Your Wealth Is Hidden in the Fragments of Your Life - Part 5
Ella and her husband read "Your Wealth is Hidden in the Fragments of your Life" by David Unger and "The Wealthy Barber" by David Chilton.
They identify the survival crutches in their financial life and cut out these inefficient survival aids.
The total amount required to pay their monthly bills now drops $150 because they had been paying $150 extra every month to "rent" survival crutches.
(The monthly cost of survival crutches would be less than this for some people and a lot more than this for many others.
) They now arrange for this $150 to go automatically into a separate account at their bank every month.
This will be their Emergency Fund.
Ella and her husband both read chapter 5 of "The Wealthy Barber" again and realize that it would be wise to have term life insurance rather than the whole life policies they both have now.
They ask several knowledgeable people to advise them about this to make sure they understand what they are going to do.
They obtain the term life insurance policies from a company with a solid financial rating in the appropriate amounts.
Only after having the documentation in hand that verifies that the new term life insurance policies are in force, do they cash in the whole life insurance policies and put the money they receive into the Emergency Fund.
Taking whole life rather than term life insurance is a survival crutch they missed on their first pass when they looked at their financial life to identify the crutches.
They pay less now for the premium on the two new term life insurance policies than they were paying for the two whole life policies, so their monthly bills drop another $50.
Next, they start thinking about the income tax refund they get every year that is usually a little over $2,400.
They are usually in desperate trouble at refund time every year and have to use the refund to just barely bail themselves out.
They decide to take the refund throughout the year by raising the number of withholding allowances.
Their take home pay increases by $200 per month.
They carefully monitor their withholdings as they do this new thing to make sure that enough money is withheld so as to avoid penalties.
Letting the government withhold too much money and hold it throughout the year can also be considered a survival crutch.
They plan to add this $200 to the Emergency Fund every month.
They hope to avoid the chronic cycle of financial trouble through regular deposits into the Emergency Fund throughout the year.
Next, they look at "LEX Cash" to find a little more money to add to the Emergency Fund.
The LEX Cash concept is taught in a later "Fragments" article.
It is finding "fragments" of cash by reducing living expenses with a few common sense strategies.
Ella and her husband do not bear down too much in this area, but still manage to reduce living expenses by $50 per month.
(For many, it is possible to reduce living expenses by much, much more that this amount.
) Ella and her husband now have another $50 freed up which they plan to add every month to the Emergency Fund.
Cut out Survival Crutches - $150 per month Changed to Term Life Insurance - $ 50 per month Increased Withholding Allowances - $200 per month LEX Cash - $ 50 per month Monthly Deposit to Emergency Fund - $450 per month Ella and her husband had previously arranged for $150 to go into the new Emergency Fund every month.
They now go back to their bank.
Their paychecks are already set up for automatic deposit, but now they change the monthly deposit to the Emergency Fund from $150 per month to $450 per month.
$450 goes automatically every month to the Emergency Fund and the remainder of their payroll checks go to the regular checking account.
When something goes wrong, the kind of thing previously covered by survival crutches, Ella transfers the exact amount needed from the Emergency Fund to the regular checking account.
They do not keep a checkbook for the Emergency Fund so as to avoid the temptation to use it for impulse spending.
Over the coming months and years, the Emergency Fund will grow and will tend to exceed the demands placed upon it.
After another 6 months, Ella and her husband go to Edward Jones to transfer their accounts from their bank.
They did not have the required minimum balance to open Edward Jones accounts until now.
They open 2 asset management accounts, one for the checking account and one for the Emergency Fund.
They close out their accounts at the bank and transfer the funds into the new accounts at Edward Jones.
(They are moving their accounts to Edward Jones because they are positioning themselves for a new life as habitual investors instead of habitual debtors.
) Asset management accounts are national checking accounts that pay better interest than you can get in a conventional bank checking account.
They see that the Emergency Fund has grown, even with money being transferred out of it to pay for things that go wrong, so they can now put a part of the $450 in the Emergency Fund and the rest of it in investments.
Since they know they will be investors now, Ella and her husband read "24 Essential Lessons for Investment Success" by William J.
O'Neil to figure out what to invest in.
Through the rest of their lives, they will adjust the amount of money going into the Emergency Fund up and down many times due to the changing circumstances in their lives.
The transition may not be as idyllic as that portrayed here.
In the first few months, the Emergency Fund might be overwhelmed because so many things could happen all at once that there is not enough money in the Emergency Fund to cover what goes wrong.
You may have to go back into the prairie chicken world and use credit to resolve these problems.
Even if the Emergency Fund is overwhelmed 2 or 3 times before you get this process working, it would still be well worth it to make this transition.
There may be 4 years or 5 years out of every 30 years when you would be better off to just "rent" the survival crutches.
This is just my estimate based on my observation.
However, there may be 25 years or 26 years out of every 30 years when you would be better off to cut out the survival crutches, put what you were paying for survival crutches into an Emergency Fund, pay for what goes wrong out of the Emergency Fund, and invest the difference.
Over the long run, you will be far better off if you cut out the survival crutches, save the money you were using to "rent" crutches, pay for what goes wrong, and invest the difference.
They identify the survival crutches in their financial life and cut out these inefficient survival aids.
The total amount required to pay their monthly bills now drops $150 because they had been paying $150 extra every month to "rent" survival crutches.
(The monthly cost of survival crutches would be less than this for some people and a lot more than this for many others.
) They now arrange for this $150 to go automatically into a separate account at their bank every month.
This will be their Emergency Fund.
Ella and her husband both read chapter 5 of "The Wealthy Barber" again and realize that it would be wise to have term life insurance rather than the whole life policies they both have now.
They ask several knowledgeable people to advise them about this to make sure they understand what they are going to do.
They obtain the term life insurance policies from a company with a solid financial rating in the appropriate amounts.
Only after having the documentation in hand that verifies that the new term life insurance policies are in force, do they cash in the whole life insurance policies and put the money they receive into the Emergency Fund.
Taking whole life rather than term life insurance is a survival crutch they missed on their first pass when they looked at their financial life to identify the crutches.
They pay less now for the premium on the two new term life insurance policies than they were paying for the two whole life policies, so their monthly bills drop another $50.
Next, they start thinking about the income tax refund they get every year that is usually a little over $2,400.
They are usually in desperate trouble at refund time every year and have to use the refund to just barely bail themselves out.
They decide to take the refund throughout the year by raising the number of withholding allowances.
Their take home pay increases by $200 per month.
They carefully monitor their withholdings as they do this new thing to make sure that enough money is withheld so as to avoid penalties.
Letting the government withhold too much money and hold it throughout the year can also be considered a survival crutch.
They plan to add this $200 to the Emergency Fund every month.
They hope to avoid the chronic cycle of financial trouble through regular deposits into the Emergency Fund throughout the year.
Next, they look at "LEX Cash" to find a little more money to add to the Emergency Fund.
The LEX Cash concept is taught in a later "Fragments" article.
It is finding "fragments" of cash by reducing living expenses with a few common sense strategies.
Ella and her husband do not bear down too much in this area, but still manage to reduce living expenses by $50 per month.
(For many, it is possible to reduce living expenses by much, much more that this amount.
) Ella and her husband now have another $50 freed up which they plan to add every month to the Emergency Fund.
Cut out Survival Crutches - $150 per month Changed to Term Life Insurance - $ 50 per month Increased Withholding Allowances - $200 per month LEX Cash - $ 50 per month Monthly Deposit to Emergency Fund - $450 per month Ella and her husband had previously arranged for $150 to go into the new Emergency Fund every month.
They now go back to their bank.
Their paychecks are already set up for automatic deposit, but now they change the monthly deposit to the Emergency Fund from $150 per month to $450 per month.
$450 goes automatically every month to the Emergency Fund and the remainder of their payroll checks go to the regular checking account.
When something goes wrong, the kind of thing previously covered by survival crutches, Ella transfers the exact amount needed from the Emergency Fund to the regular checking account.
They do not keep a checkbook for the Emergency Fund so as to avoid the temptation to use it for impulse spending.
Over the coming months and years, the Emergency Fund will grow and will tend to exceed the demands placed upon it.
After another 6 months, Ella and her husband go to Edward Jones to transfer their accounts from their bank.
They did not have the required minimum balance to open Edward Jones accounts until now.
They open 2 asset management accounts, one for the checking account and one for the Emergency Fund.
They close out their accounts at the bank and transfer the funds into the new accounts at Edward Jones.
(They are moving their accounts to Edward Jones because they are positioning themselves for a new life as habitual investors instead of habitual debtors.
) Asset management accounts are national checking accounts that pay better interest than you can get in a conventional bank checking account.
They see that the Emergency Fund has grown, even with money being transferred out of it to pay for things that go wrong, so they can now put a part of the $450 in the Emergency Fund and the rest of it in investments.
Since they know they will be investors now, Ella and her husband read "24 Essential Lessons for Investment Success" by William J.
O'Neil to figure out what to invest in.
Through the rest of their lives, they will adjust the amount of money going into the Emergency Fund up and down many times due to the changing circumstances in their lives.
The transition may not be as idyllic as that portrayed here.
In the first few months, the Emergency Fund might be overwhelmed because so many things could happen all at once that there is not enough money in the Emergency Fund to cover what goes wrong.
You may have to go back into the prairie chicken world and use credit to resolve these problems.
Even if the Emergency Fund is overwhelmed 2 or 3 times before you get this process working, it would still be well worth it to make this transition.
There may be 4 years or 5 years out of every 30 years when you would be better off to just "rent" the survival crutches.
This is just my estimate based on my observation.
However, there may be 25 years or 26 years out of every 30 years when you would be better off to cut out the survival crutches, put what you were paying for survival crutches into an Emergency Fund, pay for what goes wrong out of the Emergency Fund, and invest the difference.
Over the long run, you will be far better off if you cut out the survival crutches, save the money you were using to "rent" crutches, pay for what goes wrong, and invest the difference.
Source...