The theme this month is self-defense. I will talk about three financial defensive positions with regard to debt, savings and insurance that everyone should take. However, as this is Plaid for Women, there is an overarching defensive position that every woman should take. Don’t be ignorant of the financial aspects of your life! If you share your life with a partner, you will – of necessity- share chores, and one of them is usually the financial responsibilities. This is normal and healthy, but, if the financial chores do not fall to you, you should still know the financial positions taken. What are your debts? What are your assets? Where are your car and house titles? Alternatively, when is your lease up? How much car and house insurance do you have? How much life and burial insurance? What about Accidental Death and Dismemberment (AD&D)? What companies are the policies with? Where are the policies located? Look at it like this, if the household chore of cooking does not fall to you, you still know where the peanut butter is kept! You should also know the basics of your finances. Now back to our regularly scheduled program.

Debt versus Savings
Most people who lecture on this subject will discourage you from incurring debt. They are right. Realistically though, most of us will incur some debt. The question then becomes, as my daughter recently asked me, “I have a little money. Should I pay down debt or save it?” First, save some. You never know when you are going to have a difficult or unexpected expense. You should have at least the equivalent amount of a paycheck or two in easily accessible savings. After that, from an economic theory point of view, you should save if you can get an interest rate higher than the one you have to pay on your debt. Given that most credit card companies charge us between 12% and 24% on our debt and the government is artificially holding savings interest rates at historic lows, finding a saving rate higher than your credit card debt rate is not going to happen. Pay down debt first.

Savings
The exception to what I have just said is your company’s retirement/savings plan or 401(k). Many companies will match your retirement savings by a portion. For example, they may give you an amount equal to 25% of whatever you put into the savings plan up to a certain amount. If at all possible, put in the maximum that they will match. Think of it as getting a 25% interest on your savings. That is not mathematically true, but it is the best deal you are going to get. Furthermore, you don’t have to pay tax on it until you retire (tax deferred). It is true that you can not easily get to that money, but you will need it when you retire so save it if at all possible.

Insurance
Remember all those insurance policies that I asked you about in the first paragraph? You should have them. Even if you don’t own your home, you should have tenant’s insurance. Insurance is a little bit like gambling. The insurance company is betting that nothing is going to happen to you. You are betting it is. You are probably right. It will be well worth the bet. Find a reliable insurance agent to help you. There are a number of good ones in Plaid. The good news is the insurance company pays for the agent, and you get their services for “free”. Don’t pass that up. You still have to pay for the insurance itself, but hey think of it as a little trip to Vegas.

 

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