Car Insurance Simplified

I recently bought a car, and a few days after adding the “new” vehicle to my car insurance, I noticed Geico automatically tacked on a few unwanted charges.

The first thing I noticed was an added service for Rental Reimbursement at $21.12 PER CAR per 6 months. That’s $42.24 of our hard earned dollars spent every half-year just so that we can still continue to drive two cars for a few days on the off chance that one of us gets in an accident. And that’s only if the accident happened to be our fault. Sure, it would be convenient to have an extra set of wheels, but I think we can manage to work out some transportation for a few days in the event of a car repair or replacement. Ambrey could drop me off at the bus stop for work or we could find some other creative solutions. I’d much rather have $42 in my pocket for a dinner date or to put toward a downpayment on a house.

Now, I’m not dissing Geico. Last year I set aside a few hours to make phone calls to several car insurance companies and get quotes on the best prices for the coverage we needed. As it turns out, Geico, who we were already with, was cheaper than the rest by a long shot.

But, no matter who you choose, you need to take a close look at each piece of coverage you’re paying for in order to get the best value. You don’t want to be bankrupted by a car wreck, but at the same time, you certainly don’t want to be wasting precious money on coverage you don’t need. Plus, you may be able to score some discounts on the prices you’re already paying just for being a long-time customer, getting good grades, or having multiple policies with that provider. Let’s go through the basics step by step:

The first and most important coverage is “liability.” Liability is the amount of money that you’re responsible for paying if you cause damage to another person or vehicle with your vehicle.

The first type of liability is called “bodily injury liability.” Just as the name suggests, this insurance covers any costs associated with injury or death of others caused by you in an accident. It also pays for your legal defense. You really want this coverage to be much higher than whatever the legal minimum is. Just imagine if, God forbid, you happened to strike a pedestrian or got in a severe enough accident that you caused brain damage, paralysis, or even death of somebody else. These costs can really add up, and if your bodily injury liability coverage limits aren’t high enough, the injured party can sue you for your assets, potentially garnishing your wages, wiping out your retirement, and otherwise bankrupting you.

You will see two different limits associated with your bodily injury insurance. The first is the “per person” coverage. This is the maximum the insurance provider will cover per individual in an accident. The next number is the “per occurrence” coverage, which is the maximum your insurance will cover in a single accident. So, for example, let’s say you had $100,000 per person/$300,000 per occurrence coverage and you caused a collision with a minivan on the highway. Let’s assume there were 7 people in their van with significant injuries. The insurance company will cover up to $100,000 per person for injuries, but will cover no more than $300,000 altogether.

The other type of liability coverage is property damage. This one is pretty straightforward. This is the maximum that the insurance company will cover in damage to other vehicles or property. Keep in mind that you could cause an accident with an expensive new car or cause an accident that involves several vehicles, so this limit should also be considerably high.

The good news with liability insurance is that it really does not cost much more to bump up your limits, so it’s probably worth jacking those up substantially to protect your assets from lawsuits.

Now that we’ve covered insurance that covers the cost of damage to others, let’s look at coverage that protects you in the event of an accident.

Uninsured motorist coverage is absolutely essential and protects you against stupid drivers without insurance. Unfortunately, we all pay a cost to protect ourselves from people who choose to ignore the law and carelessly put others in danger. It’s entirely unfair, but it’s just the way it is. This insurance comes in the same forms as liability insurance (“bodily injury” and “property damage”), with “per person” and “per occurrence” limits just like liability. You may think you’re unlikely to be hit by an uninsured motorist, but they’re more common that you might imagine, particularly in low-income areas. Both my dad and brother have been the victims of hit-and-runs while driving in the city. Not cool!

There’s one item on my coverage that I admit I need to do some more research on, and that is Personal Injury Protection (PIP). According to Geico, PIP “pays for necessary medical, dental, hospital and funeral expenses, 85% loss of income and loss of services incurred within three years of a motor vehicle accident. PIP covers you, household relatives, passengers and pedestrians regardless of fault.” Considering that we have other types of insurance for these other expenses such as health, dental, and disability insurance, this seems unnecessary. I’m going to plan to do some more research on this and see if this is duplicate coverage that I could get waived for a reduction in cost. I’ll get back to you on this once I find out.

Collision insurance covers damage to your vehicle caused by hitting another vehicle or object. One thing to keep in mind here is that damage caused by hitting an animal is not covered under collision insurance. Where I live, deer are everywhere and it is definitely not unlikely that you could hit one and total your car. If you’re expecting your collision insurance to cover this, you’ll be out of luck.

Comprehensive insurance basically covers damage to your car caused by situations other than collisions, such as hitting a deer or other animal, theft, vandalism, flooding, hail, lightning, explosions, and a bunch of other cases.

If you drive an older car that’s not worth much anymore and you can afford to replace the car if you needed to, it is worth considering dropping the collision insurance coverage. The coverage may be costing you more than it’s worth. I didn’t carry collision on my old ’97 Jeep Grand Cherokee because it was only worth $1500 on Kelly Blue Book. It wasn’t worth the hundred or more dollars per month for collision coverage when it would be cheaper overall just to replace it if it was totaled. However, now that I have a newer, more expensive car, it is absolutely necessary and worth it for me to have collision and comprehensive to protect against several thousand dollars in damages.

Another way to save some money on your insurance is to raise the deductibles. The deductible is the amount that you owe out of pocket before the insurance will kick in to cover the rest. If you have a $250 deductible and you have $1,000 in damages from hitting a pole, you’ll be responsible for $250 and the insurance company will pay for the other $750. Raising your deductibles causes you to pay less in premiums. Premiums are simply the costs you pay each month for your coverage.

Be sure to look for any discounts that you can apply. If you’re a student, you can usually get discounts for good grades. If you have a good credit score, you’ll pay less. Get renter’s or homeowner’s insurance bundled with your car insurance and you’ll get a discount.

Lastly, opt to pay for your insurance every 6 months rather than on a monthly basis and you’ll save a nice chunk in administrative fees. For me, I can save about $30-$35 every 6 months by paying once. A great way to accomplish this is to set up an automatic transfer into your savings account each month for the amount you would be paying monthly for insurance. Then, when the 6 months are up and your insurance payment is due, you’ve already saved the amount you need plus interest, while avoiding the hefty fees on top of that.

Hope this was helpful to you! If you have any questions on any of this, let me know in the comments below and I’ll do my absolute best to answer them for you. Most importantly, I encourage you to take a few minutes to look through your coverage and find out what tweaks you need to make. Call around to different companies, as well, and you could save yourself a few hundred dollars. Good luck!

Whoever Loves Money Never has Enough

“Whoever loves money never has enough; whoever loves wealth is never satisfied with their income.” (Proverbs 5:10).

Have you ever noticed that however much money you make, your desires tend to fill up that level of income?

This observation has been titled by psychologists Brickman and Campbell as “Hedonic Adaptation.” According to their theory, “Hedonic adaptation…is the tendency of humans to quickly return to a relatively stable level of happiness despite major positive or negative events or life changes. As a person makes more money, expectations and desires rise in tandem, which results in no permanent gain in happiness” (Wikipedia).

In other words, you could wake up tomorrow making $250,000 a year, and you would think, “This is awesome! Life is incredible!” Unless you have found your source of contentment outside of things, however, you will not be any happier after awhile.

I’ve been spending a significant amount of time in the past several weeks thinking about and studying the subject of contentment.

Among the greatest influences have been a financial blogger who goes by the pseudonym “Mr. Money Mustache.” This guy and his wife managed to minimize their lifestyles in their 20s to such an extent he was able to retire at age 30, living on only about $25,000 per year and investing the rest. Now he’s able to spend more time with his wife and family, work on projects he enjoys, volunteer to help others, and work on his writing as much as he wants. What’s the key to his success? He and his wife have taken inventory of their true sources of contentment and fulfillment, such as writing, renovating and building their house, spending time with their son, biking and exercising, and other inexpensive activities. In doing so, they chose also to eliminate the material excess which does not provide any real lasting happiness, such as luxury cars (they bike most places and only own one ten-year-old car), big houses, fancy gadgets, and so on.

One of the takeaways from reading his blog is the realization that he is not depriving himself of any happiness by declining more possessions. In fact, he is doing exactly the opposite. He realizes that more things require more time, time which often does not deliver an acceptable level of reward for the sacrifice. For example, being a former software developer and technology enthusiast like me, Mr. Money Mustache recently contemplated the purchase of a new iPad. However, after weighing the pros and cons of the purchase, he decided that an iPad would likely lead him to spend more time on mindless leisure, which would detract from his level of happiness rather than contribute to it.

In my own life, I have found hedonic adaptation to be alive and well. A couple of months ago, I upgraded from my old 165,000 mile 1997 Jeep Grand Cherokee, which had a smashed passenger side, no air conditioning for the 4+ summers I drove it, blown speakers that made listening to the radio unbearable, and leaked fluids all the time. I would have to explain to friends if they got in the back seat that they had to use the left side door, since the right wouldn’t open. When we went on dates, I would often have to open my wife’s (then girlfriend’s) door from the inside, creating quite the little dance of embarrassed “chivalry.” Red lights in the summertime were a dreaded evil, since the lack of air from the windows caused my body to quickly compensate with buckets of sweat. For about a year, I began researching various models of cars, drooling over sporty coupes like the Infiniti G35, while balancing them out with boring models like the Ford Taurus. After considering as many different models as I could, I finally decided to purchase a 2011 Mazda3, which has a sporty look, icy air conditioning, a premium BOSE sound system, bluetooth technology for taking phone calls and listening to music from my phone, and some other fancy features. But, do you know what I have found? As much as I enjoy driving my new car, as happy as I am with the deal I found, and as much as the drummer in me loves feeling the bass of the new sound system, the reality is that I am not significantly happier having purchased it, and I would not be significantly happier if I had a Lamborghini. This is because true happiness and contentment are not to be found in things. We adjust to the level of comfort we currently enjoy.

On the contrary, I still find myself happiest spending a day reading books from the library, hiking or picnicking with my wife, jamming out on the drums, being generous toward someone in need, grilling out with family, or working on a challenging programming project.

Now, this is not to say that consumption and entertainment are not to be enjoyed in moderation, but I have found that when overdone, the lethargic feeling of wasted time leads to discontentment and even depression.

Because of this recent discovery and mental processing, I am beginning to challenge every desire and purchase, looking not only at whether it would be convenient or fun to have, but considering how much time it would detract from other enjoyable activities in life to maintain and use it.

When your possessions and desires take away from your ultimate happiness, I have to quote that wise and great philosopher of YouTube: “Ain’t nobody got time fo’ dat.”



Double Your Donations for Free

Did you know you might be able to effectively double your donations without any extra money out of pocket?

It depends on where you work, but if you’re fortunate to work for a large company, you might consider checking whether they have a gift matching program.

Many employers offer this benefit in order to boost their employees’ motivation to give, and to promote their company’s public perception. They improve their brand, you become a happier employee, and the non-profit organization of your choice benefits doubly. It’s a win-win-win situation!

You’ll have to check into some of limitations, but generally you can contribute to almost any type of government-recognized non-profit organization. If your organization is not already on the pre-approved list, you should find out if you can submit a request to have the organization approved and added. You just have to fill out some basic information about the organization and the type of non-profit they are, and HR takes care of the rest of the logistics. I did this to have Covenant Mercies, the organization through which I sponsored a child in the past, added to my company’s list. I simply filled out a quick form, and a few weeks later everything was good to go.

Currently, my wife and I sponsor a child through Compassion international. Once a month, I go to our company’s website and fill out the matching gift request form. All I have to do is select the organization from the list, input how much I donated, and they verify my donation with the organization. Every couple of months, they take all of the approved matching requests and write a check to the organization. For us, this means we are able to turn $38 into $76 a month. Where else can you get a 100% return on your money, and with so little effort?

You should note that your church won’t count for this type of program. As nice as it would be to double your tithe money, unfortunately it can’t be done. But, for all of your additional donations to non-profit organizations, you should find out if your company will team up with you to double your money, too.


Investing Isn’t Just for Experts

Does the idea of investing scare you? Does it seem like one of those things that only sophisticated experts with advanced degrees in finance can really understand? Does the stock market seem like a horribly complex system from which no average person can hope to benefit?

If so, you’re certainly not alone. The reality is, however, investing is not just for the experts! With some basic understanding of a few simple concepts, you will on your way to making some serious money for the long haul.

Let’s jump right in.

First, let’s start off with the concept of stocks. When you buy a stock, you are essentially just buying a piece of ownership in a company. Each unit of ownership is known as a “share.” You are paying some amount to share ownership of the company. As a result, the company you invest in is able to use your money to grow the company. It can be a win-win for you and the company if it does well. They get to use your money to grow and your piece of the company pie increases in value.

But, isn’t it risky to invest in a stock? Absolutely. When you invest in a single stock, you could make an incredible amount of money. If you had invested $5000 in Amazon when it first started, you would have well over a million dollars today (check out this Business Insider article to see how much $1000 invested in various large companies would be worth now). But, if you had invested your money in, an exciting stock during the tech bubble of the late 1990’s-early 2000’s, you would have seen your money disappear faster than Lindsay Lohan’s career.

Wouldn’t it be best to stay away from the stock market altogether, then? Why not just keep all your money in the bank?

The problem is that even though this sounds like a safer bet, you have to consider another type of risk that will catch you from behind: inflation. According to Wikipedia, the infallible source of all things credible, “inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services.” In other words, your dollar will be worth less next year than it is worth today. The average rate of inflation is about 3% in America, so every year you’re losing 3 cents out of every dollar. Add to this the problem of compound interest working against you, and your money sitting in the bank will actually be losing value exponentially with every passing year. Even the online bank I use with one of the best interest rates around only earns 0.75%, meaning I lose 2.25% to inflation every year.

While individual stocks are risky, the stock market as a whole earns an average of about 8-10% per year. One measure of the overall stock market is called the Standard and Poor’s 500 (S&P 500). The S&P 500 is a list, also known as an index, of the 500 largest companies. This index of companies serves as a representative sample of the stock market as a whole, and is well-regarded for doing so quite effectively.

The whole idea behind taking advantage of the high returns of the stock market is to diversify your investments. Instead of investing in 1 or 2 stocks which could skyrocket or plummet, you want to invest in a large number of stocks which will balance each other out. The easiest way to achieve this diversification is to invest in a mutual fund.

A mutual fund is like a basket of stocks. Imagine you pool your money with hundreds of other people who want to invest in stocks. You put this money in a huge pile and let a skilled manager pick tens or hundreds of solid stocks with excellent proven history. This type of mutual fund is known as an actively managed fund because a portfolio manager, a brilliant expert who spends every day analyzing research on companies, manages the portfolio of stocks which you as a big group of investors are investing in. Another type of mutual fund is an “index” fund. One of the most common types of index funds is the S&P 500 index fund, which simply invests money in the 500 companies that make up the S&P 500. This type of mutual fund is easy to invest in, requires minimal knowledge of investing, and actually outperforms most actively managed funds, anyway. In fact, Warren Buffett, the second-richest man in the world, recommends this type of mutual fund for the average investor.

In the next post, we’ll discuss what to look for in a mutual fund and how to actually start putting money in one. I can assure you, it’s a lot easier than you think!

Mankind’s Greatest Invention

Do you hate math?

If you do, I’m convinced you’re going to love it by the time you’re done reading this post.

Why? Because of the magic of compound interest.

Albert Einstein once reportedly called compound interest “mankind’s greatest invention.” While Snopes might dispute whether Einstein was truly the source of this claim, there is no arguing that compound interest is an incredible mathematical beauty.

The idea behind compound interest if fairly simple, and it goes like this: Let’s say you invest $1000 in the stock market, and the stock market gives you a return of 10% annually. After one year, you will have $1100. You’ve made $100. Now, if you leave that $1100 in the stock market, you don’t just earn 10% interest on the original  $1000, but also on the $100 you earned over the last year. You’re earning 10% on the entire $1100. After your second year, you will have $1210 ($1100 + 110). After year three, you’ll have $1331.

At first, this doesn’t sound like much. And it isn’t. But if you leave this snowball rolling, the numbers start getting exciting. After 10 years, your money will have turned into $2593,74. After 30 years, that little $1000  becomes $17,449.40.

You know what else is crazy about these numbers? 10% isn’t too far off what you might expect to make on average each year by investing in mutual funds (more on those in my next post). More conservative financial advisors might argue that you should only plan on 8%, but anywhere between 8% and 10% isn’t unreasonable, historically.

At my age of 22, if I assume I retire at the typical retirement age of 65, every dollar now could be worth over $60 in retirement. 

Ever since looking at these numbers a couple of years ago, I have started to think of money in terms of its potential value. Sometimes, if I’m thinking of buying a Frappucino from Starbucks, I’ll stop and think, “Would I rather spend $5 on this Frappucino or have $150-$300 in retirement? A $50 meal at a restaurant could be worth $1300-$3000. Spending $3000 more on a car than necessary could cost $80,000 to $180,000 in potential dollars.

Of course, I don’t always think in this way or I would never be able to enjoy my purchases. I love taking my wife out on dinner dates, going to movies occasionally, and otherwise enjoying life. Nobody wants to go through their entire life as a complete miser for the sake of retiring with money. However, I have found this method of potential-cost analysis to be helpful in talking myself out of spending money on things that won’t really contribute value to my life.

Dave Ramsey uses a particularly compelling example of two young guys, Ben and Arthur. Ben, at age 19, starts investing a couple thousand dollars per year until he’s 26 years old, and then stops. After 26, he never contributes another dollar. Arthur decides at 27-year-old that he should probably start putting some money away. He starts investing the same $2000 per year, but does so until he’s 65. In the end, even though Ben only saved for 7 years and Arthur saved for 38 years, Ben still came out ahead with almost $2.3 million compared to Arthur’s $1.5 million. The message is clear: start now!

When I graduated and started my new job at the beginning of this year, I started putting 15% of my income into retirement. It’s thoroughly satisfying to watch the numbers climb and to realize that all of those dollars are going to grow exponentially  over time. One day, at least a couple of decades from now, we’re going to hit a crossover point where the interest generated from these investments creates more money every year than we do by working for an income. That’s where compound interest really starts getting exciting!

Have I succeeded in making math your friend for once in your life? If so, let me know in the comments below.

Do you currently invest money for retirement? If not, feel free to share your thoughts about what’s holding you back!

Giving Doesn’t Make any Cents

Giving is kind of like flossing.

Everybody agrees it’s a good thing to do, but hardly anybody actually does it. The less you do it, the less you worry about it, until once every few months when you’re reminded that you really should do it more often.

On the face of it, giving doesn’t make financial sense. You’re giving up a good chunk of your income and detracting from your net worth. You’re letting go of money that could be saved or invested, and you’ll never see it again.

And yet, in my opinion, nothing you do with your money could be more valuable or important. You see, if you never give, you’ll never really be happy with your money. If you never give, you’ll never be content. If you never give, you’ll be tempted to think you can find your happiness, value, freedom, and peace in money. As much as I appreciate money, it can provide none of these things. You’ll always feel like you’re chasing after something you can never attain.

Money tells us a lot about our core philosophy of life. Show me your bank statement, and I’ll show you what you care about. I could tell if you love entertainment, sports, eating out, parties, travel, and the like. But could I tell about your love of people? Would I see financial contributions into the lives of those around you? Would I be able to tell you’re enthusiastic about changing some part of the world, or would I just see personal expenses?

For us, personally, as Christians, my wife and I believe strongly in the practice of tithing (i.e. giving ten percent of our income to the church). A solid church that manages money well will allocate these funds toward helping the local community and helping needy communities overseas. I can tell you from experience that I have tithed since I got my first minimum wage job at 16 and have never missed that 10% of my paycheck.

Even when I was barely scraping by and spending $400 a month of my measly income in gas to commute to work and school, I never once regretted my giving. I never thought I should have skipped it that month. Fast food, entertainment, and gadgets have caused me regret in my budget, but never giving.

In addition to this 10%, my wife and I find tremendous joy in sponsoring a child through Compassion International. For just $38 a month, this organization provides kids in impoverished countries with nutritious food, education, skills, love, and spiritual teaching. Yesterday we received a letter in the mail from our little six-year-old Juan with a hand-written note and some crayon artwork to post on our wall. The letter was a wonderful reminder that every day that I go to work I am not just supporting myself, but I am helping support a small child with big needs.

Would you join me in challenging your giving? Whatever your level is now, let’s “kick it up a notch,” as chef Emeril would say. For us, we want to introduce a “spontaneous giving” category into our budget, which we can use to give generously to anyone with extraordinary needs throughout the month. This could be a single mom in our church, a waiter at a restaurant who could use a lavish tip, or a missionary in need of funding. Think about something that excites you to contribute toward. If you don’t have money to give right now, volunteer your time. To name just a few possibilities, there are organizations that:

Whatever you’re pumped up about, go with it and start giving something! Your heart will follow your money.

An Introduction to The Gradual Millionaire

It’s sad how long it took me to come up with the title of this blog. I sat here tossing around cheesy ideas like the “Frugal Fighter,” “Net Worth Giving Up,” and “The Money Tortoise” (like The Tortoise and the Hare…get it?). I’ll leave these things to the professionals.

You may have spotted a trend in these names. I’m excited about building wealth over the long haul. This is no “get rich quick” blog, and you won’t learn about how to live an extravagant lifestyle of exotic cars and fine wine. I’m a 22-year-old married guy fresh out of college here to share my new journey with you toward financial independence and freedom.

The first time I started getting really excited about the possibility of actually making a lot of money was about two years ago when I started my first summer internship. The internship was with a large financial institution, and as part of the program we learned the basics of investing, particularly in retirement. As I began to behold the magic of compound interest, I realized that not only could my wife and I retire as millionaires, we could potentially retire as multimillionaires. Or, better yet, we could be millionaires by 40-45 and be independent of traditional employment for the (hopefully) second half of our lives. I began to dream of traveling the world, learning new languages and instruments, starting a business, living wherever we want, writing books, volunteering time, starting a charity, and most excitingly, being able to give away large amounts of money to people and causes we love.

As time progressed, my (now) wife and I decided we wanted to get married. As part of our premarital counseling, we participated in Dave Ramsey’s Financial Peace University class, which gave instruction and practicable actions to ensure the success of our new-found financial goals. At that time, we were mostly interested in simply getting through the rest of our schooling without going into debt. But now that I’ve graduated and started my career, and my wife is only a couple of months away from doing the same, I’ve started to get more excited than ever for the possibilities that lie before us. I’ve started imagining what it would be like to pay off a house by age 30 and be free of a mortgage. How exciting would it be to fully fund our kids’ college and start them off in their adult lives debt-free (which I imagine will be even more unheard-of by the time they’re 18)!

So, will you join me in setting and going after some crazy financial goals? Will you sacrifice some of the instant gratification we can so easily get trapped in and embrace a greater vision of financial freedom?

Let’s start dreaming big and working hard!

What are some of your wild goals?