blog

now browsing by category

 

Real-life loan stories – A must read

BDO Money Matters | By Mark B. Aragona for Yahoo! Southeast Asia -Wed, 28 Nov 2012

What does life look like when you’re borrowing money? It takes major adjustments to get what you want, but it’s often worth the risk. Below are stories of how some people made loans work for them, and not the other way around.

Housing Loan

Kristine, 34, is a newly-married teacher. Like most couples, she and her husband dreamed of owning a house. They picked out a condo unit under pre-selling, but as they were just starting out in life and couldn’t afford the usual 20% down payment, they looked for some possible solutions.

One choice, which they rejected due to their high interest rates, was to let the developer’s in-house financial company fund their down payment. Their broker showed them a second option: apply for a bank housing loan for the down payment, then follow it with another 10-year loan to cover the rest of the amortization.

Kristine and her husband agreed, gathering needed documents like the deed of sale from the broker, their cedula, proof of employment, and IDs. Because they were already long time clients of the bank, they didn’t have to submit other kinds of documents like passports. After three weeks of processing, their application was approved with an interest of 10% per annum.

Now, Kristine and her husband are paying off the 20% down payment, which will last for the next 13-15 months, then they’ll work on the other 80% over the next 10 years. “In the beginning, it was scary,” says Kristine. “I felt like I was selling my soul, because I’ve never had a loan this big before. But everything worked out fine in the end and we’re able to pay our monthly dues. It’s still quite a commitment, though, and we agreed not to have kids till we’re done with the down payment.”

Car Loan

Paul, a 33-year old physical trainer, obtained a car loan out of his necessity: his old car finally broke down after many years of service. He put up a 25% down payment on his own but needed the loan for the rest of the amount. After submitting his proof of income, bank statements, proof of residence, and his pay slips, his application was approved within three weeks: he received a four-year loan at 20% interest per annum.

“It was convenient,” he said. “There was no trouble at all once I finished submitting my files. Of course, it would’ve been really nice to have bought the car with plain cash and avoided the interest payments, but it just wasn’t possible. For me, this was the second-best alternative.”

Personal Loan

Finally, Mark, a 27-year old IT specialist, wanted to start a small food business but needed some seed capital. As it turned out, a bank was offering personal loans to the employees of his company at 15% per annum. He snapped up the chance and took on a 1-year loan of Php100,000, the monthly payment of which would be automatically debited from his paycheck.

After eight months, Mark found his business was taking off and needed more time and attention. He decided to quit his job. However, he found that doing so would mean that the balance on his loan would be due and demandable. Because the loan would completely eat up his separation pay, he decided to try and negotiate.

Mark met with the loan officer and offered to continue paying the remaining five months using checks. At first, the loan officer refused, so Mark then took it up with the manager, and even all the way to a vice-president. In the end, the bank agreed, and Mark finished the loan as scheduled without any additional burden on himself.

“My take-away is that as long as it’s within reason, the terms of loan are negotiable. You just have to keep trying and look for someone who would listen to you.”

How to avoid loan-related dangers

BDO Money Matters | By Mark B. Aragona for Yahoo! Southeast Asia -Fri, 14 Dec 2012

Loans always carry risk, but you can learn to manage that risk if you know what to watch out for.
It helps to start by examining the life cycle of a loan and determining the pitfalls that accompany each part.

Stage 1: Applying for a loan

Beware of making inaccurate statements on your application.
Do not attempt to falsify or omit important details. Banks ARE going to do a background check, and it will be that much harder for you if they find out that you left omitted existing financial obligations or falsified the amount of money you make.

Do NOT apply for someone else. This means you’re lending out your name and your credit-worthiness to another person. This person may seem reliable to you, but remember that misfortune happens to everyone. And when they’re unable to pay what they borrowed, you’ll be left holding the bag. Apply only for yourself and for solid purposes.

Make sure you are applying for the loan amount you need, NOT what your agent thinks you do. Some agents may try to convince you to apply for a higher loan amount, as this entitles them to a higher commission. Don’t fall for this; you’ll end up over-leveraging and paying more than you should. Decide early on the exact amount you need, and stick to it.

Stage 2: Receiving the loan

Once you have the proceeds of your loan application, you’d probably think you’re golden. But there are other pitfalls to watch out for:

Use the loan proceeds for your intended purpose only. Once you come by a large amount of money, there’s an immediate temptation to treat yourself to something nice. So you spend on one or two luxuries, then a few more, and before you know it you don’t have enough to use for what you originally planned for. Stick to your plan or be prepared to suck up the loss.

Tell your immediate family about your financial obligation. One story goes about a man who took on a loan and got married shortly after, without informing his bride. The wife found out later that she was equally liable for the loan because they purchased their family home—a conjugal asset. Bottom line: whether or not you’ll need their support, it’s best to tell your family members that you’re taking on a large obligation. Don’t leave them with unpleasant surprises.

Stage 3: Servicing the loan

This last step is the longest and thus carries the most critical dangers:

Don’t entrust your payments to a third party. There’s no end to the number of so-called brokers eager to help you manage your payments, restructure your debt, or otherwise make the debt collectors go away. They may ask you to pay through them or divulge sensitive information about your finances. Once you do, you may never hear from them or your money again. Avoid these scammers like the plague they are.

Pay on time. The simplest task leads to the largest pitfall. When people obtain cash, there’s a great temptation to use it for other things rather than service their debts. But late payments only cause more problems as interest and late fees snowball, dragging down your cash flow and lowering your net worth. Better to first rid yourself of the weight of financial obligations before paying for investments and luxuries.

If you’re having financial problems, tell your bank. Everyone goes through hard times. If you’re having difficulty paying back your loan, explain your situation to the bank early on. Running from your creditors not only increases your interest payments, but as you due dates expire the bank exerts more and more pressure to get you to pay. This tires you out and uses up the bank’s good will, which lowers the chance for restructuring your loan.

How to lower your loan cost

BDO Money Matters | By Christine Dychiao for Yahoo! Southeast Asia -Tue, 20Nov2012

Borrowing money definitely costs money, but you can also minimize the cost of your loan by keeping these practical, money-saving tips in mind:

Shop around for rates

Before committing to a loan agreement with the bank you’ve been banking with for years, make sure you shop around and compare rates across a number of financial institutions. Also, do not discount credit cooperatives you may borrow from. Watch out for special promotional rates too, it pays to keep yourself updated on every potential lender’s loan offerings.

Lower your principal

Try to limit the amount you are borrowing to a minimum. When you have extra funds, try and pay more than your required monthly payment. This will lower your principal, which also reduces the interest you have to pay over the life of the loan.

Shorten your loan term

By simply looking at a loan table, you can see that the longer the tenor of your loan, the higher the interest rate. As much as possible and as your liquidity would allow, always go for the shorter loan term. Yes, your monthly amortization will increase, but you also reduce your overall interest payment.

Take advantage of prepayments

Should you find yourself with extra funds on hand, remember that Article 137 of the Consumer Act of The Philippines gives the consumer the Right to Prepay. As a borrower you may prepay in full or in part, at any time without *penalty, the unpaid balance of your consumer credit transaction. This reduces your outstanding balance, reduces the tenor, as well as the overall interest costs of your loan.

*Note however that banks may charge a minimal processing fee for full payment of your loan before maturity.

When it comes to buying a car or a home on loan, every centavo counts. You do not want to find yourself squeezed to a point that finances become too tight. It pays to look for ways in lowering the cost of your loan, so you can truly enjoy the fruits of your labor.

Applying for a loan? The questions you must ask

BDO Money Matters | By Mark B. Aragona for Yahoo! Southeast Asia -Thu, 08Nov2012

So you’ve picked out a car or home and now you’re ready to apply for a loan to finance it. While shopping around for loans can be a long and tedious process, it pays to sift through every detail of the terms before agreeing to anything. After all, you’ll be tying yourself to that debt for the next several years. Here are some vital questions that should come up during your loan negotiations:

What are these charges for?
Understand the first rule of getting a loan: everything is negotiable, and that includes bank fees.  Before signing any documents, go through every detail and pay attention to the charges involved. You need to make sure you are only paying for things you agreed to pay, and nothing else. Some less scrupulous lenders will slip in charges in the paperwork without you knowing. If you see fees that you’ve not agreed to or don’t understand, challenge them at once.

Can we lower the interest rate if I shorten my term/increase my downpayment?
Never assume that lending institutions like banks will automatically lower their rate if you decide to shorten your term from 20 years to 10, or put up more cash for downpayment. When you approach a bank, don’t be afraid to talk to the marketing assistant or loan officer to see how flexible they are or how much they’re willing to personalize your loan. Negotiate for the best rate you can. Even a 1% change now can later on mean the difference between having a roof over your head or camping out in your own car.

May I use my own life insurance?

Nowadays banks require their clients to apply for private mortgage insurance (PMI) or mortgage redemption insurance (MRI). These are life insurance policies where the lender is named the beneficiary, providing them with a safety net in case you’re unable to pay your debts due to illness, disability, or death.

Both the PMI and the MRI carry expensive premiums due to the processing fees and commissions paid to the bank. The insurance benefits and charges of these policies shrink along with your debt, but that also means your family won’t get anything from these policies. Neither are the premiums paid refundable, withdrawable, or loanable. You may not even realize you applied for a PMI or MRI as it could be bundled with your other bank fees.

As such, it’s better to use your own life insurance as collateral for your loan.You can use an existing one or apply for ordinary life insurance from a reputable company. In the event of disability or death, your coverage will only pay the remaining balance of the loan and the rest goes to your family. Moreover, you get to keep the policy and any cash value after the loan is finished.

What are your prepayment/pre-termination fees?
This is something you’ll definitely want to clear up. As per law, you’re allowed to pre-pay or pre-terminate your loan if you have the means to do so, but note that each transaction also carries its own banking fee. How much you’re charged depends on the amount you’re pre-paying, but on average these fees range from P500 to P2,000.

Can I lock in this rate?
Once you have an interest rate you like, DON’T forget to ask this. Interest rates change regularly due to economic policies and even if a bank is willing to give you a low rate, they may not be able to keep it for you if you don’t ask them to lock it in. Also, ask if there’s a commitment fee in order to process this transaction.

What are your closing costs?

Closing costs can range from 2% to 5% of your loan amount. They may include all kinds of miscellaneous processing fees, credit checks and so on. If you spot any inflated or unneccessary fees, you ought to renegotiate them with the lender before you attempt to close the agreement. Check out our guide to closing costs to get an idea on legitimate fees.

Some banks are even willing to waive fees for long-time clients, but they may not do this unless you ask. So ask. Talk to them. And if your bank doesn’t provide rates you like, you can always shop for other banks or try government institutions. If you take confidence and negotiate from a position of strength, you’ll eventually get what you want.

A guide to closing costs in the Philippines

BDO Money Matters | By Christine Dychiao for Yahoo! Southeast Asia -Sun, 04Nov2012

You’re moving on to your next dream home, and selling off your old house to someone who thinks it is a treasure. But before this story becomes a happily ever after, you’ve got closing costs to settle. Whether you are selling or buying a home, you need to be aware of the costs you will be incurring in transferring ownership that are over and above the price of your property.

While costs may differ based on the circumstances of the sale and how you are financing your home, here’s a general guide to help you price your property or negotiate your purchase. Hopefully, this will eliminate the element of surprise expenses when it comes to sealing the deal on your home.

Closing Costs for Home Sellers:


1. Broker’s Commission.
This is the amount agreed upon with your real estate broker. This is usually a percentage of the total selling price of your property.

2. Capital Gains Tax (individual). This is a tax imposed on the gains presumed to have been realized by the seller from the sale, exchange, or other disposition of capital assets. The real property tax rate is 6% of gross selling price, zonal value or fair market value, whichever is higher. If the seller is a corporation, this is referred to as a Creditable Withholding Tax.

3. Real estate taxes due if applicable. According to Glennis Nitafan, Managing Partner of Highstreet Manila Group, a property consulting firm, “There are instances when a seller would give a NET price excluding the above fees.” In cases like these, the broker includes the closing fees in the computation of the price of the property.

Closing Costs for Home Buyers:

The Buyer meanwhile shoulders all the transfer related charges including but not limited to:

1. Documentary Stamps Tax. This is a tax on documents, instruments, loan agreements and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property. The tax rate for a deed of sale is 1.5% or P15 for every P1,000 of the selling price, zonal value or fair market value, whichever is higher.

2. Transfer Tax.
This is a tax imposed on the sale, donation, barter, or any other mode of transferring ownership or title of real property. The computation varies from .5% to a high of .75% of zonal value or selling price whichever is higher, depending on the municipality. Refer to the City Treasurer for the rate applicable to your property.

3. Registration Fee.
This is usually 0.25% of the selling price or fair market value, which ever is higher. However, according to Nitafan, computation by the Registry of Deeds is based on a table, and may also include other costs in order to arrive at the final Registration Fee amount.

4. Notarial Fee. The Deed of Absolute Sale should be notarized for a fee of about 0.1% of the selling price.

5. Loan fees. If the buyer takes out a home loan from a bank these are the extra costs tied to a home loan:

• Appraisal fee
• Handling fee
• Mortgage redemption insurance
• Fire Insurance

Mode of Payment: Note that all checks payments payable to Bureau of Internal Revenue, City Treasurer and Registry of Deeds have to be in a Manager’s Check.

According to Nitafan, most delays in the transfer of titles are caused by improper computation, or the amounts or payee names in the checks are erroneous. It is best to double check amounts and payee names before having the Manager’s Check issued.

Before closing that deal, check with your broker or real estate professional for good faith estimates of your closing costs. If you have the time, check with your local government agencies, bank officer, and real estate broker for the exact costs you will be incurring.

Characteristics of a good borrower

BDO Money Matters | By Mark B. Aragona for Yahoo! Southeast Asia – Fri, 23Nov2012

How do you know if borrowing money is going to work out for you, especially in the long term? You can’t foresee what unexpected events will happen to you in the next few years, but there are some things you can control: planning your finances and setting up a worthwhile goal. Have a look at these traits of a good borrower and see for yourself how you—or people wanting to borrow from you—stand:

Credit-worthiness. These are traits from the bank or financial institutions point of view and have to do with the applicant’s credit history, their capacity to pay, and in some cases, the value of their collateral. Banks in particular like to lend to people with high net worth, stable incomes, have a good loan payment history, and liquid assets that produce income or value. But if you don’t rate very high on one or more of these aspects, you could possibly balance it off by doing well with another. Start by taking steps towards improving your credit-worthiness.

On the borrower’s side, there may be more desirable traits to have:

Keen money management skills. This includes a solid grasp of one’s cash flow, the ability to live within your means, and the skill of keeping accurate and timely financial records. The last item is invaluable for obtaining a loan, as banks will require not just proof of income, but proof of residence, marriage, ownership of assets, and so on.

A sense of integrity.
The big “I” means you walk your talk: if you borrow a certain sum of money, integrity means paying back the agreed sum on time. Keeping your word is the basis of all financial agreements and is often the most overlooked trait. The lack of integrity is the main reason for a long history of lost wealth and damaged relationships—both business and personal.

A sense of prudence. A good borrower does not bite off more than he can chew. He will only borrow what he can pay and tracks whom he borrowed from. Some borrowers are not done in by the size of their debts, but by the sheer number of them: they get loans from so many sources, juggling money to pay and repay creditors, that they’re overwhelmed by the task of organizing and keeping track of whom they borrowed from and how much they owe. Ideally, one borrows from a single source at a time, and consolidates any other existing debts into a single low-interest one.

Purposeful spending.
Perhaps the best indicator of a successful loan is what you ultimately do with the extra cash: is it going to provide you with greater value, or is it just going to take more money out of your pocket? Thus it’s imperative to be clear with your financial goal: that you are borrowing money to pay for or take care of a valuable asset. This may mean buying a home, a business, perhaps another investment. It may mean investing in people, such as educating yourself or a child.

Of course, credit no-nos include borrowing to gamble—such taking imprudent high-risk investments—or spending on luxuries. These sap your income and will eventually leave you selling off your possessions, or worse, running from debt collectors.

Borrowing isn’t bad if you have a solid purpose, a good grasp of your financial status, and the commitment to honor your agreements. By mastering these qualities, loans become a useful tool.

Are You Mature Enough To Buy A Home?

By Mark P. Cussen | Investopedia – Fri, 30Nov2012

If you are contemplating buying your first home, you must carefully evaluate your financial situation and understand what you would be getting into. Money is not the only operative factor in this equation either; there is much more to homeownership than mortgage payments, property taxes and the cost of furnishings. Homeownership is a life decision, and it will affect almost every aspect of your life in one way or another.

Permanency
Buying and moving into a home is a vastly different proposition than moving into a rental house or apartment. If you discover that you don’t like your surroundings as a renter, then you will only have a lease agreement to contend with if you decide to move. Changing houses is obviously a much different proposition, as this requires you to go through the entire home sale and purchase process all over again. Most financial experts will also tell you that you will have to stay in your house for anywhere from two to six years in order to make up for all of the initial closing costs and other expenses that inevitably arise when you buy a home.

Maintenance
One of the biggest disadvantages of homeownership is that there is no landlord to call when something needs to be fixed. Keeping your home structurally and mechanically sound and maintaining an attractive property can cost you thousands of dollars above and beyond your normal upkeep expenses and also require a major commitment of time and effort. Some of the major maintenance projects that you may face include:

Repainting Your House
Your home will likely need a new coat of paint at some point, either inside or out. If you have this done professionally, you can usually expect to pay at least two thousand dollars, depending upon the size of your house and the amount of work that it will take to do the job. Doing this job yourself will be a major undertaking.

Replacing Your Roof
This is one project that you will not likely be able to do yourself. The average cost of a roof can easily range around $10,000 to $15,000, and the price depends upon the type of roof and type of shingles that are used.

Foundation Problems
Foundational erosion and collapse is every homeowner’s worst nightmare, and fixing this problem isn’t going to be cheap. Mud jacking can cost thousands of dollars if the problem is severe.

  • Plumbing and electrical repairs

 

  • Furnace and air conditioner repairs and replacements

 

  • Treatments for termites and other pests

Relationship Security
Your pocketbook is not the only thing that needs to be healthy before you buy a home. If you are married or in a domestic partnership, you need to evaluate the stability of your relationship before you commit to purchasing a home together. When two people who live in an apartment together divorce or break up, one of them simply moves out. When two people are listed on the title deed for a residence, getting one of them removed is much more complicated. When this happens, the person who stays must shoulder the entire cost of the home by him or herself (albeit with the help of child support or alimony in many cases). If you are having problems in your marriage or other relationship, then you need to seriously consider where the two of you will be in five or ten years. If you think that there’s a good chance that you will split up, then homeownership should be approached with caution.

Personal Health
If you have physical or mental limitations that may prevent you from being able to perform normal maintenance tasks on your home, then you need to have a clear idea of how you will accomplish these things before you sign on the dotted line. If your health is in decline, then buying a fixer-upper is probably not a good idea unless you can clearly afford to pay for all of the repairs and maintenance.

The Bottom Line
Buying a home requires a certain level of emotional and mental maturity. The ability to think ahead and foresee possible problems down the road is key before making the commitment, especially for first-home buyers.

10 Best Ways to Make Money Online

by

As the virtual world becomes viral with more and more homes having access to the internet, it has now become a marketplace where people can earn dough in just a click of a mouse. Selling stuff on E-bay is passé. You just have to remember that you should avoid any get rich quick schemes as they are most likely scams. Just like making money offline, it takes hard work and consistency to make it online.  For 2011 – 2012, there are new ways to learn on how you can make bucks and be the next online millionaire! so let’s see the 10 best ways to make money online.

 

Make Money 10 Best Ways to Make Money Online

 

10. Be the Next YouTube Sensation!

Slide101 e1310753539873 10 Best Ways to Make Money Online

With so many artists being discovered daily online, why can’t it be you? All you have to do is record a song and make a video of yourself while singing. If you have the talent, your dream of instant superstardom is not farfetched. YouTube and other video-sharing sites have the world as its audience, and when you’re discovered, you can be on your way to Hollywood.

 

9. Make Money doing Gigs

Slide91 e1310753588569 10 Best Ways to Make Money Online

Sites like Fiverr.com allow you to make money by doing almost anything! Just sign up for free and create gigs by offering mundane services such as singing a song, teaching a Spanish phrase, teaching how to use Facebook, etc. Each gig will cost you $5 and you will be amazed how easy it is to make money with things that you never imagine anyone paying for it.

 

8. Make and Sell your Own E-book

Slide81 e1310753629959 10 Best Ways to Make Money Online

With the popularity of Kindle and other e-book readers, people are no longer turning to books as reference. If you have the flair for writing fiction and non-fiction books, you can earn more by selling your literary pieces online than having to go through the tedious task of being published. E-books are selling as much as $50 to $100 and they’re even made by unknown authors.

 

7. Be a Virtual Assistant

Slide71 e1310753718566 10 Best Ways to Make Money Online

You will not believe the number of corporate executives who hires virtual assistants. Because they have a lot of things to do but not the time, they need someone to do stuff for them. These may include doing research, finding things, making reservations, doing time-consuming tasks and even making phone calls. You can do this by setting up a free blog or a website where you can offer your services.

 

6. Be Paid to Blog

Slide61 e1310753772969 10 Best Ways to Make Money Online

Because of the rise of so many free blogging platforms, blogging has become more popular. While it was just an avenue for some to air their creative ideas, you can actually earn from it. You can do this by showing ads on your blogs using advertising programs like Google AdSense or by selling affiliate products, or video tutorials.

 

5. Be a Matchmaker

Slide51 e1310753816442 10 Best Ways to Make Money Online

This is not the typical mail order bride or dating services. You can be a matchmaker by running your own virtual marketplace or your own employment agency. You can do this by collecting sites and matching distributors, suppliers and retailers, for example, an equipment manufacturer to smaller components supplier.  You can also earn by matching job seekers and employers. You can refer your friends and if they get hired, you will earn a commission.

 

4. Be an Online Tutor

Slide41 e1310753862955 10 Best Ways to Make Money Online

Online tutoring is becoming more and more in demand, especially for non-English speaking countries. If you have the passion for teaching, this can be one way to earn. Some online teachers even do this at home. You can just set aside a number of hours per week, which is anywhere from 2 hours up daily depending on the service you are going with.

 

3. Directory Submission

Slide31 e1310753900123 10 Best Ways to Make Money Online

While there may be lots of websites or blogs available in the internet, they need traffic to make money. But sometimes, webmasters and bloggers are busy with the other aspects of their sites that they do not have the time to do this. You can offer your services to submit their site to directories for a fee. You can use forums like Digital Point to offer your service to webmasters.

2. Earn Money while Playing Games

Slide21 e1310753945664 10 Best Ways to Make Money Online

The latest buzz among gaming enthusiasts is about the Chinese girl who became the first person to be a millionaire just by exchanging the virtual money she had earned by playing Second Life. Playing games like Farm Gold and Second Life offers virtual money which can be exchange for real cash. Now, that is every player’s dream.

 

1. Earn Money by Buying Virtual Plots

Slide11 e1310754013471 10 Best Ways to Make Money Online

Virtual plots are URL addresses that you can buy and resell for profit, just like any real estate. You can do this by buying good domains, flip them and make some bucks. When you get a good site or a blog, work on it by putting relevant content, get it going, and then sell it. There are hundreds of websites being sold every day on sites like Flippa.com, while sites like GoDaddy.com sells unused domain names for under $10 each. You just have to remember that the best domain names are short, specific and easy to remember. There are website owners who made millions out of buying virtual plots and made them into established sites. This is good business because with just a small capital, you can earn huge profits!

When Life Insurance Isn’t Worth It

By Greg McFarlane | Investopedia – Mon, 19Mar2012

The principle behind life insurance is simple, in theory. It’s also morbid, at least compared to other financial services. You pay small amounts at monthly intervals, and should you die, a beneficiary of your choice gets a sum of money approximating what you would have earned had you stayed alive.

That’s the stark truth right there, which a lot of life insurance customers fail to comprehend: the service is supposed to be nothing more than a replacement plan. The idea is that should your family suffer a crisis that transcends finances, at least their finances won’t be impacted too negatively. If you die, your spouse and kids won’t have to take on multiple jobs, beg for alms nor lose the house and car.

Hedging Your Bets
It’s important to remember that life insurance isn’t really “insurance” in the dictionary sense. When you buy life insurance, you’re not “insuring” anything. No matter how much money you give them, Ameriprise can’t keep you from dying. No, life insurance is more about hedging your bets than anything else. While you’d prefer to live, if fate has an alternate plan then you can spend money now to help your family avoid multiple catastrophes later.

But as a result of it being called insurance, there’s an overly conservative type of person who believes that if “coverage” of some kind is good, then more coverage must be better. Buying life insurance thus becomes a test of one’s capacity as a responsible adult and breadwinner. What kind of person doesn’t want to protect their loved ones? To that end, some people insure anything that moves – even (especially) their children.

Sounds great in principle, until you remember that kids don’t earn any money. Or at least not any money that’d be difficult to replace. Which reinforces the morbidity of life insurance: losing a child is such a colossal tragedy that if there’s any eventuality that needs to be prepared for, it’s that. Some parents argue that they couldn’t function after the death of a child, and thus a policy on said child helps them sleep at night. But if you claim you’re not going to be able to function anyway, why not keep the money you’d have otherwise spent on life insurance for someone who barely earns any income?

The same goes for older relatives. Both the healthy and infirm have a decreasing amount of time remaining, and the less healthy an older relative is, the smaller the death benefit you’ll receive for a policy of a similar premium size. Add retirees’ limited income (regardless of how substantial their net worth may be), and much of the time, senior insurance seems like an unwise move.

How Much You’ll Get
Stay alive, and a standard term life insurance plan has zero return. Start a 20-year term policy today, and if you don’t die by 2032, you’ll have received nothing. That’s not a bug of life insurance design, but a feature. After all, throughout the policy’s term you’re getting whatever peace of mind comes with knowing that your death won’t impoverish your family. Most policyholders understand this, and appreciate that life insurance isn’t intended to be an “investment” in the conventional sense.

Other insurance customers are uncomfortable at the idea of sending a long series of fixed payments to a financial services firm with the certainty that they’ll never see any potential for profit. Rather than accept life insurance for what it is – again, a replacement plan – these customers want some sort of return. Thus the industry devised whole life insurance and universal life insurance, two variants on term life insurance that each offer a cash value beyond the standard life insurance death benefit. You pay a little more each month than you would with a term policy (we’d call the little more a “premium” but it’d just confuse things), and the difference builds and can be redeemed at your convenience.

Purchasing policies more complex that a term life insurance policy could make economic sense if the cash value increases quickly enough. But investing and insuring are two different and usually incongruent goals. There are surer and more direct ways to invest, beyond enhancing one’s insurance policy with a form of annuity. A combination protection plan/investment plan is like a combination toothbrush/nail file, assuming such a thing exists. The hybrid probably isn’t going to perform either task as well as the disparate products it aims to replace.

The Bottom Line
This isn’t a jeremiad against life insurance in principle. If you’ve got sufficient income, a risky enough likelihood of staying alive (which a prudent insurer will take note of and charge a correspondingly higher premium for), and enough dependents with little earning power among them, a term policy isn’t necessarily a poor way to spend your money. Just remember that investing is deferring spending in hopes of a financial gain. Insuring is spending now in hopes of avoiding financial loss. In that respect, the two activities are almost opposites. An insurance policy that masquerades as an investment is rarely going to be your best option for accomplishing the conflicting goals of maximizing return while minimizing risk.

How To Create A Financial Bucket List

By Janine Eccleston | Investopedia – Thu, Nov 22, 2012 7:00 AM PHT

Many Americans create bucket lists of things they would like to do before they die. For some it includes travel, and for others it includes things such as giving back and donating their time. What many people don’t have is a financial bucket list or a list of financial goals and obligations they would like to achieve in their lifetime.

Here are some ideas for your financial bucket list:

Pay off All Your Debt
While some may consider this a lofty goal, for many it means peace of mind and less stress. Some psychologists say that individuals are suffering terribly because of their debts. According to a survey by AP-AOL, roughly 27% of individuals reporting high-debt stress said they had ulcers or some form of digestive tract problems and 44% said they suffered from migraine headaches. The total debt of consumers in the United States as of March 31, 2012 was $11.44 trillion. While this includes household debt and consumer debt it means that each American owes over $36,000, based on a population of approximately 314,686,000. This isn’t the type of burden you want to leave to your children or your estate. By paying off debt you can rest assured that you won’t be a burden to anyone.

Own Your Home
This ties in closely with point number one, and it can also be seen as achieving the America Dream. Owning a home is seen as an expression of personal freedom, as it has been ingrained into the American culture since the mid-1800s. Owning a home marks a milestone in one’s life, giving homeowners a sense of pride and accomplishment. A 2009 American Housing Survey (AHS) shows that only about 25% of homeowners have no mortgages, so crossing this off your financial bucket list should definitely give you a feeling of triumph.

Max out Your Retirement Fund
Whether you are growing your nest egg in a 401K or a Roth IRA, your goal should be to put as much money away for retirement as possible. UC Berkeley Center for Labor Research and Education found roughly 75% of 401(K)s are below $60,000. Ensuring that yours is maxed out will make retirement a lot less stressful. Each year the 401(K) is indexed against inflation and in 2012 the maximum contribution limit is $17,000. CBS News reported that only 5% of 401(K) owners max out their contribution limits in 2011.

Save for Your Child’s Academic Future
According to the College Cost Projector, tuition costs increase by almost twice the rate of inflation. 2011-2012 tuition costs averaged over $17,000 for students attending public schools and over $38,000 for students attending private schools, according to College Board.org. There is no doubt that saving for your child’s future should be on your financial bucket list. The College Cost calculator estimates that tuition increases are happening at about 5-8%, meaning the $17,000 it would cost for a child to attend post-secondary today may increase to around $40,000 in 18 years (based on a 5% tuition inflation rate).

Emergency Fund
Having an emergency fund is crucial to feeling a sense of safety. Many experts state you should have between three and six months of living expenses in your emergency fund so that you can combat unexpected medical expenses or home repairs without putting financial pressure on your family.

Give to Charity
Philanthropy plays a crucial role in American society. As citizens of a First World nation, many individuals feel the need to give to those less fortunate or to organizations they support. In 2010 alone, $300 billion was given to U.S. charities. With so many causes near and dear to their hearts, many people feel the need to make a large lump sum donation to a charity before they pass away.

The Bottom Line
Whether it is giving back to the community or saving for your children’s education, there are many things that can be on your financial bucket list. The idea is to create a list that secures your future time and leaves a legacy of what you believe in after you pass on.