Your Biggest Asset Might Not Be What You Think It Is

If you needed to name your three biggest assets what would they be?

1.

2.

3.

Now I can’t see what you have written, but there is a good chance you have put down your house, your car, and probably your savings. But most people never think of their ability to earn money as an asset or in other words your salary.

Joe is a 35-year-old man. His wife is at home with the children full time and Joe brings in the pay cheque. One day while Joe is fishing he suffers quite a serious accident. The medical problems Joe gets are so severe; he is no longer able to work. In fact, he must now go on a disability pension from the government.

As Joe’s disability cheque is the basic wage, Joe’s wife must now go back to work fulltime. However, Joe is unable to look after the children due to his disabilty. This family is now doing it extremely tough. Their finances and situation have well and truly been hit for six. Because Joe doesn’t have income protection insurance he couldn’t get any money for his accident.

Just to live, Joe and his wife have to start using assets and savings which they were trying to grow. Now Joe’s monetary assets are starting to get eaten into. In some respects, Joe is lucky he has a partner who can go back to work. However, what about if he was single? Then his situation would be worse again.

Think of it this way. Joe is 35 and if he retires at 65, he will have a further 30 years of income. This equates to around $1,560,000 million dollars over the coming years. You are probably in a similar position as Joe. In fact, if you are younger, you would have more money coming to you over this time. But most people never think of it like this!

We have all seen the stories on the news of people who have gone through huge tragedies. Most of these stories somewhere have the line, “We never thought it would happen to us,” said by a relative of the victim. Nobody ever does think it will happen to them; but it could.

However, not only accidents can happen to stop your wage in its tracks. What about illnesses or cancer. These terrible conditions can make a normal functioning human being, into a bedridden person extremely quickly. In most cases, you don’t find out about the problem until it is too late.

Did you know, under 20% of Australians have income protection insurance. This compares with over 70% of Australians who have house insurance. Or over 80% who have car insurance.

It seems, as a nation we just do not place a high priority on protecting our wages. Maybe because we don’t understand how truly valuable our wages are. Even a small hiccup in not getting your wages can cause you major heartache and money.

Do not delay. Don’t think you will do it next month or come tax time. Start doing research right now on income protection insurance. You need to protect the biggest asset you have ... your ability to earn a wage!

Insurance The Silent Killer

Each and every year you, like me, expect costs to go up. Insurance, telecommunications, electricity, council rates and gas. Of course, we also expect our pay to increase each year to cover these costs.

The cost of everything going up is called “inflation”. The Australian government likes to keep inflation at an average of 3%. Meaning if you paid $100 for something last year, this year you would pay $103 due to inflation. Next year this same thing would cost $106.09.

Companies are a different matter. There are some companies or even whole industries that raise their prices higher than 3% year after year. Therefore, eating into more of your wage as the calendar gets replaced.

After looking back at my records since 2007, the biggest offender is my home insurance costs. In fact, would you believe in just 4 short years our total bill has gone up $165 or 42%!

However, the scary part of this is, every year we have done our best to keep the cost down. We pay the insurance yearly because there is a discount instead of paying monthly. We compare prices yearly and ring and ask for a discount (and usually get it) before we go another year. We also have another car on this insurance policy to get our overall discount down. Plus we have never claimed ANYTHING! We have done all the right things to offset any rise in insurance costs. But still it happens!

Australian inflation rates as tracked by the government since 2007 have averaged smack on 3% per year. My insurance has averaged a price hike of 12.5% per year. Can you see something wrong here? God only knows what the average hikes would have been if we didn’t do all our price reduction ideas. Or had to use the insurance to cover an accident.

Last time we renewed our insurance we put our foot down. Right away after ringing the call centre we asked to talk to a team leader. We pointed out the differences in the real Australian inflation vs their company’s price hikes. They had nowhere to hide. They quickly offered us a $110 discount to stay with their company. This is still above inflation, however, its way better than the standard increase.

Why should this concern you? Well, if you receive a pay rise each year that is in line with inflation, but the companies you use increase their prices above inflation each year then this is problem. Without even knowing about it, you are slowly getting poorer. Your pay will just not stretch as far.

So what can you do about it right now? Ring your insurance company and ask for the costs for the last five years. Work out what your average percentage rise has been. Now when your insurance renewal form arrives give them a call. Use cold hard facts to prove your case. Ask for a discount or explain you’re walking.

Of course insurance companies are just the beginning. Why not track a range of services to see which companies are treating their customers like their own personal piggybank. Show your providers you are standing up for yourself.

Insurance Puts A Price On Housework

This month a new insurance company started offering a service to stay-at-home parents. They have valued their insurance so that a parent unable to do their weekly stay-at-home tasks would get around $900 a week. To be honest, I'm surprised no one has come up with this idea before now.

Let's imagine a hypothetical family. This family has dad, mum, a three-year-old and a 6-month-old. Dad works full time to bring in the money. Mum looks after the kids at home, as both kids are too young to go to school. As mums would know, this is a full time job.

Their money situation is not what you would call tight, however they certainly are not living like millionaires. They are keen budgeters and stretch their dollars further.

Dad earns $50,000 a year working. Mum gets $250 from the government in Family Tax payments. So each week after tax, they are earning $1047. The family has $2,000 in savings. Plus they are 3 years into a 25 year home loan. They borrowed $300,000 for a house at 7.25% and have paid $16,000 off the balance.

Their home loan payments are $499 per week. So after tax and their mortgage, they have $548 left over. On average their home bills are $380 a week. (Please note this $380 is an extremely realistic amount for a family of their size. We used real data to come up with this figure. This includes groceries, home improvements, petrol, health costs e.g. doctors, internet, mobile phones, water, insurance, council rates, electricity, gas and hairdresser. Plus this family do watch the budget closely to stretch every dollar). The remaining money of $168 a week they use to put into growing their $2000 savings account.

They are doing fine up to the three year period until one day mum injures herself. She pulls her back and it is literally impossible for her to walk, let alone pick up a child. The doctor says it will take 4 months of bed rest to fix her problem.

This is a problem if ever there was one. Mum cannot look after the children anymore. No more getting out of bed in the middle of the night, or even being able to change a nappy.

Sure dad can pick up the slack and do feeds, nappy changes, baths plus everything else which goes along with parenting. However, he can only do this before and after business hours. During the day he must work to bring in the dollars. Dad can't even take on a second night job or weekend job, as who would look after the children then?

As this family has no one else who can look after their kids, they must now look into day care. Just to put a baby plus 3-year-old in day care will cost this family $514 a week, and this is after the extra government payments.

Subtract this off their remaining $168. Now each week they are losing $346.

If they turn to their $2000 savings to pay the weekly loss of $346 they will use it all in 6 weeks.

At the end of six weeks, this family will have to go into debt. As their savings will be non-existent and they still will be losing money at the rate of $346 a week.

The most common thing people do in this situation is turn to credit cards. If the family loses $346 each week for the final 6 weeks of mum's injury, at the end of the three months they would have incurred a $2046 bill. A bill, which by the way is incurring interest at 20% a year.

Guess what, mum is all better after 3 months. She is back on board and there are no more day care fees to pay. They go back to their previous situation of being in front by $168 a week after taxes, home mortgage, and bills.

Now they can start using this to pay off the credit card. It will still take them 3 months and 1 week to pay down the credit card/ interest by using their spare $168 a week. From day one of mum's injury, it will take a total of 6 months and one week to pay all the bills. They will lose their $2000 savings plus have to pay a credit card debt of $2168. The total loss to them is $4168 or an extra $21.93 a day to survive.

As you can see, medical costs can hit you for six. Luckily for this family they had $2000 in savings. Plus their mortgage was not extremely high in the scheme of things (when you consider in Victoria average prices are above $500,000 for an average home). Also at the time Mum was injured, they had no credit card debt, no personal loan debt, no car loans, no interest free loans, and the injury didn't cost them anything in medical costs. Had they had any one of these other problems they might have lost their house.

Can you see why it is so important you have a standby fund? You need to have money stored away just in case. So many people play with fire and never think about this type of situation. They are truly living on the edge.

Had this lady had the new insurance offered to stay-at-home parents, she would qualify for up to $900 a week. This would have easily taken care of her childcare costs and in fact they probably would have more money than they were living on previously. Insurance like this is long overdue and we at Mr Home Budget say, "Here here." If you don't have a big standby fund and you are in this situation, this insurance might be a good backup system for any problems that might occur. For more information, the website is

http://www.milliondollarwoman.com.au

You have nothing to lose by just checking to see if it's right for your situation.

In order to qualify, your GP must declare you unfit to do 2 of the following:

• Cooking
• Cleaning
• Childcare
• Shopping
• Laundry