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01/11/2010

Use, Enjoyment & Control

JANUARY 2010 INSIGHTS

...from the desk of Brian Carden, Financial Advisor

 

The Use, Enjoyment, & Control Podcast:

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           Three simple words…but yet they mean so much…especially when applied to money, investments, insurance, and all things financial. It’s one of the reasons that US citizens are so deep in debt. If I buy a new car, HDTV, or any other consumer item, I can validate the purchase because I can have “use, enjoyment, and control” of whatever it is I just bought. Do I need to buy any of these things? In some situations, yes, but often times, not. How much stuff does one person need anyway? Did you know that “retail therapy” is actually a valid psychological syndrome?

           If I take the basic fundamental tools needed in financial planning, such as different insurance products, investments, and retirement planning options, the acid test is whether or not I can apply these three simple words to each of them. Let’s start with something as basic as car insurance. Can I use it today? Well, I don’t really want to, but when I was in that head-on collision in 2008, I did. Can I enjoy it today? The girl that hit me had no insurance, so because I had the correct coverage, I was able to buy another car four days after the wreck. Can I control it today?If my safe driving record continues going forward, and I manage my deductibles accordingly, yes, I can control the costs & benefits. …how am I doing so far? Keep reading…it gets better.

           How about my home? Can I use it today? Absolutely…its my home and I love not only being there, but entertaining my friends and clients. Can I enjoy it today? Same thought applies. Can I control it today? Well…kinda sorta. I can control my ability to make the mortgage payment. I can refinance the loan when it’s appropriate and in my best interests…but I cannot control the market value. Just like you, I took a hit as the Nashville housing market continues to decline. My home is a great asset, but it might not be a great investment.

           A 401(k) plan, you ask? Let’s see if it holds up. Can I use it today? No…not without subjecting it to income taxes and possible premature withdrawal penalties (if you’re younger than 59½). Can I enjoy it today? No…it is a retirement account, and any enjoyment is deferred until a later date. The same rules apply here as well. Can I control it today? No…the market fluctuates on a daily basis and I’ve never met anyone who has consistently outperformed it. Also, since it is a tax-deferred account (postponed is a better word), the government will probably have it’s say as to how much in taxes you will have to pay when you do take $$$ from these types of accounts. Sorry, but retiring in a lower tax bracket might fall into that “financial fiction” section of the bookstore I’ve wrote about in the past.

           And finally, the most misunderstood financial tool of them all…life insurance. First of all, term insurance. Can I use it today? Me personally, no…my beneficiaries can. Can I enjoy it today? …only the thought that if I leave this world, I do so knowing I left it a little better than I found it. Can I control it today? I can control the amount and the price, but as I get older and less healthy, both will change drastically and generally, not for the better. According to LIMRA, 99% of all term policies do not pay benefits to beneficiaries. 99%...so why do all the “financial entertainers” and other media sources recommend it? (See my earlier thought about the “financial fiction” section.)

          Now for the big finish…drum roll, please!! Let’s analyze good ole whole life insurance. Can I use it today? Absolutely…any cash values available in the contract are always liquid for any purpose and if accessed correctly, withdrawals can be tax free. Can I enjoy it today? Yes. Cash values grow tax deferred and have a guaranteed minimum rate of return (usually 3-4%). Current dividends, which are not guaranteed and do adjust annually, have already been declared by companies for 2010 in the range of 5-7%. By the way, regardless of market conditions, this account never goes down. Can I control it today? Yes. Contrary to “financial fiction” I can put as little as possible to keep the contract in force, or as much as is allowed by law to use the cash value as a part of my safe assets in my overall portfolio asset allocation. If you want more proof, go to www.lifeinsuranceasanassetclass.com

          Three little words…use, enjoyment, control…hopefully, after reading this, you recognize that they have clout…and they can empower you to make better financial decisions. If you use them in the way that I do, maybe you will begin to have a different understanding of how you should use money…and a clearer idea of what is “financial fiction”, how you should look at “financial entertainers” and what are the true facts about financial planning.

Kindest regards,
Brian
brian_carden@peachtreeplanning.com

Copyright, 2010, Brian E. Carden

Posted by Brian Carden at 07:40:00 AM

Past Editions

• In Search of Guarantees
• It's Going to be a Groundhog Year
• Are you Wishing...or Wanting?
• Memories of the Sears Wish Book
• Thanksgiving Memories from my Soul
• You Are Here
• OK What Am I Supposed To Do Now?
• Walking Case Studies, July 2011
• R.E.S.P.E.C.T. June 2011
• OK Now I'm Really Scared, August 2011
• It's All Greek to Me! May 2011
• Really?...Are You Kidding Me!
• What I've Learned from 1983-2011…A Perspective
• The Revised Bucket List
• Trusting in the Holidays
• Walking Down Gene Carden's Road
• The DaVinci Code & Financial Planning
• It's Time
• Use, Enjoyment & Control
• You Really Don't Know What I Do
• Exit Ramps
• Hardware or Software?
• Who Says?
• Backstops
• Recapture and Redeploy
• My View on the World
• Deus Ex Machina
• The Bank Called You

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