Fall is my favorite time of year. I enjoy all things Halloween and the time leading up to Thanksgiving, which is my favorite holiday. But the month of November is also one of the most important months for determining our financial game plan for the upcoming year. My employer has Open Season which allows us to change our health plan for 2019. Last year we changed our health insurance provider after being insured by the same company for over ten years. We opted to change to a high deductible health plan with a Health Savings Account (HSA). As November approaches, Maria & I will have our Open Season meeting and determine whether the plan we chose proved to be cost effective. I look forward to providing a synopsis in a future post of our out of pocket health care spending for the past year, as well as comparison of which plan proved to be a better value for not only our dollars but also our health.
I remember when I was twenty years old my parents wanted to help me save and invest the money I was earning, so they set up a meeting for me with an advisor from Prudential Life Insurance Company. I was presented with a Variable Life Insurance policy where a portion of what was paid on the policy would be invested in an account similar to a mutual fund. My parents thought it was a good idea. They seemed to be very good with money and what did I know? I never stopped to analyze this policy. I simply signed my name on the dotted line because my parents and an advisor suggested it and I began making payments. I can’t tell you how important I felt. I felt like I was not just an adult, but a really smart one and I remember bragging to all of my fellow twenty year old friends.
I made the payments on this policy for a few years until I was in my mid 20’s and I went to Barnett Bank to apply for a mortgage on the purchase of my first house. Since I didn’t have any credit, I needed to come up with an $8,000 down payment on a $56,000 house. As I only had around $5,000 in cash, I began to look at other areas where I could make up the difference. I remembered that I had this life insurance policy that had a cash value account built into it. I had been paying on the policy for a few years and the stock market in the mid 90’s was booming, so I figured that I surely accrued some major cash in this account. I drove over to the Prudential Insurance office and sat down with the advisor and he pulled up my account and told me that I had a little more than $3000 in it. I was absolutely floored! Surely I had paid over $6000 into this account over the last few years. How was it possible that there was only $3000 in it? The advisor explained to me that a portion of my payments were appropriated to pay for the life insurance component of the policy and the rest was reserved for the cash value component. I was so ticked off! I felt I had been completely swindled. I remember he was trying to justify why this policy was so great and why I would be making a huge mistake to terminate the policy. We exchanged some heated words and I clearly remember asking him to explain to me why I even needed life insurance. I was in my mid 20’s, wasn’t married and didn’t have any dependents. He couldn’t provide an adequate response to this question and I fired him as my advisor. This was a question that would have proved useful had I asked it prior to signing my name on the dotted line.
The memory I shared brings me to one of my all time, favorite financial quotes: “For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish.” This is quoted from Luke 14:28 and the reason I love it so much is the visual I have of someone actually sitting down and calculating the cost of something. Maybe there’s a blueprint spread over the table and someone is planning to lay the foundation in their financial life. When I entered into the life insurance policy I didn’t take the time to sit down and calculate the cost. I simply entered into something at the suggestion of other people. Dave Ramsey has a funny term for this and he calls it “Stupid Tax.” When I haven’t been diligent, sat down and calculated the cost, I have always paid my share of “Stupid Tax.” Whenever Maria & I have to make important decisions, especially financial decisions, we have developed the habit of always sitting down at our kitchen table and calculating the costs. This doesn’t mean that we haven’t made mistakes or made the most optimized decision. However, we’ve made our decisions together. One person isn’t in the driver’s seat. If decisions are made together, you’ll never have your spouse pointing their finger at you with the “I told you so” look.
In regards to my parents, I realize they were only trying to help me. My parents were both depression era children that grew up in tenement housing and never finished high school. They, along with their siblings, have been very successful in life, in raising their children and also with money. The reason for their success with money was due to their diligence in being frugal and in saving. They didn’t always pick the best investment vehicles, and certainly made some mistakes along the way, but they developed the behavior of saving. Your success with money is not about the knowledge you acquire in regards to choosing the best investments – it’s about establishing and strengthening the behavior of saving and living below your means. My father is now in his late 80’s and to this day still saves money even though he is financially independent. He recently told me that he can never imagine a scenario in his life when he wouldn’t save money. He loves to retell a story of being a young boy in the late 1930’s and how he would accompany his grandmother to go shopping. They would walk miles to the grocer and butcher shops and then walk the miles back carrying bags full of groceries. She absolutely refused to pay 5 cents to return on a trolley and instead saved the money. She eventually purchased a large home, paying cash for the purchase. My father feels that he wouldn’t have established the superpower of saving had he not had the influence of his grandmother.
I wanted to mention that I read an interesting post from The Fioneers blog about trying to save on groceries by calculating the cost per meal. I thought it was really interesting and mentioned it to Maria. We have always budgeted for food based on a total dollar amount for the month but I would like to try it for a month to figure out what it’s costing us per meal. I think it would be a valuable experiment and we will, of course, provide you with the results.
I now realize that all of the financial mistakes I’ve made in life, and there are many, were due to my own lack of diligence. I can’t blame anyone for suggesting a certain investment or for following someone’s advice. Ultimately I’m responsible for the decisions I’ve made and if that results in having to pay “Stupid Tax”, so be it. It’s a learning process but I’d rather learn from someone else’s mistakes. Ultimately our hope with this blog is that we can communicate where we’ve been successful and also where we’ve failed. Thoughts can be shared and we can all learn from each other. Plans fail where there is no counsel, but succeed where counselors are many. So reach out to us if you have any questions or if there is something you’d like to share.