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The One Big Reason Why We are All Probably Under-Saved


By Bob Brooks

September 15, 2014

Well, they call it an emergency for a reason. It is the unexpected expense you didn’t see coming. I think that there are emergencies that you feel pretty certain could happen and then there are the emergencies that you think will never happen in a million years.   It is the latter that can sneak up on you…especially since the costs have nowhere else to go but up.

Medical expenses are one of those things most people don’t see coming and it is the one item we probably need to be thinking more about. Health expenses and health insurance is going to be an ever increasing expense. Unfortunately, health insurance might get so expensive that we are forced to have higher deductibles and higher out of pocket expenses. These are expenses that are rarely considered when calculating an emergency account. If you don’t have the emergency account, the credit card is the next best option.

A recent survey just released by bankrate.com had some interesting detail on medical debt.

“One in four people say they now owe more in medical debt than they have saved in an emergency fund. Among people who make less than $30,000 annually, 44 percent revealed that their medical debt exceeds their emergency savings fund. But even in higher-earning groups, of up to $75,000 annually, about one in four people say they're in that position, according to the Health Insurance Pulse survey.

In contrast, just 6 percent of people who make more than $75,000 each year said their medical debt is more than what they have saved up for emergencies.

And a majority of all respondents—55 percent—reported that they are either "very" or "somewhat" worried about being overwhelmed by medical debt in the future.”

Take a hard look at how much you have in that emergency account. Then consider what a major illness would set you back. Then….reprioritize where you are saving money until you get that potential liability covered.

 
Why Stocks are Dangerous When Everyone Loves Them

By Bob Brooks

September 12, 2014

 

If I told you that it has been almost 30 years since we have had this few people who are negative about the market, would you think that is positive or negative?  

If everyone was positive, common sense would say that this is good news for the stock market. Unfortunately, common sense doesn’t work on Wall Street.

In 1954, Humphrey B. O’Neil wrote an incredible book called the Art of Contrarian Thinking. This is an investment book that every investor should read. It is timeless.

His famous quote from the book was that “when everyone thinks alike everyone is likely to be wrong.”

It has also been referred to as the “crowd effect.” Investors will, as a crowd, jump on a bandwagon thinking that they will make a ton of money by investing in a certain investment. We saw it in real estate, internet stocks, gold, etc. This investment crowd effect even dates back to the 1600’s when people thought investing in tulips was going to make a person rich. This is just plain and simple – human nature.

When you see this type of phenomenon where everyone is doing the same thing, it usually ends up badly. Think about how much money was lost in internet stocks and real estate.

We are probably not in a bubble type environment today in the stock market. However, we probably are in an overly optimistic bubble for sure. It is tough to find many who don’t think that the stock market is a “can’t miss” opportunity.

A recent stat shows optimism is out of control amongst investment letter writers. Now this is historically a pretty balanced group of people…except for now. Negativity amongst investment newsletter writers fell to 13.3%. The last time negativity or bearishness was this low…1987. What happened in 1987? The second largest stock market crash on record.

When optimism gets this out of balance, things tend to go the opposite of what everyone thinks is true. This is just another piece of the risk puzzle to keep mind when you are investing in stocks.  

If you want your investments evaluated for risk, email me at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 
What You Don’t Know About Your Health Insurance Might Really Cost You

By Bob Brooks

September 11, 2014

 

So, how well informed are you about your health insurance?  How much time did you spend researching that health plan that you are currently using?  The more important question - can you afford a major health claim?

A recent survey found that Americans spent on average 15 minutes making a decision about their health insurance. Other studies would show that they as much as 10 hours was spent doing the research to buy a car or plan a vacation. 

 

Here were some other statistics about health insurance -

42% of workers say they waste up to $750 each year on mistakes with their insurance benefits.

• 73% of workers have trouble understanding what is covered by their policies.

• 64% often don't understand changes in their coverage.

• 51% say the amount they paid for health care in 2014 was considerably or somewhat more than in 2013.

• 33% of workers expect to pay $1,000 or more for out-of-pocket expenses in 2014

 

Like it or not, health insurance premiums are going up and health expenses are going to cost more as well.  A recent study suggested that individual health insurance policies could go up as much as 30% next year. 

Having said that, it makes sense to take more than 15 minutes to figure this out.   For most health insurance policies you need to know at the very least the critical numbers such as what is the deductible for each person in your family? 

When selecting a healthcare policy, it makes sense to compare the prices at various levels of deductibles.  The higher the deductible the lower the premium and vice versa.  You might be tempted to go for the higher deductible plan because the premium is cheaper.  However, it might make sense to pay the higher premium in order to insure against paying a much higher out of pocket in the event that you have a large insurance claim. 

What is the total amount of out of pocket that your family will pay before the health insurance pays 100%? This is a critical number that most people need to understand.  In the event of a major healthcare claim, could you afford the total family out of pocket?

You never expect to be in this position.  Then again, you never expect to get the call that you have an unexpected illness.  It can happen. 

Bottom line – Health insurance is going to become a major part of everyone’s budget.  Make sure you take the time to research and get the right policy for your family.  It does take more than 15 minutes.

 
The Car Loans that You Want to Avoid

by Bob Brooks

September 10, 2014

 

It is so easy to go about the car buying process the wrong way, at least as far as financing goes.  It is easy to focus on the affordability of the payment versus the total transaction. If you can make the payment low enough, a consumer will justify buying the car – regardless of whether or not it is a good deal.  The oldest trick in the book is selling car by focusing the consumer on the payment when the payment is the least important variable when buying a car. 

The two most important variables are the interest rate and the length of the loan. Today, you are seeing 6 and 7 year loans being recommended.  As a result, consumers are greatly overextending themselves.  If you can't make the car payment work on a maximum of a 5 year note, then the loan is not one you need to take.  A loan taken out for 6 or 7 years is only good for one thing – lowering the payment.  However, that is not really in the best interest of the consumer.

Plus most consumers have the good intentions of driving a car for many years to come.  However, it is easy to get the bug and want to purchase a newer car. These longer term cars will easily put you in a situation where you owe more than the car is worth which is problematic when you are trying to trade the car in on a newer model.  As a result, you might be tempted to finance not only another car but also add to it the money that you owe on the current car.

So, here are few financing tips. 

1)     Find out the best rates for car financing – You will typically find these rates at credit unions. 

2)     Get pre-approved before you walk into a dealership.  Dealerships are not going to give you the best financing deal.  

3)     Avoid over extending yourself with a 6 or 7 year loan.  To add insult to injury, you will for sure pay higher interest rates on these longer-term loans.

4)     Don't base a car loan on the payment - base it on the interest rate and the time period you are financing the loan.  If you can’t handle the payment on a 5 year note, then consider something less expensive.

 
How to Get an Extra $62 by Timing the Sale of Your Old iPhone

by Bob Brooks

September 5, 2014

 

First of all, I apologize for being completely absent this week.  By now I have typically written at least 2 pieces.  Due to personal reasons, I have been out this week more than I have been in.  I will get back on a regular schedule next week.  To make it up to you, I offer you a piece by uSell.com about how to benefit from the launch of the new iPhone. 

Because the launch of a new iPhone model traditionally causes major depreciation in old iPhone pricing, uSell.com -- the leading online marketplace for used gadgets -- examined thousands of used iPhone sales on its platform following the 2013 iPhone product launch.  Notable findings include:

*  2 weeks after a new iPhone launch, old iPhones lose about 11% in value.

*  4 weeks after launch, old iPhones depreciate about 15%.

*  6 weeks after launch, old iPhones depreciate about 18%.

*  By week 7, old phones are worth about 21% less.

But by locking in a sale price BEFORE an upcoming iPhone launch (many platforms like uSell.com offer 30-day price guarantees), consumers can substantially increase the value of their old phones:

*  iPhone 5s:  Potentially worth $62 more (compared to 7 weeks after launch)

*  iPhone 5c:  Worth $44 more

*  iPhone 5:  Worth $42 more

NOTE:  A savvy consumer could lock in a sale price before the iPhone launch, but then wait to ship their old phone until right after they get their new model.

 
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