Watching every penny is the starting point for getting rich slowly. But there are also big moves you can make that will earn or save you a lot of money. Big wins include refinancing your mortgage, negotiating your salary, improving your credit score or evaluating your car insurance. Your car insurance probably comes up for renewal every six months. When was the last time you compared insurance carriers or revised your policy to see if you could save a few hundred dollars? I thought so.

Des Toups, senior managing editor of Insurance.com (a QuinStreet site, like GetRichSlowly.org), has a lot of good information and statistics about car insurance that we wanted him to share with the GRS community. So, here’s Des!

Car insurance has only one real purpose: To stand between you and financial disaster.

Think about rear-ending a brand-new Jaguar, or your child causing an accident that puts other people in the hospital. Your car insurance only pays up to its limits. After that, you’re on your own.

Got a house? A savings account? A regular paycheck?

When there’s no more insurance, the other guy’s lawyers will turn to you.

Sure, there are generally accepted guidelines out there when you decide how much coverage to buy. Homeowners need at least $100,000 in bodily injury liability protection, because a large, valuable asset like a house is an easy lawsuit target if you don’t have enough to cover your victim’s hospital bills.

Or maybe you own nothing and have no savings – nothing you could lose. Then you might go for the legal minimum in your state.

The space between those extremes is huge, though, and needs vary from state to state, by age and by financial standing.

Seeing the choices other drivers in your situation make can be a good guideline when you shop for car insurance yourself. Insurance.com recently analyzed more than 550,000 insurance quotes delivered through its price-comparison tool to find the most common choices made by drivers of similar age, who live in the same state, who drive the same model year of car, or who own their homes.

You can find data for your state in the “What Drivers Like You Buy” tool.

Nationwide, there are clear patterns. Three out of four drivers choose a $500 deductible. A third of drivers under age 25 shop for the lowest legal amount of liability coverage, but only 19 percent of drivers over 55 do.

Nationwide, the most common coverage profile looks like this:

  • Most common bodily injury liability coverage: $50,000 ($100,000 per accident), selected by 46 percent of all drivers.
  • Most common property damage liability coverage: $50,000, selected by 59 percent of all drivers.
  • Collision coverage, selected by 60 percent of all drivers.
  • Comprehensive coverage, selected by 61 percent of all drivers.
  • $500 deductible, selected by 74 percent of drivers who buy comprehensive and collision.
  • Towing and emergency road service, selected by 16 percent of all drivers.
  • Rental reimbursement coverage, selected by 16 percent of all drivers.

As you decide on what coverage to buy, consider these tips:

  • Extra liability coverage beyond the required minimums is generally quite cheap – you’ll pay only a fraction as much for an additional $50,000 as you did for the first $25,000.
  • Raising your deductibles can save you money. Going from a $500 deductible to $1,000 on a 2012 Ford Explorer in Texas, for example, would cut the annual bill for comp and collision from $576 to $470. Saving $100 a year on your car insurance is nice, but only if you have $1,000 to get your car out of hock to the body shop.
  • Before you make big changes in coverage, shop around first. The more you pay for car insurance, the more you are likely to find savings by switching insurers.

This article is about Insurance

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This article is by staff writer Kristin Wong.

(This is part II in a series about challenging traditional measures of financial success. Part I was The “Ivory Tower”: Reconsidering the college investment.)

Last week, I was having dinner with my neighbor, a magnetic woman with a free spirit and a really youthful soul. She’s been renting the apartment above mine for something like 30 years.

“Do you ever think about buying a home?” I asked her.

She laughed. “You know how expensive home prices are here, don’t you?” she asked. Touche. In the Los Angeles metro area, the average home price is nearly half a million.

“Well, do you ever think about moving?” I asked. “Prices are a lot lower in other parts of the country.”

“No, I’m not going anywhere,” she said. “I think I’d rather be a renter here than a homeowner anywhere else. Plus, I love my apartment.”

From our conversation, I gathered that she’s perfectly happy living as a renter forever. Despite the discouraging prices in my area, it’s still a goal of mine to own a home someday. It’s always been a goal that I’ve had in the back of my head. I’ve always assumed homeownership is a smart financial move, something we should all strive for — become debt free, save money, buy a home, retire. That’s the traditional formula.

But lately, I’ve wondered: Why is homeownership such a measure of financial success?

The virtue of homeownership

Owning land has long been a sign of wealth. It’s almost a virtue. In an article for the Federalist, one writer stresses why buying a home is something to strive for:

“There is also a powerful social and political aspect to home ownership, one that transcends any particular culture or legal system. There is no more potent symbol of having made it, having achieved even the modest level of economic success and stability, than owning a home — there is a reason we immediately associate it with the phrase ‘the American Dream.’ The pride of a new immigrant family in being able to afford land in America is a staple of the immigrant experience.”

In theory, sure, it’s better to own something than to rent it. But in practice, it’s not always that simple. The pursuit of the “American Dream” led many people astray, as evidenced by the massive housing crisis. So is homeownership truly a symbol of economic success and stability? If you’ve done it responsibly, maybe it is.

The cost of renting

It’s long been put to me that renting a property is, simply, throwing your money away. I guess you can see it that way. When you rent as a retiree, your monthly payment is part of your retirement expenses; it’s not money you’re putting toward an investment. You also have less control over your living situation.

I’m certainly not going to argue that, in theory, owning something makes more sense than renting it. Renting comes at a cost, yes. But I’d argue you’re not exactly “throwing money away” by renting. You do get a place to live in exchange for your money, after all. My neighbor, for example, loves her apartment. For her monthly rent payment, she gets a great place to live in her favorite city.

The cost of homeownership

Beyond the down payment, there are a handful of other costs associated with buying a home. You have to consider:

  • Your monthly mortgage payment, which might be higher than your current rent

  • Home improvement costs

  • All kinds of insurance, including PMI, if you put down less than 20 percent

  • Property taxes

Those factors are easy enough to fit into an equation. But other factors aren’t. For example, what if I want to move in a couple of years? And what if the market is down during that time? What if there are other things I want to do that cost money? It will be tough to afford those options after putting 20 percent down.

Right now I’m lucky enough to afford a pretty enjoyable life with a lot of options, thanks to all the work I’ve put into getting my finances in order.

But if I bought a home right now, in my city, that would all change. I might have my dream home, but it might be at the cost of my dream life. If homeownership is a symbol of economic success and stability, where does that leave someone who has their finances in order, but continues to rent?

The American Dream, redesigned

Data from the U.S. Census Bureau has been consistently showing that homeownership in the States is gradually and steadily declining. Young people are simply putting it off. Of course, it’s less of a conscious decision and more of a necessity thing (those student loans are no joke) but I think this is sparking a change, either way.

NPR talked about this a while back. They reported:

“In a nation where homeownership is part of the American dream, a generation of renters could alter communities where they live and redefine the idea of middle-class success.”

Psychologist Katherine Newman told them:

“I’m hoping that the Millennial Generation doesn’t set its sights on homeownership as a benchmark of economic stability, because it’s going to be out of reach for so many of them that it will just be a recipe for frustration,” she says.”

In adapting to the aftermath of the Recession, I think we’ve had to rethink a lot of things, including owning a home vs. renting. Ownership is a sign of financial stability and freedom, but it seems like a lot of people are questioning the rush into that. Would I feel more financially stable if I bought a home right now? I don’t know. But I do wonder if homeownership is the measure of financial success it once was.

Homeownership and the third stage of finance

This is something I’ve been wondering lately. I recently talked about how I’m in the third stage of finance. At least, it feels like I’m in that stage. I ask myself: For what am I continuing to save? I’m not sure of the answer. It may or not be “… to buy a home.” But I’m comfortable with my lifestyle, my debts are paid, and I’m just saving to save.

But if I’m renting, am I really in the third stage?

I think if we’re talking about measures of financial success, we have to consider why we’re building wealth in the first place. I want to build wealth so I have options. I have the option, for example, to move somewhere else and buy a home. Or, I can stay in an expensive city that I love and be a renter. If I choose the latter, I’m happier. But if I choose the former, I no longer have as many options. But, according to tradition, I’d be an “economic success.”

“The face of getting rich slowly is changing”

It seems like we’re adjusting the way we think about the process of building wealth. William Cowie talked about this when he wrote about how employment is changing:

“The face of getting rich slowly is changing right before our eyes, even as the status quo is failing.”

In short, as a society, we’re adapting. People are changing how they think about not just homeownership but also employment, retirement, and higher education. I’ll continue to challenge these traditional measures of financial success in my next couple posts.

But I’d still like to know your thoughts, as I think I have more questions than answers. If you’re like my neighbor and homeownership is just not in the cards for you, does this mean you don’t have your finances in order? Is owning land the measure of financial success it once was?


This article is by staff writer William Cowie.

Retirement, that magic day you’ve had in your sights for decades, is finally coming into view. You may be in your 40s or 50s, and the big day may be next month or in a few years. Whatever your age and whenever the day, the time is coming for the big question:

What do you do now?

What to do in retirement?

I faced that question a few years ago, and I remember it well. My first reaction was terror. This is so final — you can’t turn back the clock and you don’t get any do-overs. (How many times I wished for just one!) All my bad decisions had grown up around me (or not grown, to be more accurate). Now, I was faced with two pretty large questions:

  • What income will I live from?
  • What will I do with my time?

What will you do in retirement?

You might think the first of those two questions would have been my main retirement focus; but in hindsight, the second is even bigger. It’s that age-old question: What are you going to do when you grow up?

Many people never give much thought to that question as they furiously run the rat race, focused on making payments, raising kids, keeping up with various Joneses, and generally “making it.”

Step back for a moment, though, and try to imagine what will happen. The first day is just like every Sunday. You wake up with no alarm, and do whatever you consider is fun to do. You don’t have to get dressed and rush off to work. After a week or two, though, it begins to sink is: This is different — it’s Sunday every day for you now.

How will you fill your retirement days when the novelty wears off?

It’s easy for many to dismiss what has become the Leisure World image: fuddy duddies in plaid pants and white belts riding their golf carts around the course, while the wives gossip and play bridge with the other members of the blue-rinse set.

But, what will you do that’s different? You can gallivant across the globe like J.D. Roth, but the reality is that most of us are probably not going to retire with that much money or that much of an adventurous spirit. I’ve asked many people in their 30s and 40s what they will do once they retire — and you’d be amazed how often I get a blank, deer-in-the-headlight look back in response. It’s a lot like Art Linkletter asking those little kids what they’d do if they were president. (One little girl famously said she’d order husbands to kiss their wives a hundred times a day.)

Most of us simply don’t know how we will pass the time in retirement. It took me a few years after I stopped commuting for a paycheck to figure out what I really want to do. What I looked forward to on weekends wasn’t enough to engage me for 16 hours a day. (Oh, that’s right, when you retire, you have 16 hours a day to fill, not just eight.) A couple we know from California simply stay at home and putter around. He recently confessed that they bought his wife a new car, but after three years it only has 3,000 miles on the odometer. (This is in Orange County, California, where public transportation is non-existent, so those are pure stay-at-home miles.)

There are many people who want to retire early, without defining what they want to do when they retire. They end up simply getting another job because it’s all they know.

So, the first thing you need to spend some brain time on is to figure out what you want to do when you no longer have to grind out a living. For me it was writing — something I had no clue I’d ever want to do until my mom idly remarked that my sister is so gifted with writing, what a pity nobody else in the family caught that gene. Ha! Sibling rivalry being what it is, I took up the challenge; now I’m the writer, and she’s still figuring out who she wants to be when she grows up.

But this is Get Rich Slowly, not Get Old Slowly, so let’s talk about the money for a second.

Structuring what you live from

No, this is not the standard lecture that you better start saving because old age creeps up on you faster than Speedy Gonzales; that’s a topic all to itself.

If you’ve been smart and availed yourself of 401(k) or similar retirement plans wherever you worked, and you changed jobs along the way, you may have accumulated a motley collection of retirement accounts: 401(k), Roth IRA and regular IRA.

Now the question is: What should you do with that assortment of nest eggs? Should you consolidate and simplify your budding financial empire in preparation for your freedom years?

Short answer: Yes.

Why?

The human mind has a hard time keeping up with complexity: Restaurants with complex menus lose customers. Are you on top of all your multiple accounts right now? Probably not. It’ll be much easier if you just had two or three.

How do you consolidate?

For starters, get out of all your 401(k) plans and roll over the money to an IRA account. You may not be able to do that with your current employer, but you’re allowed to do that with inactive 401(k) plans.

Why roll over to an IRA? Two reasons:

1. Returns: The standard most mutual funds aim for is the S&P 500 average (around 8 to 9 percent per year, depending on which dates you pick). Now, that being an average, you would expect half of all mutual funds to beat that, wouldn’t you?

You would be wrong. Fewer than 25 percent of all mutual funds beat the S&P 500… and it’s never the same bunch. Therefore, odds are your 401(k) funds underperform the S&P 500.

You can do better by rolling those over into a single IRA and investing it all into an S&P 500 index fund. Please note: I’m not saying an index fund is the best you can do, only that it’s one simple action likely to improve your returns.

2. Fees: Most 401(k) plans charge fees which eat away a significant portion of your earnings. Most plans are captive, meaning you, the employee, can’t choose just any mutual fund you want — you can only pick from the menu they offer you. And all of those mutual funds have a management fee.

Not only are you stuck with mutual funds which charge you a fee, but the 401(k) plan itself has plan administration fees. They may be hidden, but you’re always paying two layers of fees with 401(k) mutual funds. Both sets of fees eat away at your returns. The way they quote those fees makes it sound like they’re small, like 2 percent or something like that. Considering the return before fees (at best) will be something like 9 percent per year over the long haul, that 2 percent ends up being more than 20 percent of your earnings. To get a better idea of the magnitude of the fees, you need to divide the fee by the return. When you do that, they’re not so small anymore.

You can get a self-directed IRA account for free at most online brokerages, and you can pick any mutual fund you want. (You are not limited to your employer’s menu.)

But that’s not all. You can invest in any individual publicly traded stock you want, too. So, if you think Warren Buffett’s Berkshire can earn you more than that S&P 500 index fund (and it has for decades), you have the option to invest that way.

With your own self-directed IRA, then, you can significantly increase your earnings over those inactive 401(k) funds from previous jobs. Which brings up the next question:

Roth or regular IRA?

This decision is mostly driven by tax rates:

  • With a regular IRA you pay tax in retirement on what you draw.
  • With a Roth IRA you pay taxes now on what you put away.

(In both cases, the appreciation and income accumulate tax-free.)

As an example, if you’re really raking it in now and plan a fairly low-budget retirement, then a regular IRA makes more sense, because the deduction happens at a high tax rate, but the monthly draw will be taxed at a lower rate. On the other hand, if you’re scraping by now (and pay a low tax rate), you have nothing to lose by picking a Roth IRA. If you strike it rich, your income from that will be tax-free; and if it’s as middling as you make now, you haven’t lost much. (Editor’s note: Roth IRAs have income limits, so check with the IRS to be sure you’re eligible to contribute.)

Because the critical variable is your tax rate, now and in the unknowable future, it’s worth the money to pay an adviser to look at the variables of your personal situation and get some informed and professional advice.

General questions

What about diversification? Someone asked me if he should leave his multiple 401(k) plans in place to diversify away his risk.

In a word, no. There are many ways to diversify within a single IRA. What is more diversified than an S&P 500 index fund, for example? So you can have all your money in one place, easy to manage, while your investments are highly diversified.

What about real estate? Good question. Rental property doesn’t grow tax-free like an IRA or 401(k) fund, but it has the potential to be more lucrative. However, it’s not nearly as passive an investment. You have to get tenants, keep up with maintenance, and deal with late payers and those who destroy the property. It does have the advantage, though, of probably being much more inflation-proof than paper investments.

Retirement (however you view or define it) is as profound a life change as leaving home, marrying, or having kids. And it has as many opportunities to screw it up. Fortunately, though, you have more notice and more time to prepare.

The trick is to make use of that time. What are you doing?


This post is by staff writer Honey Smith.

I’ve spent the last 15 years of my life working at three universities, wearing many different hats during that time. As you can imagine, this means that I’ve developed an opinion or two when it comes to higher education! Based on what I’ve experienced (and what I’ve seen other people go through), one of the most difficult things for people is matching a degree program to their budget and overall career path. You want to find the right fit.

What is “fit” anyway?

I don’t think finding a program that fits means finding your “true calling,” as they say. I’m not convinced, having seen firsthand how it can unravel, that the people who can only imagine one specific career for themselves are necessarily the lucky ones. What if your chosen profession doesn’t pay well? What if you have to relocate to a place where the job market for that career is better but you don’t know anyone? What if the job requires more of your time than you’d like to give?

In my experience, the people who have a wide variety of interests, instead of a single, overriding passion, actually have a better chance of enjoying that ever elusive work-life balance we talk about so frequently. Post-secondary education isn’t just an investment in your career, it’s an investment in your ability to build the whole life that you want. As such, there are a number of things to consider when it comes to finding your fit.

Where would you like to live?

When I started my PhD, I knew that if I wanted to find a tenure-track position, I had to be open to moving anywhere. At the time, I was single and had just moved across the country by myself. However, by the time I defended my dissertation, I was dating the man I would eventually marry. Unfortunately, my hottest tenure-track job lead ended up being in a small town in the middle of nowhere where he could never find a job. I had become “geographically bound.” While I did find a job I loved, it ended up being a position that doesn’t fully utilize my degree. Tradeoff.

In many ways, I was lucky. I have seen dozens of students follow their passion only to discover — after completing their degree and amassing a ton of debt — that there was no demand for that knowledge in the place they KNEW they wanted to live. It’s definitely something to keep in mind when you are choosing a degree, certificate, or vocational program: Will you have to find a compromise between what you want to do and where you want to live? Thinking about these things sooner rather than later may save you some heartache — and some debt, if it redirects you to be more strategic about your goals and your budget.

How much time would you like to spend working?

I’ll admit it: I’m a Grey’s Anatomy junkie. However, as obsessed with the show as I am, I know that I could never be a surgeon. Yes, it’s a lucrative career, but 100-hour weeks just aren’t for me. A 40-hour workweek suits me perfectly! And fortunately, that’s exactly what I ended up with. And yet every day I see students make investments in careers like medicine or the law without having fully considered what that lifestyle entails.

For example, when Jake was daydreaming about making oodles of money as an attorney, he didn’t realize that it was going to mean staying at work until 10 p.m. or later every night. I appreciate the freedom that his schedule gives me to watch my Grey’s reruns without being judged! However, I know that he wishes he could afford to give up his six-figure salary for a career with a less demanding schedule, even if it wouldn’t be as lucrative.

What schedule works for you?

I have a perfect circadian rhythm. Even if I never look at a clock, I get tired at about 10:30 p.m. every night and wake up no later than 6:30 a.m. every morning — even on the weekends. Jake, on the other hand, suffers from a circadian rhythm disorder that is like permanent jet lag. Functioning on a normal schedule is misery for him, and he still believes his college job as a nighttime security guard was the best job he ever had.

If you are a night owl, then jobs with those hours or jobs you can do from home may work best for you. Some careers, like nursing, offer shift differentials for those who work at night, so you can actually make more money accommodating your body’s own rhythms. Other careers, like freelance writing, mean that you can complete the work in the evenings or on the weekends if that’s what works for you. Similarly, if you have personal goals that conflict with the 8-to-5 life (such as being a stay-at-home parent), then you may want to pursue an education that will prepare you for a career that offers the flexibility you need.

What you enjoy, what you’re good at, and what people will pay for

Apparently, I’m excellent at event planning. At least, that’s what my co-workers (who have spent the last six years migrating every possible event my way) tell me. However, if there’s one thing I absolutely detest and would prefer to avoid as much as possible, it’s event planning. In other words, what you enjoy and what you are good at aren’t necessarily the same thing.

What does that mean for picking something as a college major? First, it means that you shouldn’t major in something you absolutely detest just because you have a talent for it or because you think it will earn you a big pile of money. However, it also means that just because you enjoy something doesn’t mean that you’re good at it — or that people will necessarily pay for it. I became a creative writing major because I loved reading fiction. I learned that not only am I incapable of writing the type of book I enjoy reading, I am also unlikely to find a job reading the novels of my choice all day!

How much money you plan to spend on your education

How much are you prepared to spend pursuing your chosen major and career? Where will those funds will come from? Have you thought about scholarships? Given your likely salary once you start working, how much student loan debt should you responsibly take on? And how long might it take to pay off that debt?

Institution type can play a huge factor when it comes to cost. Community colleges, the public four-year university system, private universities, online universities, and vocational colleges all operate at different price points. Strive to obtain the education you need (because education can be a want, too, as I well know) — and then make sure that it’s also at a price you can afford.

What would you say is most important for someone who is interested in “finding their fit” and making it work with their budget?


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