December 22, 2024

Your Money: Financial Opposites in a Life Together

And boy, did Ms. Bartone, a 32-year-old legal recruiter, and Mr. Bartone, a 43-year-old bartender, have a lot to talk about. I was in their living room, in North Bergen, N.J., to witness it all as part of a “fiscal health day” exercise, where I promised to spend several hours helping readers organize their financial life.

The goal of our meeting was to try to reconcile their different money philosophies before they opened a joint bank account to handle their household expenses. They needed to figure out a way to track Mr. Bartone’s earnings, most of them in cash, which they were not entirely sure of. She also wanted a better way to track their spending (and overspending). And both of them had accumulated significant credit card debt, which had to be tackled before they could begin to think about saving for a house.

“Financially, we are opposites,” said Mr. Bartone, who has a sleeve of colorful tattoos that climb from each wrist to his elbows. “Total, total, total opposites.”

Both of them were honest about their financial behavior: Mr. Bartone acknowledged that he was the spender. Ms. Bartone described herself as determined and goal-oriented, and said she had saved significant sums in the past. But they now owe more than $30,000 on credit cards, a topic that Ms. Bartone said she had avoided broaching. So they had not had the tough talk about how best to stanch the bleeding and work on a joint plan to get out of debt. “I have been really cautious about not stepping on his pride,” she added.

But they volunteered to put it all on the table for their personal fiscal health day, the brainchild of my colleague Ron Lieber, which involves setting aside a full day to fine-tune finances and make headway on the money-related tasks that never seem to get done. I asked readers on the Bucks blog to submit their pleas, with the promise that I would meet with the candidate with the most compelling story.

Nearly 100 readers responded, many of them needing something more like an overhaul than a financial tuneup. There were tales of paralyzing student loan and credit card debts and crushing medical bills, as well as pleas from single people and young families hoping to do better than live paycheck to paycheck. Some lost their jobs in the recession, and had gotten new, lower-paying work and were trying to figure out how to live on less.

I chose the Bartones in part because their financial issues are all too common. Ms. Bartone, who has curly brown hair and a contagious smile, wanted to make sure she and her husband were on the same financial page and to set priorities on their financial to-do list. She also felt it would help to have a neutral third party to walk them through the process given that they are financial opposites. She calls herself neurotic and keeps spreadsheets. He puts his cash tips in a kitchen drawer.

Here is what we managed to get done in one afternoon:

MONEY TALK  The biggest accomplishment, by far, was having the newlyweds sit down at their dining room table to actually talk about their financial life, their differing outlooks and how their views were influenced by their upbringings. This was a huge step. My suggestion, unromantic as it may sound, was to make the money talk a weekly ritual, at least until they learned more about their income and spending patterns and made progress on paying down their debts.  

CREDIT CARD DEBT The couple have lived together for several years, yet each still did not know exactly how much debt the other had. So Ms. Bartone created two lists of each of their credit cards, along with the outstanding balances and interest rates. She has already started to pay down the cards with the highest rates first, and she said she would help her husband set up his own plan of attack. But she had a good question: since the interest rates on Mr. Bartone’s cards were more than twice as high as hers, should she focus on paying down his debt first?

I told her she could not enable his behavior, particularly if he did not start to control his spending. But I also contacted an expert after I left — Kristin Harad, of VitaVie Financial Planning, who had seen this situation many times before.

“Creating healthy habits as a unit is paramount,” she said, since they are building a future together. So yes, they should focus on paying down Mr. Bartone’s debt first. But that also means Mr. Bartone needs to remove the plastic from his wallet (and frankly, the financial planner said, so does Ms. Bartone). They should use only cash and debit cards and stow the rest of the cards away. (We will talk about how they managed to accumulate their debt below.)

CREDIT SCORES The couple said they did not know each other’s credit scores, though the topic had come up from time to time. “She’s always asking me mine,” Mr. Bartone said.

We decided it was a good idea to check their scores, even though it would cost them $40. After I left, the couple purchased their scores through MyFico.com, which costs $19.95 a score. Though several factors determine your FICO score, outstanding credit card debt can pull it down. Even with their debts, however, their scores weren’t too bad: Mr. Bartone’s was 697 and Ms. Bartone’s was a respectable 732 (on a scale of 300 to 850). Ms. Bartone already pulls a free credit report from each of the three major credit agencies each year at annualcreditreport.com to be sure there are no mistakes, since she has found errors in the past. She promised to help Mr. Bartone do the same.

Article source: http://www.nytimes.com/2013/04/27/your-money/financial-opposites-try-to-tackle-finances-together.html?partner=rss&emc=rss

A Primer on Buying Life and Disability Insurance

Death and disability are two of the most difficult things for a family to discuss. But insuring against both is an important part of safeguarding a family’s future. While most families have some form of life insurance, usually purchased at marriage or with the birth of children, disability insurance is not a given. But if one or both spouses become disabled during their working life, not having it is a far greater risk to family solvency. This is where disability insurance is important. This primer will examine the basics of both types of insurance.

Life Insurance

Life insurance comes in a variety of forms meant to accomplish a range of objectives, from providing for survivors to moving assets out of your estate. The prices for it depend not only upon how much coverage you want but also upon what type of policy you get, either for a finite period of time or indefinitely.

The first question you need to ask, though, is how much insurance do you need? There is not a clear answer on this because it depends on your expectations. The better question is this: What am I trying to provide for with life insurance? If your concern is your spouse, a common calculation is to take out a policy that would cover all living, personal and household expenses for at least one year. This allows the surviving spouse to grieve without worrying about bills, and it also gives the spouse a period to begin making decisions for life without you.

If there are dependent children, however, the amount of insurance you need increases. Again, the dollar value depends on several factors, including the age of your children and what you want to provide for them. The person who wants to send his three children to private school and private college is going to need a lot more than the person looking to provide for the basic needs of one child in public school.

In insurance, desire is something that does not always align with reality. How much life insurance you are going to get also depends on what you can afford in terms of premiums as well as how much insurance a company will sell you. Just because you want a $5 million policy and can pay the premiums on it does not mean a company will underwrite that amount. Like a loan to a person flush with cash, insurance companies would rather sell large policies to healthy people who are going to live for decades. This gives them time to turn your premiums into more than the face value of your policy. The person who is already sick but wants to provide for his family will, in all likelihood, struggle to get an adequate amount.

Now onto types of insurance.

TERM Term life insurance is a popular and relatively inexpensive form of insurance. It covers a person for a period of time, usually 20 years. During the term, if the insured dies, his heirs receive the full value of the policy. After the term expires, they get nothing. Furthermore, the policy never has an intrinsic value — unless the person dies during the term.

Term life, then, is a contract, not an investment, to buy peace of mind. It is a good for a particular period — say the time it takes for a child to mature and leave home — and will pay the insured’s heirs the full value of the policy if he dies, regardless of how long he has been making the payments.

One variant on this, offered by a few insurers still structured as mutual companies — where their policy holders actually own the company — is convertible term life. This starts out as basic term, with its comparatively low premiums for the amount of coverage. But within a set period of time, often the first 10 years, it can be converted to whole life. The premiums will increase but the person does not have to be screened again for insurance.

WHOLE Whole life insurance plays a dual role for many people. It is both insurance in the case of an untimely death as well as an estate planning tool for when that final day comes. It is also considerably more expensive than term life. The reason is that it has an intrinsic value, from which you can draw if you need the money. And whereas term life is for a period of time, whole life lasts in perpetuity, unless you stop paying the premiums or cash in the policy.

Since whole life is also an investment for some people, some companies offer the policy holders the option of selecting the underlying securities that back the death benefit. This adds a small element of risk to the eventual payout. While the value of the portfolio can, obviously, increase or decrease, the insurer sets a floor for how low its value can fall. While investment losses are capped there are other downsides. First, there are fees associated with the trading portfolios, which can also chip away at the policy’s value. And then there are those who believe that you can get better returns by investing on your own.

This is where you have to evaluate why you want a whole life policy. If it is to move assets out of your estate tax-free, then any additional upside is good. If it is to increase the amount you leave to your heirs through the underlying portfolio, then you may not see the increase that you expect during your lifetime. Buying term life for a greater amount is an option, though those prices increase as you get older (and closer to the point where the insurer is going to have to pay out). Regardless of the type of policy you select, the payment to your beneficiaries is tax-free.

Disability Insurance

Article source: http://feeds.nytimes.com/click.phdo?i=4b0a2538fb3ecdf9ecf42a81fc12c805