Popular Advice You Shouldn’t Take (Part 2): Buy Big

Jonathan Clements of the Wall Street Journal writes a good article that everyone should take a look at and thing about how it applies specifically to their own lives.  His advice has solid grounding, but the execution of the advice could be a potential pitfall for some people. 

http://biz.yahoo.com/wallstreet/070701/sb118323893642354294_id.html?.v=1&.pf=banking-budgeting

Read part 1: Amass cash

You are reading part 2: Buy Big

Read part 3: Get A Life

Read part 4: Go For Growth

The Popular Advice

As Mr. Clements notes, “another piece of conventional wisdom that's often doled out to folks in their 20s: Buy the biggest house possible.”

Mr. Clements Advice

1. Real Estate may or may not be the best investment


2. Look at your plans and your desires before deciding on a home


3. LOOK AT THE FEES!

My Short Input

The key here is bigger is not always better.  You have to look at your plans!

I shouldn’t get all that I can afford?

Well, that would depend on what you mean by afford.  If you can pay for a house up front, then you probably don’t need to be reading any advice I have to give.  Seek an estate lawyer – a good one.  For the rest of us, however, we’re going to be taking out a loan to afford a home no matter what.

What I mean want you to focus on is that in almost every other area of American Buyer Culture you want the most for you money.  But in real estate, there’s so much more to consider than most square feet per thousand dollars.

When you buy a home you fork over money in points, buyers commission, sellers commission, mortgage-application fees, lawyer’s fees, moving expenses, etc.  This could be as little as 5% of the cost of the home or as much as 12%.  You pay these expenses up front and you pay them every time you buy and sell a home.  The key point here is that if you’re looking to sell relatively soon (within 7 years or so) a smaller house will do you good.  You lose much less to fees.

Huge homes also have huge utility bills, huge property taxes, huge insurance premiums, huge maintenance costs… are you seeing the point?  You should buy something you want.  Something that fits your needs and isn’t extravagant.  Something that you can see yourself living in for a long time.

To some people that may be a condo, to others a mansion.  By the way, there’s nothing wrong with going conservative on this one… you can always trade up… or even buy more than one house!

Popular Advice You Shouldn’t Take (Part 3): Get A Life

Jonathan Clements of the Wall Street Journal writes a good article that everyone should take a look at and thing about how it applies specifically to their own lives.  His advice has solid grounding, but the execution of the advice could be a potential pitfall for some people. 

http://biz.yahoo.com/wallstreet/070701/sb118323893642354294_id.html?.v=1&.pf=banking-budgeting

Read part 1: Amass cash

Read part 2: Buy Big

You are reading part 3: Get A Life

Read part 4: Go For Growth

The Popular Advice

Okay, this one may not be popular advice, but there is no shortage of people trying to shuck policies at young people.  As Mr. Clements notes, “Insurance agents often push folks in their 20s to buy cash-value life insurance, arguing that it’s far cheaper to purchase these policies when you are young.”

Mr. Clements Advice

1. DON’T DO IT!!!


2. Okay maybe do it under very good circumstances, with the right policy, with the right company

My Short Input

I tend to disagree with Mr. Clements a little bit, but the root cause of this advice is the core: don’t listen to SALES people!

Insurance agents are sales people?

Yes.

Really?  Aren’t they looking out for me?

Yes really.  No they are not.

What is life insurance for?

NUMBER ONE REASON: to take care of your spouse.  You want to give your spouse the ability to continue the lifestyle he or she had before you passed.  You do NOT want your spouse to take on a second job or rush after a severe emotional loss to find a job if he or she wasn’t working before.

NUMBER TWO REASON: to take care of your kids.  You want to make sure your kids college is paid for and that your spouse doesn’t have to get a second job to raise your kids (wouldn’t that be really counter productive?).  Your spouse will need help and sometimes money can buy the help your spouse will need (cook, maid service, gardener, mechanics – things you might have taken care of yourself).

NUMBER THREE REASON: dying is expensive.  Ironic isn’t it?  But the costs involved with passing can run nearly as much as the costs associated with marriage.  Possibly even more so if a hospital or hospice stay was required.  You don’t want your family (spouse or not) to have to pay for a funeral, hospital, hospice, whatever after you die.  Their emotional grief will be grief enough.  In your 20s you don’t (well rarely do people) think about your funeral plans.  Your family will need to sort everything out and that takes some money.

NUMBER FOUR REASON: it’s nice to leave some money to those you love just because.

So you’re saying I need life insurance?

No.  But I’m saying you should have SOMETHING as a legacy.  But make sure it’s something you can afford.

Where do you get insurance from then?

First of all check whether your parents have left you any policies from childhood.  Sometimes aunts, uncles, grandparents, etc. give policies (Gerber’s is a popular one – yes the baby food maker) to infants.  If you don’t have one then look to your workplace for options.

My workplace?

Chances are when you start work you will be given the option to get a Group Universal Life (GUL) Insurance Policy.  You should take this.  It’s usually cheap enough to afford and you can start off with a very small policy if you want.  If you wait too long (usually 3 or 6 months) you will, like all other policies, need to get a physical and doctor before your policy which could drive costs for some people skyward.

Additionally, if you cannot afford GUL you may look into Accidental Death and Dismemberment.  You receive this money on an accidental death which for a young person should cover most of the bases, but keep in mind natural causes is still a risk.

Conclusion

I take a less stringent approach than Mr. Clements here.  My advice is do it if you have family to take care off.  Do to take care of your passing expenses if you can afford it.  Do it if you want to.  Don’t do it whenever it’s not worth it.  Chances are if it’s being SOLD to you… it’s not worth it.

What Anna Nicole’s Estate Drama Can Teach Us

Just when you thougth you heard the last of Anna Nicole, here she is again.  Except this time she is TEACHING us something.  Her whole estate drama provides a poignent case study about the importance of Estate Planning and why even rich people need to have a plan.

Plan for Contingencies.
Anna Nicole had a will from 2001 that left everything to her son.  It specifically excluded unknown children.  This clause typically protects men from unknown individuals claiming a right to inheritance.  Let's say Daniel hadn't died.  Upon Smith's death all her property would have been willed to her son Daniel and Dannielynn would have received nothing.  She probably would not have intended for this to happen.

• Make sure you KNOW what is in your will or trust


• Update your will or trust after any big life change (if you or your wife is pregnant - what happens to an unborn child)


• HAVE ALTERNATE BENEFICIARIES

Since Daniel did pass away, Anna Nicole's will lapsed and state intestacy law determines the heir, in this case Dannielynn.

Appoint a Guardian for Your Children
In Anna Nicole's case the court gets to decide who will be charged with caring for Dannielynn.  The court could even decide Anna Nicole's mother gets to raise her which Anna Nicole probably would not have wanted.  If you are convinced a likely candidate is unfit to be a parent, make sure to leave arrangements for guardianship, outline your reasoning, and provide the court an argument for supporting your position.

Arrange Your Funeral
It seems morbid to do so, but after all, this is your last celebration.  Everyone will be coming to honor your life.  Make sure to have these arangements done to your liking so you get exactly what you want.  In the best case, you'll be forcing your already worn family with additional burdens, and in the worst case someone may wish something upon your funeral you yourself might not have wanted at all.  Your funeral instructions may also avoid bickering between disagreeing parties and give your exectutor the authority to cover the expenses so your family doesn't have to. 

In Anna Nicole's case, Dannielynn was awarded custody of the body.  How is a baby supposed to know what to do?  So her representative in this case Richard Milstein decided where to bury Anna Nicole.  Do you think that is what she intended?

Legalize A Marriage
Getting married for tax and inheritances purposes hardly seems romantic, but really it's just paperwork.  Make sure you do this if you want to entitle your love to your property.  For Howard Stern, a marriage would have given him at least half, as the boyfriend he is entitled to zilch.