park of what your monthly premium might be.

Oh, and take care of yourself by not smoking. . . it'll lower your premium.  

6. Protect your health

That leads us to our last and most effective way to assure you only need to get rich once.  You may want to read about how I avoided a $250,000 bill when I was diagnosed with advanced stage cancer without health insurance here to be reminded of how important having proper insurance is.

Take time out of each day to look out for YOU.  This doesn't have to be expensive.  Many of the ways I keep healthy both physically, mentally, and spiritually cost very little.

Eating a clean diet will keep your energy levels high, assist in resisting chronic illnesses and give you the look you want.  The easiest one I've found is the Abs Diet which offers foods you CAN eat, and not foods you cannot.  I like that.
As for exercise, check with your health insurance company to see if they offer a discount on gym membership dues.  I was able to secure a membership for $100/year with assistance from my health insurance company saving my family over $380/year!

An exercise regimen I enjoy is Crossfit.  Be sure to start slow, and I like to mellow the workouts slightly as they can get very intense!

Spiritually, I take time each morning for devotionals where I spend quiet time studying the Bible and praying.  This gets my head in the right place for the day and eliminates many of the stresses that can grind on us.

Lastly, at least once a week I'll take a dip in the water and surf.  I can't tell you how relaxing this is, and a bean burrito afterwords helps make the world keep spinning.

Hopefully you've gotten some takeaways to put into practice into your own life.  We've all heard the stories of successful people that have "struck it rich" only to lose it all and later gain it back, but why would we want to do that?

Get rich once.

Take Me to Principle 13:

*This post was featured on Dream Cash True's Roundup!


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  3. Great article and a great, but often ignored topic. The only thing I would add to the list is protecting your wealth with legal entities and setting up legal structures to facilitate smooth wealth pass-down to your heirs.

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