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012, Financial Ratios, It’s all About the Numbers

What’s in a number? A number standing alone is meaningless. Especially in personal finance. Something like $10,000 without comparing it to other factors is surrounding the number is just an amount of money. If that $10,000 is buying someone’s car outright with cash for someone who makes $30,000 a year, it’s a significant amount to that person. That same $10,000 paid as a down payment on someone’s $250,000 Bugatti sports car who is making $5,000,000 per year is less significant in that person’s personal finance. That $10,000 is hardly anything compared to the $5,000,000 annual income. But someone who’s buying a $100,000 car outright with cash for someone making $300,000 per year, the financial impact is exactly the same as the first person buying the $10,000 car in the first example. The ratio is what matters in these examples.

We started to touched on Ratios a little bit in the last Post with Warren Buffet’s house. In that example we were comparing his home’s value to his net worth as a percentage. His house is really a very, very small part of his net worth. This post will look at important financial ratios that banks, landlords, and many other people who try to manage personal finance.

Financial Ratios Everyone Should Know, Wallet Hacks and Millionaire Mob are just a few sites that give some ratios. The first is the most basic. Then each one after that give some more ratios to understand. I give you those three so that you can dig in at your own time and at your own pace.

Since several of the readers have asked about buying a house in the near future, we’ll cover a few ratios for buying a house. I first heard of a ratio for buying a house when I purchased my first house. During the application process, the loan officer informed me that I could get a loan for up to 28% of my income for the house. But there was a caveat. The total of all my debt could not be more than 32% of my income. Since I was an Average person, I had more than 4% (32% – 28%) in consumer debt. This limited my first home to less than the standard 28%. I don’t remember exactly what the numbers were at the time. The point is that I had a lot of credit card debt and it effected my loan to buy my house. That was one of the earliest wake up calls that I may be in trouble. So, I started tracking these ratios periodically.

I’ve never really thought about that ratio for several years now. While writing for this Blog, I’ve noticed these ratios have changed! They haven’t changed for the better either. The newer ratios are 28% for your house and 36% for the total debt ratio. While that may seem better, it’s not. This is not in your best interest at all. Here’s why I don’t agree with the ratio.

The 28/36 ratio allows for 4% more than the old ratio. That’s a 100% (4% to 8%) increase in consumer deb! So what they are doing is allowing you to charge more depreciating assets! They haven’t increased from 28% for the generally appreciating asset called your house. Not that I’m a fan of financing to the maximum, but the above shows where the banks interests are focused. What they did was basically allowed for the Average consumer to borrow more money for the highest interest rate category. That means they make more money and you lose more money to interest.

So, you loose the flexibility to use that second 4% that you could put towards an emergency fund, for food, or for investing. You are also loosing the opportunity cost of that 4% compounded over the years if you invest it in your retirement. That’s worth you seriously considering before you decide to max out how much you can borrow on a house and credit cards. Let me say it again:  That’s worth you seriously considering before you decide to max out how much you can borrow on a house and credit cards.  The old 28/32 ratio was hard enough to recover. The 28/36 ratio would be much harder. So, don’t be Average and max out your credit. Live below your means and invest the remainder in your future.

By now, most of you by now have read about how much credit can cost you. You know to avoid it on depreciating assets. Assets that don’t appreciate in value or provide income should never be financed.  So, when buying a house, don’t forget that wasting money on depreciating assets can really mess up your chances to minimize your interest costs. Remember all numbers in relation to your objectives of financial independence. Don’t get caught up in the Average American dream of owning a house at the expense of your financial future.

Maxing out your credit to purchase a house will significantly hinder your ability to save for your future. It will strap you for cash and for emergencies if you don’t have those in place before you finance a house. So, before you even consider buying a house make sure you have a fully funded emergency fund and an appropriate down payment.

Why is the down payment of 20% or more stressed by so many financial people? Because of two major reasons. Fist, it shows the mortgage company that you have skin in the game. You have 20% equity, so the bank has less risk. You are more likely to pay on time and not walk away leaving the bank with a house. They are not in the house buying business. They reward you for this by giving you a favorable interest rate. So, you’ll be financing less and at a lower interest rate. Over the life of your loan, the reduced financed amount and the lower interest rate will be a significantly less amount you pay to the banks.

Secondly, you won’t have to pay for Private Mortgage Insurance or PMI. PMI is insurance that the bank makes you pay for to insure that they actually get the money back that they lent you. That’s right, they make you pay insurance for them! You get absolutely no value for this either. So, you are losing money here too. In most instances, 20% down will eliminate this PMI. PMI increases with the cost of your house. More expensive house will require a more expensive PMI payment. So, just save at least until you get the 20% down to avoid throwing this money away by paying for the bank’s insurance for your home loan. Don’t do it. If you can’t afford this 20% down, wait until you can.

So, don’t be Average. Learn your financial ratios so you get a better picture of your major purchases such as a house.

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011, Enough Already

How much is enough?  Since a home and vehicles can be such a large part of your expenses, especially when you are young, let’s address that first. You surely don’t need the excessive stuff above. You may want it, but you don’t need it.

How much house is enough? Warren Buffet is a extremely rich guy. If you don’t know him, take a few minutes on google and check him out. He lives in house that’s .001 Percent of his Net Worth. Think about that for a second to let it sink in. For some perspective, if your net worth was $1,000,000 your house would be $10 ($1,000,000 X .00001). Yep, that’s ten dollars. The $10 represents how difficult it would be to purchase the house from your cash or investments. This house he bought in the 1950s is an insignificant part of his wealth. He could afford a way more expensive house if he wanted. He’s said he’s happy where he lives. If he felt he could be happier in another house, he would move. But he’s content. There’s no need for him to spend any more to chase a bigger house to keep up with others. He has what he needs and wants.

Granted, he’s worth $60-80 billion, so he’d need a massive house to even begin to approach 1% of his net worth. But that’s not the point necessarily. When you have enough, you don’t need more. When you are content, you don’t need more. When you are happy, you don’t need more. That’s my point.

You’ve often heard things like “your home is your biggest investment”. While your house is an appreciating asset, it doesn’t generate any income. Money is tied up in your house where you can’t spend it or truly invest it. Practically, that means that if your home is your biggest investment, more than half of your net worth isn’t going to generate income. Having that much of your net worth inaccessible and tied up means that you can’t spend it. It also means that it’s not generating income. So, you’ll have to work longer to build assets that can actually generate cash either now or in retirement. That’s the classic house rich, money poor scenario. You have an expensive house, but you don’t have much money for other things like properly investing for your future. Being house rich can severely limit your flexibility to get ahead financially.

This is really amplified when you are young. Your young years can have the most impact on your wealth in retirement when you invest efficiently. When you neglect your retirement in your early years, it’s much harder to catch up due to the time that has passed. The compounding interest from these early years really help to build up an investment nest egg of investments to carry you through your retirement years. Don’t become house rich and cash poor.

Here’s a great article looking at home ownership in total. Avoid the Dream House Trap. It talks about how an expensive house can strap you with large expenses. Those expenses, if not properly balanced against your income, will be felt financially a lot more. It will limit your ability to have flexibility to properly invest in other income generating assets to help you through retirement. The Average people in America frequently overlook how a house can trap you in the rat race just to stay afloat.

You need a roof over your head to shelter yourself from the elements. People do live in grass huts, modest homes and mansions. They all provide the basic requirements of shelter to keep you alive. People are also happy in each of those examples. Each example is also more costly. Grass huts are cheap, modest homes are reasonable, and mansions are extremely expensive. So, choose your housing carefully without overestimating your needs.

Next, let’s talk about cars.  We’ve touched on those before.  This is likely the second biggest expense that can cost lots of money if not done smartly. Since I’ve been into Choose FI a lot lately, here is an article about new cars and here’s a podcast if you listen to those.  The bottom line is that your transportation costs can eat up quite a bit of your income.

Over the course of your, at least 40 years of driving, decisions you make can literally cost you hundreds of thousands of dollars if you are not wise in your choices.  Those hundreds of thousands of dollars can either boost your income during retirement or drag you down.  The choice is yours. If you haven’t read my article about the brand new car I bought, please go back and read my post.  Buying a new car was not a good financial move for me.

You do need transportation. Most will drive cars or trucks versus mopeds or bicycles. Just as in houses, the choices vary widely. They will impact your finances one way or another. Make well informed decision on how your choices will impact your finances. A cheap used car can get you from point A to point B just as well as a brand new high dollar sports car. So, it’s truly up to you which path you choose. Choose wisely and position yourself for success in retirement.

These two major expenses can make or break your finances in the long run. They are the Big Rocks. So, make wise decisions based on facts and solid information that will meet your financial goals. Don’t overestimate your needs and max out your wants. Find the sweet spot that can work for you. If you have to have the cat’s pajamas, you’ll pay more for things at the expense of your financial security in your later years.

Make finding contentment a goal with whatever you have.

010, The $500,000 Toothache

In the beginning of 2017, my wife was diagnosed with a brain tumor about the size of a walnut.  It was located behind her left eye, approximately two inches deep from her temple.  Luckily, she wasn’t having strokes, seizures, balancing problems, vision problems, or significant pain.  She was literally experiencing only a very slight toothache that the dentist and doctors couldn’t diagnose or make go away. I’m convinced that having the proper insurance helped save her life and her functioning as a whole and happy person. Keep reading, it gets better…

She tried antibiotics, nerve medications, expensive dental x-rays, acupuncture… all to no avail.  Something told her to continue to pursue the slight, single toothache.  Most people, including myself, would likely just have given up and lived with it.  But she stuck to it and I’m sure glad she did!  She continued to see our general physician after the dentist was convinced the tooth was not the issue.  Our doctor suspected that something may be going on with her Trigeminal Nerve, prompting him to prescribe a CT scan. My wife called me at work the next day telling me that two masses had been found on the CT scan.  This began our introduction to the world of neurologists and neurosurgeons.

The journey began with seeing a neurologist who immediately referred us to a neurosurgeon.  The neurosurgeon quickly ordered an MRI and then an MRI with contrast.  When all was reviewed, he said she needed to have surgery on the tumor that was attaching itself to the trigeminal nerve (thus the tooth ache) and that he could perform the surgery.  Not being what she wanted to hear, we agreed on getting second opinion.  We met with another brain surgeon at one of the most recognized brain surgery centers in Dallas.  Again, a very experienced neurosurgeon said she needed surgery and he could do it.  She still was looking for the answer she wanted…no surgery.  By this time we asked a friend who had actually had successful brain surgery years ago for his brain surgeon’s information.  When we met with this neurosurgeon, he said he agreed that she needed surgery, but refused to do it because it was located in too difficult of an area.  He told us she needed a specialist!  Who knew?  I thought all neurosurgeons were “special.”  She needed a true specialist in skull based surgery. He recommended two doctors in the Dallas area.  However, we also researched others throughout the country.

Thanks to a couple of people we met who had gone through similar “complicated” brain surgeries, we chose the best skull based brain surgeon in Dallas – one of the two the doctor had recommended.  This guy only takes on the most difficult cases. (That’s four brain surgery consultations if you are counting.)

We continued with many MRIs in order to get “more slices” in the MRI and, of course, more consulting with our chosen special surgeon.  Within a few weeks, surgery was scheduled.  The 10 hour surgery was, thank God, successful and she was on the long road to recovery!

What followed were more MRIs, more doctor appointments, checkups, staple removals, meds, etc.  Today, I’m happy to report that she’s recovered and doing well.  The tumor was benign too! (The secondary tumor is currently behaving itself. Prayers appreciated.)  It has definitely been a long ride back to health.

One thing I haven’t brought up in this post so far was costs.  With me being retired military, along with having great insurance through my employer, the costs were never really a concern.  My primary insurer had no deductible and a $6,000 catastrophic cap for out of network coverage.  It was only $3,000 if we stayed in network.  My Tricare insurance from the military would also cover part of that expense if any was remaining.  That was well within our emergency fund’s capacity.  If there ever was an emergency, this was it.

This knowledge that our financial risks were very limited allowed us the freedom to get the best care available.  We were able to get multiple opinions and consultations without giving it a second thought.  We were able to have the necessary MRIs for proper diagnosis and a successful surgery.  We were able to go to all the follow up appointments. Cost just wasn’t an issue and never got in the way of the best care available.

I’m also convinced that if one of the other non-specialist brain surgeons would have done the surgery, she would be plagued with complications from the involved surgery.  Where this tumor was located required a team of specialists to ensure the best possible outcome, not just a confident brain surgeon.  Sure, they could have gotten the tumor out, but at what cost to her brain and surrounding nerves?  We’ll never know because we were able to choose the absolute best.

The total cost for my wife’s brain surgery was just over $500,000.  Early on in this process, we reviewed our policies to ensure what our financial exposure limit would be.  We reviewed this against our emergency fund.  It was well within our means to only pursue the best.  This wasn’t a coincidence.  We had made decisions long before to set us up to be in this position.  We chose wisely on the insurance coverage and types we needed to get quality care.

We could have gone the cheap route and only used Tricare and a cheap supplement versus full medical insurance from my employer.  But then, life or death decisions could be influenced by the financial impact at the expense of excellent care.  We could have been forced to go to only “approved” doctors.  That’s something that we were not willing to sacrifice.

Having adequate and appropriate insurance allowed us to pursue a long journey to a happy ending.

Always be prepared for that $500,000 toothache!

Taking a Break This Weekend

I was excited about going to the beach, but kids take it a couple of levels up! The grandson woke up this morning and was doing his “going to the beach dance” at 0630!

Before noon, he settled down on the road trip.

We had a blast once we actually made it to the beach in Port Aransas. I didn’t realize that I would be able to drive the truck on the beach. It’s really a big benefit when you have a family. We had shade all day.

The PawPaw next to us and his son built this awesome sand castle. He even shared some of his secrets on his building techniques with us.

Little man was kind of worn out, but couldn’t go to sleep last night. He didn’t want to miss anything.

Now, I’m all set up for another fun filled day at the beach. I got out here to watch the sun rise and stake a claim on the primo spot. Another grandson met us down here yesterday. I now know why they call grand kids “grand”. They really are a lot of fun. We’re going to have a grand day today!

The master was holding class today!

Building sand castles makes you hungry! The boys are putting down some PB&J sandwiches.

The finished product! The kids got bored and hot, but the master endured.

009, When it Rains, It Pours

Look at the above picture closely. That’s my back yard getting pelted by hail. Not just little pea sized hail either. You can see the big splashes in the pool. It did over $30,000 damage to my roof, damaged my fence, and destroyed those globes on the lights. It also did over $9,000 to my vehicles. Good thing I had insurance!

Insurance limits your financial risks. It is there to help smooth out the ups and downs of accidents, incidents, and emergencies. Insurance helps spread the risk across a large number of people using statistics to define the risk probability. Once the insurance company can accurately define your risk, they come up with a premium to charge to ensure they can make money and cover any of the expenses from insurance claims.

Insurance shouldn’t be what you solely rely on to get you through a claim. You also have to take into account how much you can afford to pay quickly to get out of a situation like a crashed car. When your car is damaged, you have to decide how much your deductible should be. If you are going to select a low deductible, you’ll pay a high premium because the bank will have to process more claims and pay out more money. If you get too high of a deductible, you will have to come up with a large sum of money for a major claim and pay out of pocket for all but major claims. So, you need to find the balance between a deductible that is low enough to only be slightly painful for you to pay and the premium you can afford. Remember in personal finance, insurance is supposed to help prevent major financial catastrophes like bankruptcy, getting kicked out of your home etc. Insurance is not there to pay for every little unexpected thing. So, find the balance of what you can afford as a deductible with the right amount of coverage.

For example, when your car is financed and it gets totaled would be a time to have appropriate insurance. You are a major risk to the bank who lent you the money. In fact, insurance is a requirement from the bank on a financed car. Remember, it’s not really your car until you pay off the bank. The car is really the bank’s car. That’s why they demand that if they lend you money for a car, the car must be insured so they would get their money back if the car is totaled. They have been burned too many times by people who think they can pay, but can’t or don’t. So, now it’s required. If you really owned your car, you would be free to not insure it if you felt you could replace it if you like. That’s called self insured and it’s free dollars to self insure per month.

For example, my old green Dodge truck had a ton of miles on it, was pretty beat up, and not worth much. So, when it came time to make a decision on how to insure it, I only insured it for liability, not comprehensive or collision. That means that the insurance company would pay for someone else’s expensive car to be repaired if I crashed my old truck into it. But they wouldn’t pay to replace my truck. If it was stolen, totaled against a tree etc I would be out the truck. I would have to come up with the money to replace my truck. I could absorb the loss without a major financial impact. So, I saved money over the years because my monthly insurance premium was lower. The money saved was invested so whenever I had to replace the truck, I could.

Now take the wife’s vehicle. It’s valued at a lot higher. It would cost more than I’d like to pay if her vehicle was totaled. So, in that case, we decided on full coverage. But even then, I still evaluate it from time to time. Sooner or later, even that vehicle will decrease in value to a point that it would not be as significant of a financial impact if it needed to be replaced. Remember vehicles are depreciating assets? When appropriate, we’d adjust the insurance to start savings on the premiums.

Similar to the post on the two hail claims on our house, you’ll get better at this as you learn. The first deductible on the hail damaged roof was $10,000. The second one was $5,000 because I changed my deductible level. Both checks were somewhat painful to write, but not nearly as painful as if I had to write two checks totaling about $70,000. The $10,000 check wasn’t extremely painful. But when going through the claim process, I realized that I could lower my $10,000 deductible to a $5,000 deductible with very little cost increase. So, for just a few dollars more per year, I was able to only pay $5,000 on the second hail claim. It was definitely a good move on my part. I guess my point is that neither deductible would be catastrophic. But, it was worth it for me to pay a few more dollars a year than write another $10,000 check. The $5,000 check is half as painful, but didn’t cost twice as much. Overall, it was a better value for me.

To summarize, insurance isn’t supposed to isolate you from any financial responsibility or even prevent all financial spikes. It’s there for the major or catastrophic things so you aren’t devastated. If you are going to abuse the insurance by having very low deductibles and filing lots of claims, you’re going to pay top dollar every time. The reason you are paying top dollar is because the insurance companies have to pay for your many claims and still make a profit. If you take care of the small stuff, you’ll only pay for the replacement of the items and not paying for the profit to keep the insurance companies profitable.

Today is Going to Be a Great Day!

I’m sitting in Atlanta Georgia drinking my coffee while thinking about my day. It’s going to be a great day. Cynthia and I are visiting our great friends an their brand new house! What a beautiful house it is! I’m sitting on the back deck that overlooks a “green belt”. There are beautiful trees to admire. There are birds and crickets chirping to wake up the neighborhood. My newest little friend, a hummingbird had a sip of nectar at zis little nectar bar (sorry Hunter I couldn’t resist!). The temperature is a cool 67 degrees. Also, later today my son is driving here from Alabama! Today is going to be a great day.

Of course the old man has to tie this to something financial related right? Yep, I am. Since I travel somewhat for work, I’m able to accumulate American Airlines miles for trips that I take for work. Since the miles have built. Up quite a bit I had enough to get Cynthia’s ticket for free! Work also brought me to Atlanta this week, so they paid for my ticket…and I got to put some more “free miles” back into my American Airlines account! The hotel was paid for by work since they make me come to Atlanta two nights ago. Last night we got a sweet upgrade from a standard hotel room to the Goss house! That’s where we’ll stay until we return on Sunday. The out of pocket cost for the airfare and lodging for our 5 day stay in Atlanta will set me back a whopping $40.

But what about transportation? Work paid for the time working. But they won’t pay for the extended stay. So, I’ll have to pay for 2 of the 5 days of the rental car. So, our biggest expense this trip will be 40% of the rental car cost and gas. I’m estimating that to be approximately $75.

With a little planning, a little work, a little hospitality, and a little money we were able to optimize resources for some value. We will pull off the 5 day trip to Atlanta (including airfare, hotel, and rental car) for approximately $115. For that $115 dollars we got the following value:

A lazy and stress free travel day.

Some alone time which we needed at the hotel

A great drive through winding and hilly roads lined with beautiful trees through northern Atlanta

A great meal with great friends, with more to come

A visit from my son, who I haven’t seen since hunting season at our annual deer hunting trip

Plenty of down time with some great God loving people

The above list is worth way more to that than the $115 dollars! Just for y’all I’ll estimate the costs. Airfare would be approximately $1,336.78 (my ticket was $668.39 thanks work!), one night at hotel was $157.72 (Thanks again work!), 3 nights at the Goss House ($157.72 X 3 = $473.16), rental car is estimated at $200.31 (60% Thanks to work), and maybe $20 for gas. The full price or retail price for the 5 day trip to Atlanta would run $2,187.97. We can afford the approximately $2,220 trip and would pay that gladly for a trip with all of the above value received for that price. We had actually been targeting this week for approximately the same number of days anyway. But when work “made” me travel, we took full advantage. By not being Average thinkers, we were able to enjoy the trip for only 5% of the retail cost.

Cost avoidance like this trip saved us quite a bit of money, $2072.97 to be exact. That’s money we can use so I can invest towards my goal of being a stay at home Grandpa much earlier than my peers, spoil the grandkids, blow on cigars, help a kid in need, or whatever else we want to do with the money!

Today is going to be a great day!

Update:

Below is a pic of buck in velvet walking through the green belt. It’s not a great pic, but it’s the best my iPhone can do. The experience was way better than the picture.

008, How Safe is Your Safety Net?

Everyone needs a safety net of money for unforeseen problems that will cost you money at an unexpected time. So, how safe is your net? Will your savings carry you through an unforeseen emergency without having a major impact on you and your family?

Your rainy day fund, emergency fund, or savings combined with your insurance create a financial safety net to ride out rough times. Emergency fund and Insurance are the two big rocks in this post. As you see in the pic above, Corey and I trust the safety net of those sweet hammocks. But how’s your safety net?

Not only do you need money for things like car repairs, house repairs, etc. Emergency funds should cover the deductibles on your car, home, and medical insurance. Don’t overlook the importance of insurance. Insurance is there to prevent you from going bankrupt or causing major financial problems during emergencies. More about insurance in a future post.

In the past, I had a small amount of money in my savings account for emergencies. But it never seemed to be enough of a safety net in the past. After reading and listening to Dave Ramsey I realized that putting emergency things on a credit card was plain stupid and not working for me. I changed my finances to ensure I had my $1,000 initial emergency fund and 3-6 months of expenses were available for emergencies. This wasn’t necessarily new information. Ever since I was a child, I’ve heard the ol’ saying “make sure you are save enough money for a rainy day.” But it was Dave Ramsey who finally made it sink in that there’s a method to this rainy day fund. By tying it to my expenses, it finally gave my engineering mind a concrete number to shoot for as a goal. Rather than whatever felt comfortable, it finally sunk in that your rainy day fund should be tied to your expenses. That was the one thing that made it click. So, that’s what I did.

So, how did that work out for me?

In 2014 a significant hail storm came through my town. Immediately after the storm, roofers started swarming the area like flies. It seemed like every day, there was another roofer beating on the door trying to “inspect” my roof or leaving a card on the doorstep. My roof wasn’t leaking and looked OK to me, but I did wonder if my roof was damaged. So, since USAA has never let me down as my insurance company, I decided to give them a call.

After a quick inspection by an an USAA approved adjuster and one of the USAA approved roofers, they gave me the news. My entire roof needed to be replaced. They also went on to explain that my fence was damaged, all of my gutters and downspouts were damaged, and a few miscellaneous items were damaged as well. The damage was over $35,000 dollars. Yikes! That’s a lot of money. I had insurance for this, so I only had to pay my deductible. My deductible was approximately $10,000. It was based on a percentage of my home value. Ouch! But, there was no getting out of it. So, I wrote a $10,000 check. My roof was replaced, my fence was power washed and stained, and a few items in the yard were damaged and replaced. My insurance worked as planned.

But dang. Writing a $10,000 check will get your attention. So, I evaluated my insurance. I’ve always been a firm believer that insurance is to cover catastrophic events to protect you from massive financial problems. I knew that a higher deductible means a lower insurance premium. So I chose a high deductible insurance policy. Did my insurance do that? Yep. I had the money in my emergency account. But that didn’t totally satisfy me.

Writing a $10,000 check really got my attention. Could I potentially do it better? Was I being efficient? So, again I called USAA. After talking to them and going through many quotes, I found out that there’s a sweet spot in the insurance world for homeowner’s insurance. The fine man on the other end of the phone explained it to me simply. At about the $5,000 deductible, the insurance company figures that you are the type of person who will only file an insurance claim for catastrophic type incidents. If your insurance deductible is less than that, they expect you to be one of those type people who will be filing multiple claims for every little thing that happens. If you are the latter, your premiums will be significantly more.

With this new knowledge, I reduced my deductible from approximately $10,000 to $5,000. This difference was so small, I don’t even remember the exact amount. It was something like $50 per year! If I would have gone much below that $5,000 deductible the price started increasing very quickly. I mean like multiple hundreds of dollars per year for like a $5,500 deductible! So, it is worth your time to spend with your insurer to ensure you are getting the best value for the insurance you need.

So, while my insurance and emergency fund were sufficient in my circumstance in 2014, it wasn’t efficient. By evaluating my insurance needs and comparing them to the insurance premiums, I was able to reduce my deductible significantly without increasing my insurance premiums significantly. Now my safety net is in place AND more efficient.

Now, fast forward to April 9, 2018. Yep, you guessed it. Another hail storm rolled though my town. So, here I sit typing this shortly after I wrote a check for my much lower deductible of $5,000. The change to the deductible was insignificant, but saved me $5,000!

Having an emergency fund is great. It will become a bedrock for smoothing the rough patches along your financial journey. But don’t neglect to ensure you are optimizing your emergency fund in conjunction with your insurance! By optimizing these two aspects of your finances, you can be assured that your safety net will carry you through any storm that comes your way! Emergencies don’t have to be a catastrophe. Emergencies should only be an inconvenience. I kinda think of optimizing as making the holes smaller in the net smaller. The smaller the holes, the less will slip through the net. Kinda like little Skylar and her baby doll below. They are kicking back in the safety of a net with small holes that keep them safe and secure.

How safe and tight is your safety net?