I am now strongly coming to believe that my daughter Faith would grow up to be in the graphic and animation industry and give all the boys a run for the money. She loves the Disney movie ‘The Road to El Dorado’ and already has two fat sketch books filled with her own doodle interpretation of the movie’s characters and her favorite horsey Altivo.

As a person who is obsessed with the financial affairs of the world, I do understand that we have an obligation to fulfill. We owe an explanation to kids about the consequences of the financial crunch that we have currently created! I decided to first explain how this all began to my daughter in the form of a story involving some of the El Dorado characters. Soon she will grow up and start asking questions and I better be prepared.

You can tell this to your children or give your own explanations!

Lets compare the savings of all the people in the world to El Dorado, the land of many treasures.Tulio and Miguel loved the money that they found in El Dorado and everyone knows it. They soon wanted see their money make some more money. So to do that, they has to invest some of their treasure in order to make some more money in the future. Usually, the people of El Dorado including Tulio and Miguel invested their money in secret places and became super rich but what happened is that, soon other kingdoms found out their secret and started to increase their treasures. Soon, the people of El Dorado did not have many good places to make good investments.

Having understood this, Tulio and Miguel went to the US treasury and invested it in the treasury bonds. Because this gave them the most amount of profit with the least amount of risk. But unfortunately, what happened is that the high priest Tsekel-Kan aka Alan Greenspan reduced the interest rates so low that it did not make any sense to invest in them anymore.

This made Tulio and Miguel turn their eyes towards mortgages. Legends told them, that over the years people have been repaying their mortgage loans every month without fail and therefore it was a safe investment. Since these two weren’t the best of all fraternizers, they sent out Altivo the horse to do the job for them. Altivo the horse, as much as he was smart, he was also lazy. So hired some men and some horses to be mortgage brokers. So people who wanted mortgage loans to buy homes went to these mortgage brokers. Soon a system came into being. These mortgage brokers sold these mortgage loans to El Dorado banks. The banks sold them to the investment companies in the neighboring kingdom of Wall Street. These investment firms in Wall Street made these loans into shares and sold them to Tulio and Miguel aka the global savings.

Tulio and Miguel loved it because more money was coming in. Soon they wanted some more. The mortgage brokers that Altivo the horse had hired didn’t know what to do. So they relaxed on their principles. Earlier, only people who had enough money in the bank and a steady job could apply for a loan. Since the standards were lowered, everybody could get loans even if they did not have enough bank balance or a job. These kind of mortgages came to be known as ‘Sub-Prime’ mortgages. Soon enough, these sub-prime mortgage owners started defaulting on their repayments. This made Miguel and Tulio very unhappy because their treasure was not growing.

So Tulio and Miguel stopped investing their money from the treasure and did not send out Altivo the horse. Soon the entire system collapsed. There wasn’t much money anywhere and that is how it all began – The global financial crunch.

Then came a man named Obama with a lot of plans to make Tulio and Miguel invest their treasure again. But, hey! that is another story.

 

Back to blogging after a really long holiday break. Christmas was fabulous with an extended family reunion, exotic food, few good and few not so great gifts. The best gift surely was the pair of Prada sunglasses that my hubby gifted. New year eve was one helluva party night that extended well beyond the day.

We are well into 2009 with our waistlines up by a few inches and wallet lighter by a few hundred dollars. We badly want to reverse the status of the two now. So here we go with our cost saving and waist(e) reduction plan for 2009.

First look at the household expenses since these usually form the largest part of our monthly spending. Grocery is one huge expense. I obviously can’t stop eating. But I sure can resist getting tempted by those yummy looking cookies, tarts and cheese dips attractively displayed in the stores. They sure know how to seduce people like me.

Having a shopping list in hand and trying to stick to it, while going out for shopping should help. This should help me have a watch on my waistline (hope I also try and fit into jeans one size smaller, something i’ve been trying for years now). Comparing prices in 2 or 3 stores to see who offers the best deal should also help; since stores usually offer good deals at the end of the month to clear stocks. Eating out is a sure no-no for the next few weeks atleast. Whether to work or travel, packed lunches are my best friend, now on.

The next big money sucker is my power bills. If the air conditioner or room heater is switched on all through the year then there is no choice but to foot hefty power bills. I read somewhere that when using room heaters or coolers, the room has to be properly insulated. Otherwise all the cool air might just slip through the small gaps in the window and door frames. So my important task this weekend would be to check my entire house for leakage.

Also, when using a PC, most of the power is used up by the monitor. So I guess when I’m not using my PC for more than half an hour or using it just to listen to music, it makes sense to switch off the monitor. The yellow heat generating incandescent bulbs generate 70% more heat and use up 75% more energy than compact fluorescent lamps (CFL). So there goes another weekend task of mine. Changing my conventional bulbs with a CFL. This way, I also do my own small bit in saving the environment. Small little things like switching off the lights and other power utilities when not in use, leaving the windows open during summers to let the sunlight through should also help.

When discussing fuel bills one of my colleagues suggested filling gas in the car early in the mornings as much as possible. As the day progresses, with the increase in heat, the gas stored below the earth in the gas stations would be in a vaporized form during the day, which would mean a lot of vapor will also go into my fuel instead of gas. By filling it in the mornings the vehicle will be able to absorb almost all the gas that I pay for.

Weekend entertainment is also a huge part of the monthly expense. Instead of cutting down on entertainment, maybe I should reschedule it. Most movie halls, multiplexes, fine dining restaurants and entertainment parks charge heavily during the weekends. Let me try rescheduling my weekly entertainment to a movie on Wednesday nights or a nice dinner on Thursday nights. This way I pay less for almost the same service, avoid the weekend crowds and also beat the mid-week blues away.

So that is largely my plan for 2009. Will keep posting on the progress.

 

Like a sort of trilogy to my previous two posts ‘Home owners insurance, explained’ and ‘Are you financially ready to welcome your new baby’ this blog on life insurance deals with the importance of providing financial security to the family in these uncertain times.

During my student days I worked part time as an insurance agent. The experience was an eyeopener for me. Had to undergo a lot of ‘doors-slammed-on-my-face’ and friends and acquaintances trying to avoid my gaze while crossing each other, just for the fear that I might coax them to buy a new policy. Even those customers who lend me an ear to know about the latest life insurance products would retort back with questions like, ‘ Are you trying to say I will die soon?’, or ‘How does it matter on who spends my money after I die?’.

I have only one question to ask those who always view life insurance with a negative perception. Do you get upset that the airbags in your car never came of use, despite you spending so much on it? Or do you worry that the helmet that you use for your weekend country side bike rides, never actually came of use because there was no accident? Life insurance is similar to that. A safety measure. Just that you would not be able to see and enjoy the fruits of it.

Who requires a life insurance policy? – Anybody with dependants like young children or a spouse should ideally have a life insurance policy. People usually buy life insurance policies after marriage or the birth of a child to ensure that in case of the untimely death, their dependents do not suffer financially. Having a policy becomes even more important if the spouse is non-working or if the child is too young and financially dependent on the parents.

Why take a policy when you are young? – We all get older as the years pass by and also get more susceptible to ailments like diabetes and high blood pressure, which in turn may lead to other health complications. By taking a policy when young we get to pay a smaller amount as premium for a longer period of time.

Types of policies – There are two types of policies,

1. Whole Life – This is for the entire life of the policy holder and will be valid as long as the premium is paid. In addition to the death benefit, there is also an ‘account’ that earns interest that however starts accumulating only in the 10th year or so of paying the premium. The premium paid is slightly higher than term policies.

2. Term Insurance – As the name suggests, it is for a specific term, say 3, 5 or 10 years and expires after that. The premium is fixed for a number of years and the older the policy holder is, higher will be the premium. So at the end of the term, if the policy holder wants to extend the tenure the premium to be paid will become higher. It is pure coverage, in the sense that it pays only upon the death of the policy holder. There are no other cash benefits. The premium paid is lower than that for whole life policies.

Types of death that a life insurance policy covers? – Life insurance policies usually cover death by natural causes. One can add an ‘accidental death benefit rider’ to the life insurance policy, to cover death of the policy holder due to an accident. The premium will be higher accordingly. In case of death due to suicide, the premium amount paid till date is returned. Death due to chronic illnesses like cancer and AIDS are also covered by such policies provided the policy holder has paid the premium for a minimum number of years. The number of years varies from one insurer to another. To cover critical illnesses like HIV/AIDS, cancer and paralysis, one can go in for critical illness insurance which fellow blogger HillsPersonalFinance explains.

How much can you insure yourself for? – It all depends on your income levels, the sum that you feel would be adequate to provide your dependents after your demise and how much you can spare on a monthly, quarterly or yearly basis. Insurance4USA provides an insurance calculator that helps you calculate the amount of life insurance that you need.

 

Most of us will buy a house at some point in our lives. It is a dream for many and also the single largest investment that we make in our lives. Having spent so much it is wise to have it safeguarded too, isn’t it. I was speaking to an insurance agent the other day to have my house covered. There is so much to do with housing insurance that many of us might not know or may have ignored. Here is what I gathered from the discussion.

If you have bought a new house on mortgage you do not have a choice but to insure your house because the lender will insist so. Homeowner insurance policies usually cover house structure, personal belongings, additional living expenses, liability protection and medical payments. The premium rates differ depending on what you want to be covered. These are some of the important aspects of home owner insurance.

1.   A housing structure cover will protect your house from damage due to fire, theft, ice and snow, while the personal belongings cover will offer protection for the valuables in your house. What you should remember here is that damage due to floods and earthquakes is not covered in housing policies.
2.   If there is a large repair job required in your house which requires you to move out of the house for a while, the additional living expenses incurred, will be covered.
3.   Assuming that a tree in garden of your house fell due to a storm last night and damaged the neighbor’s compound wall, then the liability protection cover will help compensate your neighbor for the damage caused. It will also pay for the cost of defending you in court in case of a law suit.
4.   If there is a medical expense incurred by your neighbor as a result of this accident, then the insurance company will also compensate for the expenses. What you should note here is however is that, you and your family members will not be covered in this.

We have seen what the insurance company does for a homeowner’s policy. Here is what you should do. You have to make a list of all the valuables in your house and along with their value. This will be required even while you apply for an insurance cover. Valuables may include things like your expensive jewelery, TV, PC, laptop, sofa, cot and so on. If you can shoot pictures of these, still better, as it will make your claim process much easier. Do not think that you are smart by under-estimating the value of your goods so that you can pay a lower premium. When there is a claim, you will be the loser. Also remember to keep updating the list as you add stuff in your house like blogger fivecentnickel suggests here. Having done all this, make 2-3 copies of the list and photographs and store them in any safe place outside your house.

There is however a flipside to all this. The insurance agents for homeowner’s policy are known to be extremely picky when selling a policy or fixing the premium rate. You will be asked to fix even the smallest nut and bolt in your house before getting the policy because when there is a claim the outgo is really huge from the insurer. So be prepared to repaint your house, install fire alarms, fix a leaky pipe or repair the garage shutter. After all it is for your good.

Think of it as a protective measure to safeguard your house which is the abode of your fond memories and dreams.