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Asset Protection, Financial Planning, Work and Career

Life Insurance: The Process, Considerations and Why We Will Continue to Keep Our Policies Even Once We Reach Financial Independence

In a previous post where I wrote about Wealth Preservation: Strategies to Protect What We Have Built and Lessons Learned, I focused on implementing investment strategies to safeguard our portfolio while still allowing our assets to grow steadily. In this post, I discuss another way to protect our assets, which is having a life insurance policy. Both my husband and I each have our own policy. In the event that if one of us would to die, during the mourning period we would want the other person not have to worry about selling off some of our investments to pay for expenses. We hope the family members who survived [either one of] us would at least stay financially strong even when their emotions are not. Once we achieve our financial independence (FI) number we will continue to keep our life insurance policies. Technically, by definition, being FI means we would have all the financial resources we’d need to live comfortably for many years to come. However, we always prefer having an extra layer of protection and security, for ourselves and for our loved ones. And having a life insurance policy gives us peace of mind.

life insurance asset protection employee benefits

My Life Insurance Policy

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Financial Planning, Work and Career

Health Insurance: When One Plan Doesn’t Work, Know What Your Options Are

This post is part of a series: Maximizing Employee Benefits to Increase Financial Security, where I encourage you to maximize your employee non-wage benefits as a way to increase financial security meanwhile protecting your financial standing. As promised, I’m devoting individual posts sharing my thoughts and experiences on the various types of benefits.

Today’s topic is health insurance plans. I’m not here to convince you which health plan or option is better. My goal is laying out the various choices I’m familiar with and sharing the lessons I’ve learned. For instance, I learned that a plan coverage with the lowest premium is not for me, despite being healthy and young. For months, I didn’t sleep well. Luckily, I didn’t have to spend thousands of dollars before I learned what my risk tolerance level is! I hope you’ll reference back to this post as you make benefits selections in the future.

My employer offers two types of plans: HMO (Health Maintenance Organizations) and PPO (Preferred Provider Organizations). Within each plan type employees can choose either the basic or buy-up option.

health insurance employee benefits financial security

HMO

When I first started working I chose the HMO plan because of its lower cost. Within this type of plan, the basic option is offered to employees at no cost (with a $500 deductible and limited benefits coverage). On the other hand, the buy-up option costs employees a $32 monthly premium (with no deductible and extra benefits coverage). [#1 Lesson learned: In general, lower insurance premiums mean higher copayments and/or deductibles.] I like the HMO one-stop services business model due to its convenience. I’ve been able to go to the same building to visit my OBGYN, then take my daughter to see her pediatricians on another floor. There’re optometrists, laboratories, physical/occupational therapists, pharmacy, etc., all providing care under the same building. I also like having all my medical records at one place.

One drawback I’ve encountered thus far is that the plan limits me to a group of primary care doctors and specialists who’re affiliated with the plan. [#2 Lesson learned: Most HMOs offer limited choices of doctors.] While I’ve been happy with my primary care doctor, it wasn’t the case when I needed to see a physical therapist. At the time, there was only one PT who specialized in the care I needed (unless I was willing to drive to another city) and I wasn’t happy with the service she provided. Luckily, my exercise injury recovered quickly and I was able to say good-bye to that relationship. This limitation is definitely something I consider each year during Open Enrollment time. Another drawback of this plan is that out-of-network doctors are not covered, except in medical emergencies. If you travel a lot, this plan is probably not for you.

Basic vs. Buy-up Option

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Financial Journey, Financial Planning, Work and Career

Maximizing Employee Benefits to Increase Financial Security

maximize employee benefits to increase financial security

Readers, what are some of the things you have been/are doing to increase your financial security? Increasing income? Minimizing spending? Getting into another career path? Starting a side hustle? Building a large investment portfolio? Acquiring rental properties? For those of us who are receiving W2 income, do you rely on your employee non-wage benefits (such as insurance and retirement benefits) for financial security? In this post, I share how I used to perceive my employee non-wage benefits, how I came to see their true values and why choosing the best benefits options for myself and my family is a great thing I can do to increase my family’s overall financial security.

How I Used to Perceive My Employee Non-Wage Benefits

For a long time, I took my employee benefits for granted. I used to only focus on the numbers on my bi-weekly pay statements. I could actually do something with my W2 earnings (such as purchasing more stocks and paying bills). My non-wage benefits were something that my husband and I typically looked at few times a year, and then they were forgotten until we needed to reevaluate the benefits options again. It wasn’t until earlier this year (2016) that I realized how much those non-wage benefits contribute to my overall financial security.

As a new employee, I loved reviewing my employment benefits. I thought it was so cool that my employer was paying me while I went on vacations, giving me extra money toward my retirement savings, offering me discounted life and group disability insurances and allowed me to take eight months off to spend with my daughter after her birth (and I also got paid during part of the time off!). The list could go on. I felt great having all those “freebies” that came with my employment compensation. While I appreciated my employer looking out for my well-being and that of my family, for a long time I never realized how much I’ve came to depend on those non-wage benefits for peace of mind. I suppose I didn’t or couldn’t see the true values of those benefits when I wasn’t paying the premiums out of my pocket or no monetary values were placed on them. What I couldn’t see didn’t count, right?

How I Came to See My Benefits’ True Values

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Financial Independence Thinking, Financial Journey, Financial Planning, Girlfriend to Girlfriend Money Chat, Lifestyle, Marriage and Money, Money Habits, Money Psychology, Retirement Planning

Connection Between Savings Rates and Years to Reaching Financial Independence

savings rate

In this post I discuss the connection between savings rates and years to achieving financial independence. I use my family’s financial situation as an example to illustrate this powerful connection. By the end of having read this post (and the previous one), I hope you’ll be inspired by our story and begin to adopt a similar mindset (a.k.a. financial independence thinking). This post is a follow up on a previous conversation, Create and Live by Your Own Financial Rules. If you haven’t read the post, I recommend reading it first to get a better idea of what I’m about to share here.

Update:

I shared few more financial numbers since I published this article. The first one is on applying the 4% withdrawal rule and the second one is on our estimated (updated) annual expenses.

Saving Aggressively Toward a Financial Goal without Having a Financial Plan

It wasn’t until the middle of 2016 that my husband and I became aware of the financial independence movement. Knowing what we know now, we both have been living our lives by that camp of thought; we just didn’t know.

Very early on in our marriage (we got married in 2010) we casually discussed about early retirement, but we didn’t have a concrete financial plan. We didn’t have a budget or track our expenses. However, we were tracking our net worth.

In some ways we were big spenders. We dined at $$ restaurants every weekend and took five to six weeks of vacations each year (including trips to Western Europe). We also spent a lot of money on groceries. We tried to eat organic food whenever possible (this has been a high priority in our household since year 2011).

In other ways, we were extremely frugal. We made our lunches during the week. We did price comparisons when we shopped. In 2009, I was driving a 1985 Honda Civic. My husband was driving the same model that was made in 1995. We didn’t care for having the latest gadgets. My husband didn’t have a phone data plan until year 2013! I got mine in December 2012.

On average, we saved 60 to 70 percent of our net income. Our financial goal has always been to retire early and travel around the world. However, we didn’t know how much money we would need. We also didn’t bother with doing the math. Somehow, we knew we would just get there, way before we turn 65. We knew about passive income but we weren’t maximizing our investment potentials. We felt like we had a lot of time allowing our net worth to grow organically (with some, but not much efforts).

From year 2008 to 2011, our combined income was under $110,000. While my graduate fellowship covered my tuition and other educational expenses and provided health insurance coverage, the stipend was just enough to pay for basic living expenses. It was only in 2012 that I started contributing to our retirement savings. That was also around the time when we moved to San Francisco. While our combined incomes jumped, our expenses also went up.

One day in year 2013, my husband and I resumed our early retirement talk. We projected we would be able to reach our financial independence number and retire from our day jobs in our early 50s. But, there was still no concrete plan. In year 2014, we changed our retirement target age to mid-40s. We realized that if we would to work until our early 50s we might not be dipping into our retirement savings at all. We would have worked for too long! With that realization, we said to each other, “Why not stop working earlier?” At the time we thought we would need about $3 to $4 million in net worth in order to retire early (living in San Francisco inflated our $ target). But really, that was just a random number we came up with. Forwarded to year 2015, we still didn’t have a concrete financial plan to reach our financial goal. We just continued to save aggressively and kept seeing our net worth go up.

We Found Our Roadmap to Early Retirement

Then, around middle of 2016 we learned about the financial independence online community and we became enlightened. For the first time we felt like we’ve found the roadmap to early retirement! Ever since then, we’ve spent hours calculating our numbers, reallocating and rebalancing our investment portfolio, optimizing our lifestyle and started talking in details about life during early retirement. I will talk more about this roadmap in a future post.

Our financial independence (FI) goal is to save 33X our annual expenses. Our current monthly expenses are about $5,000. About 35% of that goes to childcare. It’s a big splurge for us, but totally worth the money. We value being able to go the gym together every Sunday morning and going out for jogs few evenings throughout the week. We value not having to wake up in the early morning and having to get our daughter out the door to go to daycare. She’s usually still asleep when we leave for work. Nowadays, with the higher cost of living and raising a child, we’re saving about 50% of our net income.

Once we leave our 9-5 jobs, we will no longer be paying for child care. This would drastically drop our annual expenses down to $50,000 or less. Through the financial independence community, we learned that if we choose to live the lifestyle similar to many of the early retirees we will reach financial independence while in our early 30s (this is our average age; my husband is 5 years older than I am). If we want to continue living our current lifestyle into early retirement, then we’re looking at doing that while in our mid 30s (before year 2020). After some number crunches on the calculator, we should be able to reach our financial independence number by year 2018.

I encourage you to read Mr. MM’s article on the math behind early retirement. At our savings rate of 50 to 70% over the last 8 years, the math says that it would take us about 12 years (I took the average) to become financial independent. However, the number of years is less for us. My husband started saving and investing years before we met.

Some Final Thoughts

For years, my husband and I knew that early retirement is possible for us, but we didn’t know how to get there or when we would reach that point. And if we would to arrive, what it would take so that we can stay there? All these questions and more became clear to us once we started reading about some of the stories of early retirees.

It’s important to keep in mind that the financial independence community only provided my husband and I with the last piece of the roadmap helping us plan for early retirement. If we had not been saving aggressively in the past 8 years, we would be nowhere close to achieving FI.

Yes, adopting this community’s mindset toward living one’s life does give you an advantage as a starting point. At the same time, you need to do the homework and put in the effort, too. My husband and I have been doing this for the last eight years. I’m sure if you ask any early retirees who are self-made millionaires, they’d tell you that they did not reach FI by being average or using shortcuts.

As I stated in the previous post, if you are thinking about pursuing financial independence, you need to adopt radical ways of thinking, and live your life accordingly. Don’t just blindly follow the shortcuts just because they are easy. Always do your research, do your math and get into the habit asking yourself, “How can I do better?”. Come up with your own set of financial rules that work for your situation and make sure those rules align with your short- and long-term financial goals and values. Be open to revising the rules once you find them too comfortable. Be radical with your way of thinking (not just in money terms, but your values, too), your creativity and money strategies (e.g., How are you managing your money? How can you do a little better?). You don’t have to follow the conventional path if being average is not what you want.

Readers, prior to having read this post (and my previous one), were you aware of the connection between savings rates and years to reaching financial independence?

How do you approach your savings rate? Do you have to work hard at meeting that goal?

What do you think about Mr. MM’s math concepts behind early retirement? I would love to hear from you at the comment section below.

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Financial Empowerment, Financial Journey, Financial Planning, Girlfriend to Girlfriend Money Chat, Lifestyle, Marriage and Money, Money Habits, Money Psychology, Personal Finance, Women and Financial Literacy

A Woman’s Financial Responsibilities in Her Household: Part I

In Part I of A Woman’s Financial Responsibilities in Her Household, I discuss some gender generalizations regarding how money responsibilities are handled in a typical household and share with you some introspection regarding my situation during the earlier years of my marriage.

There are many aspects to personal finance and financial planning, ranging from budgeting, paying for a vacation, purchasing a home, purchasing insurances, retirement planning and estate planning. This is important to keep in mind as we discuss household financial responsibilities.

Women and Financial Responsibilities

Gender Generalizations

In most households, the typical stereotype type is that the wife is responsible for balancing the checkbook (e.g., managing the day-to-day budget) while the husband attends to bigger picture financial planning (e.g., purchasing insurances, tax planning and investing retirement funds).

Certainly, there are households where the wife doesn’t participate much in or any part of the family’s financial responsibilities. This was illustrated in a 2013 Fidelity Investments Couples Retirement Study, where two in ten women admitted to having only some or no input into the day-to-day financial decisions in their households. Then, there are households where the wife is the CFO. And in between, there are households where both the wife and husband participate equally in every aspect of the family’s financial situations.

In general, though, women still view managing and balancing the family’s checkbook and budget as a woman’s role. These women believe such responsibilities are traditionally deemed more feminine. Husbands, on the other hand, are more suited to attending to the bigger picture household financial planning, as they are being seen more technical savvy and/or have a higher risk tolerance personality.

This gender generalization around household money management is evident in the 2014-2015 Prudential study on Financial Experience & Behaviors Among Women. The study reported that women respondents ranked themselves highest on their knowledge of managing debt and managing money (about 30% gave themselves an “A”) and lowest on their knowledge about generating an income stream in retirement and investing (less than 10% gave themselves an “A” and many gave themselves “F”). Such findings certainly give some insights into what women in general value and do well at when it comes to financial responsibilities in the household.

Many of my married girlfriends recalled their mothers taking care of the family’s basic day-to-day budget. Once married, my girlfriends just automatically followed their mothers’ footstep when it came to managing finances in their own households. Yet, when it came to their household’s bigger picture financial planning, many of my girlfriends didn’t have much of a clue.

For instance, some didn’t know all the various liabilities they have, some didn’t know all the different retirement accounts their husbands have, some didn’t know if their husbands received stock options as part of the compensation package, some didn’t know how much their husbands were putting into their deferred tax accounts, some didn’t know what their car and/or home insurances covered (or would not cover), some didn’t know if their husbands had disability insurance, some didn’t know how many brokerage accounts they had, many didn’t know what universal liability insurance is, and the list went on and on. Their husbands were taking care of those responsibilities and didn’t always involve their wives in the process, either consciously or subconsciously.

Throughout those conversations and discoveries many of my girlfriends expressed a lack of time to spend on long-term financial planning. I could relate in many ways. Like my girlfriends, I was happy filling my day with work, childcare, household chores and exercises. I enjoyed spending time planning social events for myself and my family. I took pride in doing interior decorating, planning for holiday gatherings and shopping for the lowest bargains (extremely time consuming).

When would I have had the time to learn about investing in the stock market, keep track of my family’s investment portfolio performance, peruse through the IRS website to reduce family income tax, learn to calculate how much life and/or disability insurance my family needs, or work on estate planning with my husband?

I’m sure if my life situation forced me to I would have done all that and perhaps more, however, my husband was taking care of all those financial responsibilities so that I didn’t have to. We were each great and efficient at what we “owned”. That was the whole idea behind the concept, division of labor, right? At least I thought so.

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