Do You Insure the Goose that Lays Golden Eggs; or, Do You Insure the Eggs?

If you owned a goose that laid golden eggs and you could only buy one insurance policy, would you insure the goose or the eggs?  Most people are likely to answer this question by stating that (obviously) they would insure the goose.  So, let’s consider a variation on this question.

Have you thought lately about your most prized possessions; your most valuable assets?  Do you know what they are?  Most people are likely to answer this question by saying “yes” and then listing items such as houses, cars, boats, jewelry.  These things are valuable and that’s why people buy homeowners insurance, car insurance, and boat insurance.  However, let’s consider another asset that is, without a doubt, far more valuable than any of those things mentioned above … your ability to get out of bed each day and go to work and earn a living.

If you get sick or are hurt and incapable of working, how do you protect the paycheck upon which you and your family depend for food, shelter, water, electricity, and clothing?  Prudence dictates that we cannot rely upon the good will and charity of others to care for our loved ones.  That responsibility is ours and ours alone.  Surely there must be a way to protect ourselves and our families from this potential calamity!  Fortunately, there is!  It’s called Disability Income Insurance (DI for short).

DI pays a percentage of your income while you are unable to work due to accident, injury, or illness.  Generally speaking, that percentage is 60% to 70%.  People often ask why it doesn’t replace 100%.  After all, most people today rely on all 100% of their income to keep the bills paid and food on the table.  The reason is really very simple.  Consider a person we’ll call Mark.

Mark is one of those fortunate people who really enjoys his job.  He wakes up each morning with a smile on his face and looks forward to the interaction with others that his job provides.  That’s not to say that Mark doesn’t have hobbies and interests that he’d like to pursue.  Oh no!  There are days he’d love to go fishing if only he didn’t have to go to work.

Now, let’s suppose that Mark gets hurt one day.  It’s bad enough that he can’t do his job; but, not so bad that he can’t go fishing.  If Mark is collecting 100% of his income while he goes fishing, he has no real incentive to get better quickly.  But, if he’s only receiving 70% of his normal pay, he has a great incentive to recover as quickly as possible.

Disability insurance can be a very real financial life saver and should be a part of everyone’s financial protection portfolio.  In the days to come, we’ll take a look at key components that should be considered when purchasing Disability Income Insurance.

Help! I’m Retired and Can’t Afford to Run Out of Money!

My friend Jack’s widow called me recently and told me that her brother had died.  She still hasn’t finished settling her husband’s estate and now she’s responsible for settling her brother’s estate, too.  While going through her brother’s papers, she found that she would be receiving a significant sum of money from the sale of his property.

“Help,” she said.  I need to create an income that I can’t outlive.  This is all the money I’ve ever have.  I can’t take a chance that it will be gone before I am.”

I was happy to tell her that there is a way to create an income that will last as long as she does.  It is called an annuity.

An annuity is a contract issued by an insurance company that can turn a lump sum of money into a monthly income.  The person receiving the income is called the annuitant.  The annuitant can receive this income for as long as he or she lives; or, by using an option known as “life income with period certain”, can receive an income for a specific number of years or for life; whichever is longer.  Consider this example:

Mark and Martina recently retired after selling the business that they had owned for 30 years.  They planned to travel and see all of the sites that they had dreamed of visiting over the years.  Sadly, Mark suffered a massive heart attack and died.

Quite naturally, Martina feared that she might outlive the money that they had received from the sale of their business.  To ensure that this could not happen, she purchased an annuity from the Shifting Sands of Daytona Insurance Company.  However, she also wanted to make certain that, if she died in the near future, the money that was left from the sale of the business would go to her daughter.

Her insurance agent recommended that she create a lifetime income guaranteed for a minimum of 10 years.  The annuity would pay her a monthly income of $1,500.  If she died at the end of the second year of payments, the contract would pay her daughter the remaining eight years (96 months) of payments; $1,500 per month.  On the other hand, if Martina lives another 20 years, the annuity will pay her $1,500 per month for as long as she lives.  Martina cannot outlive the monthly income; but, the income could outlive her for the benefit of her daughter.

Clearly, annuities are not the perfect answer for every situation.  But, if Jack’s widow is concerned that she might outlive the money she receives from her brother’s estate, an annuity might be the answer to her concerns.


I met with “Susan” this week and asked if we could review the record she was keeping of what she spent her money on; her expense log.  She pulled a notebook out of her purse with some apprehension and quietly told me that it was “pretty embarrassing.”

Susan went on to tell me that she had been afraid to keep this record; that she feared it would make her look like a bad person because of what it revealed about her decision making.

She continued, “This morning, I reviewed my notes and they confirmed my worst fears.  I made a lot of really bad decisions.”

This is a very common reaction when people first begin keeping records of their spending and taking responsibility for how they manage their money.  They feel like the record they keep is full of bad news.  It was fun to tell her that the record is actually full of GOOD NEWS.

“Susan, your expense log may feel like bad news, but it’s really full of good news; and, here it is.

•    “First, you took a really big step in choosing to keep this record.  It took real courage and commitment.  It’s very important that you give yourself credit for taking this big step.

•    “Second, each of us has a personal board of directors in our minds.  Think of your board as those little voices that are always whispering “good choice”, “smart move”, or “ooo, you could have done better”.  This board is always looking at what we’ve done in the past and what we can do in the future with the goal of helping us do our best.  When you reviewed your expense log this morning, your personal board of directors expressed its disappointment in some of your spending choices.  As the CEO (Chief Excellence Officer) of yourself, you agreed with your board of directors and said, “yes, I could have done better”.  The GREAT NEWS is that you took a responsible step and decided that you wanted to make changes in your future spending decisions.

•    Third, the even GREATER NEWS is that your get to make your own plan for making those changes!”

By now, Susan was smiling as she realized that her fear of confronting what she thought was a real weakness had turned out to be a winning move as she took a big step toward financial independence.

Want the secret weapon that Susan used in this real life story?  Here’s what you can do …

1.    Identify three areas where you do not like the choices you have made about how you’ve spent your money.

2.    Set a goal of what you want future decisions to look like.

3.    Write down how you want to reach that goal.

4.    Promise yourself that you will make the changes that will enable you to reach this goal; and, continue to write down your expenses so that you can measure your progress.  (Bonus … if you just sighed and thought that this is too much work, take a second and write down just 1 thing you spent money on today.  Just one.  How long did that take?  Don’t let your emotions fool you into overestimating how much time this will actually take.)

5.    Set a date when you will review this record and decide if you have reached your goal.

Susan left our meeting with renewed confidence that she could control her money rather than have her money control her.

Ironically, the effectiveness of this process is not confined to personal finances.  It can be applied to all aspects of life.  Our internal board of directors is always conducting an on-going performance review … looking at our goals (or lack of goals), the plans we’ve created for reaching those goals, the progress we’ve made toward the attainment of the goals, and rendering a judgment every day; exceeds expectations, satisfactory, or unsatisfactory.  When we receive the board’s daily verdict, we choose how to respond.

•    We accept the accolades for a job well done and vow to keep up the good work;

•   We take credit for the accomplishments and responsibility for the shortcomings and make a plan for improving performance where it is needed; or,

Well, the third choice is giving up; but, that is not an acceptable choice.  The board of directors is not an external body that we can choose to ignore.  Rather, it is a living, breathing, part of who we are and it will always be whispering in our ear.  It cannot be disregarded.

Has your board of directors conducted today’s review? If it has, you know what you want to work on.  If not, there is still time to make today’s review a favorable one.


While discussing the difference between saving and investing, it was suggested that “risk” influenced where the money was “stored”.  So, let’s explore what risk is.
Simply stated, when talking about investing, risk means that the asset could lose value … that it would not be sufficient to pay what it is needed for.  But, simple never really tells the whole story, does it?  For this reason, let’s take a little deeper look at the kinds of risk that an investor has to face.
•        Credit Risk – also known as default risk, this is the possibility that someone to whom money has been loaned will not be able to repay the debt as promised.  This risk is most common when someone has purchased bonds.  Example:  you have loaned money to a friend.  When the day on which the loan was to be repaid, your friend tells you that he/she does not have the money and cannot repay you as promised.
•        Interest Rate Risk – this is another risk faced by someone who has purchased a bond.  It is the risk that the lender has tied up his or her money in a loan paying a low interest rate and, when interest rates rise, the lender will not have that cash available to lend at the higher, more profitable, interest rate.  Example:  you have loaned money to someone at 5% interest.  This was all the money you had available to loan.  Now, someone else approaches you and states that, if you will loan them money, they will pay you 6% interest.  Since this would be a profitable business deal, you would like to make the loan.  However, you have not yet been repaid by the first borrower so you are unable to make the more profitable loan.
•        Market Risk – this risk can be faced by someone who has either invested in stocks or bonds.  It is the risk that you will not be able to sell something for at least as much as much as you bought it for; or, the item cannot be sold at a profit.  Example:  you bought an asset for $5,000 and, now, no one will pay you more than $4,000 for that same item.
•       Liquidity Risk – this risk can affect anyone who buys any asset; stocks, bonds, real estate, any asset.  This is the risk that your asset cannot be turned into cash when cash is needed.  Example:  ten years ago, you purchased trading cards that you hoped would go up in value.  Today, you find out that these cards are no longer considered valuable and no one will buy them from you.
•       Inflation Risk – this may be one of the most insidious risks people face because it means that money won’t buy as much in the future as it buys now.  Example:  imagine that you had a $100 bill ten years ago.  Because you knew that you would need it and could not afford to lose it, you had it sealed in a can and buried it in the back yard.  You clearly marked the point where it was buried and guarded it to ensure that no one dug it up and stole it from you.  To understand the impact of inflation risk, ask yourself how many bags of groceries you could have purchased with that $100 bill ten years ago; then, ask how many sacks you could fill with that same bill if you took it to the store today.
Clearly, there are different kinds of risk and there are steps that can be taken to protect yourself against those risks.  Managing risk is a topic that we will explore in another article.

Saving vs Investment

In all of the financial counseling sessions I’ve conducted; and, in all of the personal finances classes I’ve taught, the subject of saving inevitably comes up.  While discussing the importance of “saving for a rainy day”, one class participant asked me to explain the difference between saving and investing for the future.

Both involve deferred consumption … not spending money today so that it is available for use at some unspecified time in the future.  So, what does differentiate one from the other?  I believe that the distinction is found in two things … where the money is kept and the amount of time that is expected to elapse before the money will be used.


Let’s talk about time as it relates to where we keep our money.  Saving usually implies that the money will be needed in a relatively short period of time; for example, saving money for a new refrigerator or for a new set of tires for the car.  Both examples imply that the money will be needed relatively soon, possibly within the next year or so.  Since the money will be needed soon, it must be kept where it can be accessed quickly and easily; it must be a liquid asset.  Since it will be needed soon, the saver cannot take risks that might lead to less money being available than will be needed; the asset cannot be subject to possible depreciation.  For these reasons, some assets are far more suitable for savings than other assets.

Cash is certainly an asset that can be kept in a variety of locations.  It can be kept in grandma’s old sugar bowl or under the mattress.  Unfortunately, these carry the risk that the funds may be stolen since neither location is secure; and, sadly, there is no way these funds can grow since they earn no interest.

Suitable places to keep savings include savings accounts, money market funds, and certificates of deposit (CD’s) at their local bank or credit union.  All three are low risk; i.e., the value of the account cannot go down.  All three pay interest with CD’s paying a somewhat higher interest rate in return for the depositor’s promise to leave the money untouched for a specific period of time.  All three are designed for the short-term storage of money.  This is why they are good for saving.


Investing, by its nature, carries risk … the chance that the value of the asset might decrease … risk that there may not be enough money when it is needed.  There are many kinds of risk which will be discussed in another article.  For now, suffice it to say that the risk of loss makes many investments unsuitable for short-term financial needs.

Investments such as stocks, bonds, mutual funds, real estate, and real estate investment trusts (aka REIT’s) are much better suited to long-term financial goals.

What Your Family Needs to Know When You Die (Part 4)

The assets you listed in the last installment are only half of your personal balance sheet that your family will need when you are gone.  The other half are your liabilities … the debts you owe to others.

  • Mortgage – for most families, the mortgage on the family home will be the largest debt that is owed.  Your family will need to know the name of the mortgage lender and its address; the loan number; and, the current balance owed on the loan.  If there is more than one mortgage on the property, be sure to list any other lenders and the appropriate account numbers.  Be sure to list the monthly payment that is due on each mortgage.

This would also be a good place to list any life insurance policies that you may have purchased to provide the funds to pay off the outstanding mortgage(s).

  • Auto Loan(s) – provide your family with the name of the lender along with the lender’s address; the account number; the current balance owed on the loan; and, the monthly payment that is due.  If you have purchased any loan cancellation insurance, you should list it here including the name of the insurance company, its address, and any person with whom you regularly have contact.

You should also list here the name of the company that insures your vehicle(s) along with the name of your agent and the policy number so that the company can be notified of your death.

  • Credit Cards and Personal Loans – in a perfect world, no money would be owed on unsecured debts.  However, few of us live in “Perfect World, USA” so list all of your personal/signature loans, credit card accounts, addresses for each account, the account numbers, and a current balance on the account.  Also, indicate where you keep your current statements and balances owed on each account.

A person’s death does not wipe out any debts that are owed.  Creditors have the right, and they will exercise it, to make demands for payment against your estate.  Sadly, there are some who will attempt to take advantage of survivors’ grief and confusion to make money by making claims against the estate for debts that do not exist.  By leaving a clear inventory of debts owed, you can protect your family against these bogus claims.

What Your Family Needs to Know When You Die (Part 3)

When you are gone, your family will need to know a great deal about your personal finances.  They’ll need to know about your assets and your liabilities.  Today, we’ll look at assets.

Assets are the things you own that have value; perhaps generate income that can be used to support your dependents.  Your family will be helped tremendously if you assemble an inventory of your assets.  Consider the following …

  • Bank and Credit Union Accounts – do you have a checking account; savings account; certificate(s) of deposit; safe deposit box?  If you have any of these assets, list the name of the financial institution along with its address; account number(s); and, the name of the individual with whom you most frequently do business.
  • Stocks, Bonds, and Mutual Funds – if you have investment accounts, your family will need to know what assets your accounts hold; i.e., the names of any individual stocks, bonds, or mutual funds you own along with the name of the Registered Representative and firm with which you do business.
  • 401(k) – if your company offers a 401k … other qualified retirement plans include 403(b) plans, tax-sheltered annuity plans, and 457 deferred compensation plans … be sure to include the name of the plan administrator with the administrator’s address and telephone number; the name of the person at work who is your primary contact regarding the plan; and, a recent statement showing how the funds are invested and current balances.
  • Real Estate – obviously, the first item on this list would be your house.  Be sure to include a current estimate of the property’s value.  You can obtain a current value from a Realtor; or, do an on-line search by typing in the question “what is the current value of my house”.  Your search should yield a number of websites that will help you estimate its current market value.

The list of assets above is certainly not all-inclusive.  You may own art, collectibles, firearms, jewelry, and many other things.  Be sure to include these items in your list of assets along with their current market value.  If these items have been professionally appraised, include the most recent appraisal.

The days, weeks, and months following your death will be trying times for your family.  They will be grateful for any help you provide for them that will help them put together the financial pieces of their lives.

How can I save money at the grocery store?

Recently, my good friend and client Carol asked me to review her family’s budget with her to determine if there were any opportunities she was missing for saving money and getting the most value for every dollar she spends.

While going through the budget, I noticed that she was spending far less at the grocery store than she had in the past.  I asked her how she had managed to cut her grocery bill while prices seem to keep going up nearly every day.  She shared her strategy with me … here it is.

  • Every Sunday, she sits down and plans her menu for each meal for the week.  Once the menu is set …
  • She creates a shopping list that lists out everything that is needed to put those meals on the table.  She then …
  • Takes the list to the pantry and crosses off those items that she already has.  With the list pared down to the items that she must buy, she …
  • Becomes the “Queen of the Coupon Clippers”.  Finally,
  • Carol goes to the store with her shopping list; and, if an item that looks good is not on the list, she does not buy it.  She sticks with her plan.

Sounds easy, doesn’t it?  Planning ahead helps avoid impulse buying.  It also ensures that all of the required ingredients are on hand when it’s time to make dinner.  Planning also helps save money!

It’s certainly well worth trying … it just might help you get more for every grocery dollar that you spend!