The Biggest Fianncial Mistake People Make
I just read an article about a reporter who had his finances critiqued by a group of multi-millionaires. The results were surprising.
Tiger 21 is an investment club, where members get together once a month to discuss money. They share investment ideas and personal finance tips. Membership at the club costs $30,000 a year, so it’s definitely not cheap. But guess what, rich people love talking about money. Maybe, that’s why they’re rich to begin with?
The reporter submitted his personal finances and agreed to have the members give him advice. He thought they’d tell him to stop spending so much on eating out. Otherwise, he thought he was in good shape.
But they didn’t care about how much he spent on eating out.
Instead they gave him some really good advice.
One, start saving more.
Saving just 10% of your income isn’t enough. He could easily bump it up to 15%.
Two, stay liquid.
The reporter had a vacation condo in Florida. It was a money sink. Everyone thought is was a bad idea and told him to dump it. Sell, even if you take a loss, was their advice. Rich people are always concerned about maintaining their liquidity. Money-sucking “investments” kill one’s liquidity.
Liquidity helps you take advantage of real opportunities to make money.
For example, when the stock market crashed in late-2008. I know rich people were jumping in to buy great stocks at ridiculously low prices. You can only do this if you are liquid.
Additionally, liquidity provides a safety net in bad times.
Speaking of bad times, the best advice they gave was about his lack of insurance.
Most people are incredibly under-insured. The reporter was no different.
I remember when my dad died. I can’t believe how little insurance my dad carried. It was absurd.
He had a 30 year Term-life policy which he had paid for 26 years. Unfortunately, he had never increased the policy to keep up with his increasing salary, or inflation. The death-benefit amount my mom received was about 6 months of my dad’s gross income at the time. It was a joke.
Luckily, we were able to sell his medical practice which provided a sizable amount to take care of her. But as soon as my dad was out of the picture, it was worth 50% less. If he had sold it himself, we would’ve received double.
Tiger 21 members said if you’re not spending 1-3% of your annual income on insurance, you’re not spending enough.
In addition to life, you need disability insurance as well. If something were to prevent you from making a living, you’d be surprised how tiny the premiums would seem.
I know a family that made over $500,000 a year. The wife was a dentist who made $250,000. At the age of 35 she developed a problem with her hand and was unable to work. For a few thousand a year in disability premiums, she could have collected $70,000 in tax-free money. Now, she can’t work, and they have to pay someone to take care of the kids even though she stays at home.
Like most things in life, insurance is a thing you miss the most when you don’t have it.
Get insurance folks, its cheaper when you don’t need it!
And if you need a referral for a good insurance agent, let me know.
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June 22nd, 2011 at 9:36 am
Misleading link
I thought i’d be helping you buy coffee but after I click it coffee turns to beer
great article. Maybe i’ll buy you beer next time.
June 22nd, 2011 at 10:12 am
Haha!
Thank you very much. I assure you that it’ll go towards coffee.
And if I do ever buy beer, it’ll be a really good one
June 27th, 2011 at 4:17 pm
Great post. I would be doubtful very much with 1-2% on insurance. Yes it is a safety nest, but with some
one earning 30 grand a year after taxes, that would mean 600 dollars a year on insurance?
You can only pay if 1-2% are you discretionary expenditure and it is what rich people are do.
However super rich probably do not have any insurance at all.
Then, somehow the advice does not seem to worth 30 K a year membership
P.S. Contributed towards morning coffee too.