Buy a share of Berkshire HAthaway "B" for $4,000. - 4,500. or so.

That means that you'll get a copy of their annual report, which includes a message from Warren Buffet - plain language instruction on the workings of the economy and on personal financial management.

I think that you can go to the company's website and read the annual reports from earlier years.

If you're Canadian, read "Canadian MoneySaver" magazine in your nearby major library, or if you go to www.canadianmoneysaver.ca they'll send you a copy free.

There are no ads, it's just worthwhile text written on plain paper, and you'll find contact information for the writers of the articles, who are fairly faithful about replying to inquiries. They hold seminars with the writers, plus some on an annual cruise, or in Mexico, etc. Subscribers meet in about 40 places in Canada, usually monthly: I've been attending the London meeting, with about 20 attendees, for several years.

One guy who writes there retired at 34, wrote a book titled, "STOP Working - Here's How You Can".

A local guy, Talbot Stevens, whose seminar titled, "How to make 35% on your money ... guaranteed" attracted me, has written a book, also, titled, "Financial Freedom Without Sacrifice".

But about the best mostly Canadian-focussed book, but also of interest to U.S. people, that I've seen is, "Balancing Act" by Joanne Thomas Yaccato. It's quite comprehensive, and deals with most subjects in depth, but written so that it's fairly easily understood.

By the way, Canadians, most financial advisors recommend that *everyone* should have RRSPs (personal tax-deferral for retirement program)... but I'm less than enamored of them, for many investors who are interested in investing substantially in equities.

I have written a number of threads, and added to others, here and on "Money Saving Tips" and "Retirement" which will give you an idea of my ideas regarding one's approach to money management, and life in general ... e.g. what's better than putting your money into the bank ... why I don't like earning interest ... how to make 35% on your money - guaranteed ... which ordinary person gains from inflation - who loses ... money management in retirement (I'm almost 80 and have about 80% of my assets in equity-based investments - more, now, for I bought some more a couple of weeks ago).

Best wishes for increasing knowledge about the ways to manage your income and assets more effectively, with a long-term time horizon (unless you're nearing your 90th birthday ... or should that be, 95th?).

ole joyful

truly the most ridiculous message i have ever read on these forums.

to suggest to max out debt out of your house to reinvest in other ventures is beyond risky and reckless for a "financial advisor" to recommend this.

obviously you must not do suitability reviews or risk tolerance reviews to recommend such statements. how it is "risky" to remove a risk of a mortgage debt is beyond me. i would always recommend have a sufficient cash reserves in the bank 6-12 months of expenses and funding retirement then pay off the house.

what you suggest is market timing which most of the time you will come out a loser. the long term investor is always the winner especially in index funds. there are many studies that prove such statements wrong.

if you posted to get people riled up it worked!!!

you are misunderstanding.

not maxing out debt, just keeping control of equity. keeping the equity liquid versus locked inside of a mortgage has advantages even if one does not use it for investing. if you are foreclosed on you will loose equity the bank will see to that. if you have been able to keep the equity separate from the mortgage you not only have options to stave off the foreclosure, but the bank will be far more willing to work with you if there is little or no profit in foreclosing on your house because you have kept the equity elsewhere.

granted this concept is not for everyone. for some the "security" is more important than freedom. is there risk? well that depends on the individual. the side account could be in bods or a money market. the pint is it is not stagnating and it is accessible in case of great opportunity or need.

and no i do not do risk risk tolerance review with clients. it is a waste of time and a smoke and mirrors tricj done by advisors to dupe their clients it to thinking they are managing their risk. risk in not managed by defining ones willingness to lose. risk is only managed by education. what is risky to the uneducated investor is not to the educated because the educated knows how to minimize his exposure and has contingency plans if things do not go according to plans. the educated investor has insurance plans in place both literal and figurative to insure his success. the uneducated buys, holds and hopes. there are reasons why people like warren buffet consistently make money while the general population goes up and down and looses valuable time and money alone the way. no amount of risk is acceptable in my opinion. for the responsible and educated investor this would include letting equity stagnate and be controlled by the bank. for the uneducated or irresponsible, i agree, get your money out of you hands and put it where you have no control of it because the greatest risk factor you have is yourself. i do not advise such individuals to in general.

a mortgage in itself is not a debt. it is a liability. if one's assets are greater than the liability there is no debt. everyone needs to know how to read a balance sheet. also one's primary residence is not an asset it is a liability. one cannot cash flow it and can only profit if it is sold in which case they must buy a new one. paying for liabilities does not grow wealth, buying assets does.

if rather than paying down ones primary mortgage one was using the principle portion they would have paid to as a down payment a second piece of real estate like a duplex with a few hundred dollars positive cash flow each month. now they have an asset, more tax credits, cash flow, and an asset they can sell eventually for a profit. the principle was not lost. it was merely used to purchase an asset and grown.

are there risks? sure, but in my mind they are less than doing nothing at all. i will take the "risk" of control over the "security" in no control. i would rather not know how much i can make thank know how much i missed out on.

it is obvious from your message that you think investing is something you do on wall street. millions of people do as well. we all know what their year is looking like. why, bad luck brought on my greed and ignorance on their part and the peddlers selling the pipe dream that anyone can strike it rich if they buy and hold stocks. people have been warning of the housing bubble and sub prime problem for years and still everybody is acting surprised. a little education about real estate and securities would have saved investors a lot of money and pain.

their are many more places to invest than on wall street. the model i teach my clients is 50% in guaranteed investments like bonds and life insurance, 35% in asset backed such as real estate, commodities, metals and hard cash lending or corp bonds and the remainder in non-asset backed investments like stocks and payday lending. and only in things you understand an like. the investing only starts after all ones insurance needs are covered and at least 6 months of savings have been acquired. tell me this is reckless? this is about as conservative as it gets.

wasting time paying down a mortgage, giving up control of the bulk of ones wealth, investing blindly into vehicles that one does not watch, understand or control, and believing the so called "studies" (published by they very groups wanting to control your money)...that is reckless.

we have all been sold and resold a lie about wealth creation. we believe marketing is education. stop reading the ads for information. i find it ironic that banks don't follow the advice they give their customers. spend an hour with a successful investor (no mater what the field) and they will teach you completely different principles than the salesman of your trusted investment brokerage. why? they say hold but they sell. they say diversify by buying more of the same while they play in many different areas. they say compound interest when they practice money velocities. they say buy a shorter mortgage while they float theirs (ever wondered why you get a better rate on a 15 than a 30yr mortgage? could it be they have give you a carrot to get you to buy the product that makes them more money...think about it.) why they tell you to buy term life but they buy whole life. why? what is in it for them? your money. education will make you more money than advice. taking advice without understanding is reckless and possible foolish.

i posted to wake people up, not rile them up.

my goal is the same as yours, financial freedom and absence of mortgage debt. the difference is i am willing to take responsibility not pass it to others. this is not an insult. we are all different and have different needs and capabilities. i said in the original post that for some a 401k and paying off the house is the best optionthis is the advise i give my own youngest brother as i help him pick the best funds to be in. it depends on the individual to do the best they can. education changes what that "best" is. act according to you education and capacity and you are doing he best you can. if what some of us are saying sounds reckless to you, it probably is. don't act on anything unless you understand or you will likely fail no matter how right the advice may have been.

"granted this concept is not for everyone. for some the "security" is more important than freedom."

I think MOST people think that security is more important....

true true. but it is a false sense of security. giving control away is not security. i believe true security comes from control. i don't trust my bank with my security. i know all to well they are looking out for themselves, not me.

there is a gated community not far from my house that caters to those with needs for security. everybody has free health care and a better dental plan than i have, free cable and internet. exercise facilities, education, everything you could want for the easy and secure life is included and taken care of down to the armed guards and razor wire. all you have to do to get in is get convicted of a felony. they have security, but at the cost of freedom.

i like to think that financial freedom and security are the same. most see them as opposites. for me personally the knowns involved with loss of control are scarier than the unknowns of control. without education, the unknowns are very scary. the more you learn about finances and how to protect yourself the more the tables turn.

money is my biggest fear in life because i have a wife and children and want to make sure they are taken care of. years ago for this reason finances scared me to death and i was paralized and could do nothing. i am doing make up for the lost time now. a good portion of my income is now passive. it is more sure than any commissions or salary i earn. this passive income gives me more security and freedom. this passive income comes in part from equity i removed from real estate. i don't have more debt. i do have more liability. but i have more cash flow which actually brings my debt ratio lower. is this foolish? if i had a bad investment it would be. but i don't, so it is smarti have lowered my debt ratio. i also have control. if i were to loose my salary or become disabled, i have access to my wealth and passive income which will give me options i would not have if that equity was locked into a house.

i teach these concepts to all my clients. not all do much with it because they lack the confidence. what they all do though is get a max HELOC and don't spend it. they understand the control issue. worst case, they have the ability to strip it in an emergency. the more the client learns about investing the more likely they are to also use the equity for opportunities, but i teach them caution. it is never ok to speculate with money you cannot afford to lose. if you cannot make the payment, you cannot take the risk. only speculate on money you can afford to lose. everything else is guaranteed or collateralized. there is always risk as many holders of AAA mortgaged backed securities are learning. education can minimized these risk and manage them. like i said never invest in things you do not like and understand. seems a lot of people did not understand what these securities were. sad times. there are also a lot of 65 year olds right now who spent the last 30 years paying for a house and missed out on 30 years of growth. they are now retiring with less and too late to do much about it and will have to sell the home they spent so long trying to buy. would it not have been better if they had used the principle portion of their house payment to build up investments that payed them a passive income to replace their own so they could retire and still keep the same lifestyle. who cares if they house isn't paid for if there is enough passive income to pay it and enough liquid wealth to buy it.

i will eventually pay for my house (keeping a max credit line on it for some control). i am just waiting until the time when taking that money off the table does not affect my lifestyle. at that point it is the base security you are speaking ofnot owing anyone anything. until then the security i need is the assurance that i am on track to be able to do that.

it is a hard concept to grasp. it took me a good year working with a planner before i felt comfortable. it is hard to teach an old dog new tricks. fortunately my adviser is a good friend and stinking rich so there was less faith required. (yes, even though i am an adviser i also have advisers i speak to. before i do anything i ask their opinion and advice.)

"it is hard to teach an old dog new tricks."

I am not an old dog... and I really do not like your "tricks"....

I am debt free and doing well, (and nowhere near 'scared to death' as you are!) without doing the things you are suggesting.

I'm with you western_pa_luann....

Not that we're totally debt free yet but darn close (all debt). Able to live comfortable on only one income should we decide and there's enough reserve to pay the remaining debt (mortgage) off should we decide to do so.

Debt of any kind doesn't appeal to us or our financial plan.

Im with both of you Western_pa and dontknow. i hope to have my house paid off within 10 years. We have no other debt and the freedom i have whether addl saving or investing is awesome. i believe in 5-10 years this will all be a bad memory. do people really believe icons such as Coke, Walmart, etc. will be gone. i dont think so.

Kiosaki did a great deservice by that "Rich Dad Poor Dad" book. i read it several times and found it to be full of it. claiming to control risk and use leverage (debt) to increase your net worth is just wrong.

Look at what such leverage has done to wall street.

no tricks, just holding my assets in a different account. i too have no consumer debt whatsoever and don't believe in it. the only debt i have it on my mortgage and the only difference in my strategy is rather than taking the principle portion off the table and applying it to the mortgage i keep it working outside of the real estate. even at the most conservative investment rate i will be able to pay my house of faster than had i apply those funds towards the mortgage along the way. i have both the principle and the interest it generates to apply towards the mortgage debt not the the principle alone. my money is working along side me to pay off my house. i am not talking about equity stripping for speculative investment purposes. i am just proposing to keeping the real estate equity separate from the reale state. if you can't tolerate risking this portion, put it in bonds or a money market you are at least generating some growth. there is also the added safety net of having my wealth separate from the real estate. i could even put it in a trust or life insurance to shelter it from lawsuit. from my point of view this strategy minimises my exposure to risk. with the investments i am in, my 30 year mortgage could be paid off in 5 years�"23 years early. this with a stay at home wife and 4 kids. without doing it this way, we would be living paycheck to paycheck until the house was paid of saving at best 10% each year. this is not speculative. it is what i do. as everybody is freaking out about their declining real estate equity and declining savings/investment in the market i am sitting back with no exposure to it. my investment yield this year will be 24%. i have no loss of principle, minimal taxes, tax credits, no commission fees, lawsuit protection, death protection, 30 days liquidity and control. my plan is working great and has for years. those who taught me and coached me are self made millionares�"not by taking advatage of others or having the big idea, just by learning how to use their money better by eliminating waste and keeping it working (were it is working does not matter so long as it is working). it does not take a genius, for i am not one. it only takes understanding. it does not take risk, i am very conservative. i am not afraid of money. i am only afraid of failing as a provider. i have turned this fear from an impulse to hoard to motivation to control and create more wealth and control over that wealth to insulate me from that fear. like i said we are all doing the same thing�"freeing ourselves from financial obligations to others, ie debt.

mnk716
you missed what kiosaki was taking about. his thesis is get a financial education and learn how money works. he then teaches business economics applied to personal finances. he also says the investment is not the risk factor, it is the investor. if you can manage, collateralize and insure an investment, leverage can be the means to achieve. you claim to disagree with the concept of leverage yet you do it every day. you leveraged yourself and your wage earning potential to buy your house. when you use a credit card you are leveraging your credit. etc. without leverage there are no banks. there is no modern economy. all kiosaki was teaching is other forms of leverage. he was teaching a principle called money velocity. with is a fancy way of saying your money can have a wage. if you are so against leveraging equity you should take your money out of the bank because that is what you are doing with the bank as your proxy, only they are getting a 10 to 1 ratio, velocitizing that and keeping the margin. if this model does't work for you, how could it work for them? if this makes no sense to you or sounds false, it is not the principle, but rather you understanding of the principle. to deny the principle, seek to understand it. you don't have to apply it, but denying it's value and existence is pointless.

wall street is not hurting for the sake of leverage. they are hurting because of poor investing. they invested in junk bonds thinking they were guaranteed. mortgage regulations were taken away. for the sake of greed poor mortgages were made. for the sake of greed these were packaged (nice way of saying hidden) inside what was once a very safe investment, mortgage backed secuities and sold to banks and investors who did not educate themselves on exactly what they were buying. financial prophet have been screaming about this for years, but greed blinds. i saw the writing on the wall and distanced myself from the stock market last year as did a few others. i learned this by listening to marketplace on NPR just like everybody else not from some underground source or tea leaves. wall street should have know better. investors should have know better. ol' robert kiosaki in his in his "full of it" wisdom said several times don't invest in what you do not understand. if you do not understand why banks are collapsing and the fed is talking bail outs, you should not have money in the stock market unless you have an manager who does that you trust.

another good book informally titled "the good book" talks about this. see Matt. 25:15-28. the moral being taught in my opinion is not doing what you are capable of because of fear is slothful.

this thread has digressed. i was hoping to generate views and strategies of all kinds. a discussion of pros and cons. instructions. we are doing little more than disagreeing myself included. i don't want a who is right attitude, or i disagree statement without offering constructive criticism or explaining the strengths of alternative strategy with objectivity to the pros and cons of the alternative.

lining up on sides and using the who has done better or who is better off serves nobody. everybody has different needs, goals and potential. that is no way to discuss strategy for mutual benefit. i could sell my house and move to ohio and never work again and enjoy debt free existence for the rest of my life. but i don't want to. to live where i do at this point in my career requires a mortgage. i have made this choice. the fact that i have a mortgage debt does not discredit the strategy i follow. by the same arguement, a lack of a mortgage does not prove another's superior attributes. they are irrelevant as they are not comparable.

i ask that future posts be constructive. if you just want to agree or disagree without adding your reasons why you think the way you do and giving an alternative and supporting it, you are criticizing. criticism adds no value. if this forum adds no value we are wasting time. if we add no value we are a wast of time. let's add value.

kliddle,

there is no disagreement with me about the need for financial education. that is surely lacking in this society. Kiosaki talks about some issues such as a balance sheet. i have real issues with this book and feel it provides very little benefit for most people.

Balance sheet reflect assets and liabilities whether it be household or family. Kiosaki differs in what are considered assets and liabilities. i believe real property (homes, property, etc.) are always considered assets that contribute to net worth. Liabilities are the debts, liens, etc that offset the assets. For most people this includes mortgages, car loans, etc. that provides risk of losing those assets to default, foreclosure, etc.

Kiosaki believes an asset is something that provides income and everything else is a liability because it does not pay an income. He is mixing an income statement (cash flow)for balance sheet, that is the wrong way to view assets. A home is an asset: if you sell it you will receive the equity.

Kiosaki would have you keep a mortgage or increase your debt to finance real estate acquisitions for the monthly rent. Fine but that incurs risk that is increased because of the debt (vacancies, repairs, etc.)

With leverage you are taking the risk that you will not be able to meet the payments. Wall street utilized this leverage because the cash flow from these securities provided a higher return than if they used their own money to purchase the bonds. however they were so leveraged to the hilt once the cash flow was reduced or eliminted they could not meet the payments.

i have nothing against leverage and you are right a mortgage is leverage but my goal is to eliminat it as soon as possible to reduce my risk of ever losing my home.

i still have faith in the stock market because i utilize index mutual funds that have asset allocation over hundreds of stocks and in bonds as well. i dont pretend to be able to eliminate risk but i can reduce it and that is the point my posts. by eliminating debt i reduce my risk and get increased cash flow to do what i want. yes it takes time but i have patience and like i said earlier i dont recommend paying off the mortgage until cash savings and retirment are utilized.

you stated at the beginning that you took money out of the market, yet that is market timing. why did you do that?? what are you goals?? stocks/mutual funds are for long term investments. if you are making 18-24% per year what are you using. i dont recommend whole life/variable annuity policies given their large costs.

cash is always king

some good points.

i have waffled back and forth with the primary residence being an asset or a liability. does it have value? yes, therefore asset. can it be sold? well, yes, but not really because you have to buy another house so it is offset, let's call it a draw. does it produce income? no. does it require money? yes. liability and liability. the big tiebreaker for me id when applying for credit, banks don't care how much equity is in the house, but how much the monthly payment is. for them cash is always king as you put it.

i am a believer is the stock market, but not as a buy and hold. i believe it is a buy and watch carefully. i don't like mutual funds because though they do spread the risk out, the also increase the chance of market exposure. i prefer picking my stocks and sticking with what i know. one of my careers is a graphic designer. i spent years doing the annual report for zions bancorporation. i have a great track record predicting it's ups and downs. but i went into cash last september because of all the warnings from greenspan about the impending doom. as soon as the market started its dip i moved my money to cash where it has ticking away at 3% wich puts me back to about where i was last year.

as far what i have been doing this year, i put money into small cap payday lending with a major chain in california. with banks as tight as they have been this past year it has forced a major growth in the payday lending market.

as soon as i think the market is turning, i will go back in after the financial stocks which is what i know best. as you said it is timing. i don't think timing is always in so much as it is in at the average and good times and out of the bad. i am more concerned with being out on the bad than in on the good as money backslides far faster than it grows.

whole life versus term. the endless debate. i broker insurance and sell far more term policies with my recommendation than i do whole, but, whole is the better product and though it has a higher premium, it is the cheaper product over the long run. the reason i sell more term is most my clients quite young and i discourage them from doing so until we build their savings to 6 months wages. at which time we can evaluate their ability to support a permanent policy and usually with the moneu gereated from the savings.

back to why whole.

term start out cheap, but gets too expensive to carry into retirement when you are most likely to die. less than 3% (i have read as low as 0.8%) of term policies ever pay. this means that for most, term is an expense and a lost opportunity cost never to be recovered. death benefit is devaluated by inflation.

whole starts out with a higher premium, but stays level for life and eventually become cheaper than term. 100% of every permanent policy will pay. death benefit will grow to outpace inflation making planning a little easier. guaranteed minimum growth with no backsliding. the lost opportunity cost as the policy loads is recovered and then surpassed. plus the many living benefits it can give the owner while they are alive in the form of loans, withdrawls, life settlements, formation of charitable remainder trusts for tax saving. this list goes on. most people don't understand that the owner of a whole life policy can use it in their lifetime.

term is like renting then whole is buying. one lasts the other does not. one becomes an asset the other a loss unless you suffer the ultimate loss.

the big argument against whole is that it takes funds that could have been invested. two things to consider. after the first 16 or so moths to load the policy, everything after is growth in cash value. those 16 month cost less than the term over 30 years. i have run numbers against the actual long-term performance of an indexed fund minus taxes and the two are about the same with a realized 6% yield but the insurance has the added benefit that if the owner does not live long enough to make or earn their retirement, the life insurance will provide that money to the beneficiariesno mutual fund plan i know self completes upon death of the owner. for this reason it is a great long term planning tool because it works in the worst case scenario. for aggressive investors it is too slow and so they prefer term, but through policy loans they both can be done.

example:
35 year old buy a $1m policy for $10k a year.
year 1 there is no cash value (one can fix this but that is another subject). year two there is $8k, every year after it goes up by $10k plus 6% interest on the cash value. the owner can take the cash out in the form of a policy loan at 6.5% interest and invest in another place. the policy is still growing at 6% netting a cost of money at 0.5%. the policy stays in force and the owner also has the investment. the cost to keep the insurance is the $12k plus the 0.5% spread on the interest which is much less than carrying term for 30 years. the owner missed out on 16 months of investing, but has a permanent insurance policy. when he retires he will have created 2 estates with the same money. he has permission to spend principle and interest, do a reverse mortgage, even liquidate his entire retirement over his expected lifespan because if he spends it all he can then spend down the life insurance for a second retirement which could by then be worth over $2m+. the insurance is insuring his human life value which is his net worth in retirement. life insurance is not the investment plan, but it makes the investments perform better and can make non performing assets like the house become performing assets as the case of a revers mortgage (then buy it back with the insurance if you outlive the RM).

what he lost the money out of the policy? well it was his to lose. he is no worse off than had he lost it without taking through the policy. if he continues to pay the premium or if the policy had become self funding, 16-20 years, he still has insurance and does not ever need to pay back the loan if he doesn't want to. the interest will just be taken from the growth. it is leverage, but the money would have been lost anyway.

i could write pages about what you can do with one of these babies. i really like them. they are a long term commitment and not for those who do not understand them. for me, i pay $180k for every million plus 6% growth. this is guaranteed and cannot be lost except by my choice. i will have it or my estate will. the term i also carry is just a fill in while i am still young and until i convert it to whole.

some of my associates carry million and millions in whole. the policies pay for themselves and are used like banks. those used for investing outside the policies make more money than can be legally put back in. if you know how to use them, they are a great asset. my clients invest 50% of all new investment dollars into insurance. 35% in asset backed and 15% in non asset backed investments. the insurance can then be used to add to the other 50%. have you cake and eat it two. this is not a trick. you can call the insurance company and they will explain how to do it. most banks invest a large portion of their portfolio in insurance because it is as sure as death, grows, can be leveraged and liquidated.

mind you this cannot replace other investing. it only works to its potential if there is are assets outside the insurance. this is the part that the buy term invest the difference camp misses. it is not either or with whole life it is both. and it is cheaper than carrying term to retirement and not only should double your spendable retirement wealth if not better, but it works in the worst case scenario.

sorry if this is confusing, it really is deep stuff. insurance is a difficult subject to learn because the tendancy is to think of whole life in the same light as term. they are really different animals. whole performs more like a mutual fund or piece of real estate with a self completing in case of death. anything you can do with those assets you can do with whole life and then some. permanent insurance is listed on the right side (assets) of a balance sheet. it is also the only investment i know of that can be sold based on a future value.

sorry for the long off topic post. i love whole life.

"but not really because you have to buy another house so it is offset, let's call it a draw. does it produce income? no. does it require money? yes. liability and liability. the big tiebreaker for me id when applying for credit, banks don't care how much equity is in the house, but how much the monthly payment is. for them cash is always king as you put it."

not really, you can just rent and utilize the equity to open a business, invest, save whatever.

every asset has some type of fee or maintenance cost associated with it, but that is not a liability. it is the normal cost of any acquisition. Kiosaki takes aim at homes because of the large upfront costs and yearly maintenance; true but so does brokerage accounts, insurance accounts, etc. the goal is try and earn income to offset those payments. fine but if you leverage any profit is eaten by those debt payments. that is called a fixed cost.

cash flow is always important but espescially when you have debt payments. if you do not have debt payments you have increased cash flow.

whole life, universale, permament, variable for the most part of expensive for the service they provide. life insurance should be soley for life anything else is a benefit or feature of the product. in this day when there are better tax qualified programs (401ks, iras, roths) all for much less cost.

you pay a fee for non-term life policies that can add 1-4% per year for the life benefit and the cash value feature. i believe most people get better returns through other accounts (savings, mf, etc.). those policies also pay a large commission to the insurance agents.

disclosure: i am a securities compliance officer for a major insurance co.

I hope Dave doesn't read this, but I went ahead and paid off the house. I'm a financial simpleton, don't like debt, and I guess I'm not a risk taker (so I don't invest aggressively at all).

So it's a done deal this month. I have 6 months savings, a decent job, and zippo on the debt.

One interesting point discussed by Dave is that if I am sued, the lawyers can easily check to see if I own my house. If I do, they can pursue it such that when I sell the house, they can have whatever cash comes from the sale.

Of course, this assumes that they win.

Now, my house is extremely modest with only 1 bathroom... so it isn't like I have committed a giant pile of cash into the house.

As a way of reducing my exposure, I was thinking of increasing my liability insurance to such an extent that should someone successfully sue me due an accident with my home or car, I am well covered.... making it unlikely that they will need to pursue my home's value.

One million in umbrella coverage would cost me $35 monthly through Allstate.

Does this appear to be a sound way of reducing my risks?

Thanks

its definitely a good idea to purchase umbrella given your large asset base. $1 million should be sufficient, also have large limits on your auto and homowners liability portion.

I'm no insurance whiz... but as far as I know, the umbrella coverage is called "umbrella" because it covers the house and auto liabilities.

Am I missing something?

the umbrella kicks in once the primary liability coverage (auto or fire) have been exhausted. it does not take over those liabilities. it is always a good idea to have high limits on auto/fire (500k for each coverage is good).

as someone who used to handle claims it really works by combining the total coverage. so if someone is injured and you have $100k primary auto and $1 million umbrella it will be viewed as you having $1.1 million available to settle a claim.

So mnk,

I'm using Allstate... are they of decent quality?... or are there better options.

Thanks,
behaviorkelton

Behaviorkelton, Allstate is a quality company, but I don't know how they are at the claims end. $35/month seems a bit high. Mine is only $22/month.

Our umbrella with Erie is $261 annually.

Ah, I went to an insurance broker, and got an excellent deal with "Hanover" insurance. My parents like this company.. they've had good service.

I was paying way too much for Allstate.

After reding this thread and others, I have decided to payoff my mortgage.

Now I am thinking about obtaining umbrealla coverage. I talked to my insurance agent and found that it would cost $330 per year without uninsured motorist coverage, $550/yr with UM.

It's not a lot of money, but I wonder if I need the coverage. My house probably is worth about $350K.

Do I need the coverage? OR it's just nice to have one?

you coverage cost sounds pretty high. mine is $85 more than with out�"all bundled with my home owners and auto.

i suspect that you either are not carrying HO or you have very low deductibles on you insurance.

simple lessons on insurance:
1-insurance is for catastrophic loss only
2-insure something for the replacement value
3-everything is insured by someone�"someone will pay
4-maximum coverage for minimum cost

so, if you have a low deductible you are in violation of 1 and 4. $500 is not catastrophic. you deductibles should be set as high as you can bear without it affecting your lifestyle. this is usually the same as the total cost before you would file a claim anyway. if you won't fill for damages under $1,500, then set you deductible there because you are wasting money. this will have a huge effect on how much coverage you have and the premium. if your first P&C policy is larger, the umbrella should be cheaper as it is the last money spent. that why i am making the assumption you are not insured or under insured.

it sounds like you are not insuring you house because it is paid for. to honestly do this you need $350k in the bank to indemnify yourself in case of loss. everything is insured. if you loos it to fire either you buy an new one, go without, or have insurance. you can do it by yourself, or share it mutually through an insurance company. if you are more efficient than and insurance company at covering catastrophic loss, by all means self insure. in fact, start an insurance company. the lost opportunity of holding cash to replace loss will be much more than your premiums. also the home owners insurance is not house insurance (a very small portion of it is, the bulk is liability) is is home owner's insurance. it insures you and your wealth in case of liability and goes with you where you go. so actually to self insure you need a few million just hanging out for liability.

you will never meet financial ruin faster than through a lawsuit or accident. the risk of total and complete failure you will never recover from is far greater than the cost of insurance. if you get into a auto accident and total a few luxury cars and kill a lawyers daughter you might easily have a multi-million dollar judgment. all your cash is taken. your house, save $15k per spouse, your retirement accounts, your future wages, everything can be taken except the cash in a life insurance policy and a small part of that primary residence.

�"�"�"make sure you carry insurance�"�"�"

if you never use it you dodged a bullet if you do, your financial future is bullet proof if you have enough. the funny thing about insurance is you can never buy it when you need it only when you don't.

so do you need coverage? can you afford not to is the real question. quite literally can you pay if you had to, but if you could, the cost of the premiums would not be a big deal as they would be much less than the cost of the loss of capital.

Another person who owns their house, no house payments other than rental from the state, utilities, upkeep, etc...I'm an aggressive investor for my age, but have always kept at least 1/3 of my investments (non-house) in bonds. The bond part of my investments is growing rapidly in %-age of the rest of my diversified portfolio. The aggressive parts of my investments have been hit very hard, as I expected, and the conservative parts not so much. I switched new money into my current 401-k into bond funds some time ago, but the part still in stock (to avoid selling at this level of the market) is quickly declining in value.

One of the best parts of my position is that I have a place to live at minimal cost no matter what happens to my job or investments, that's a good base to build on where I don't lose sleep. The worst is that I can't see my retirement any more, not with 2 kids in college and the stock part of my portfolio smaller and smaller every day. As long as I'm able to work in tech, things are okay, the pay is decent. As times get harder, the stress is higher, though. My job is still in this country, although the large company that I'm working for is hiring mostly in India. So who knows how long I'll be able to keep this job.

I wouldn't think of taking on debt on my house, except in an absolute, crashing emergency. Owning a house is too important to my peace of mind, something that I would have to work hard to lose. House values, like everything else, are declining, but that doesn't really matter to me, since I'm not needing to use the equity at this point. As long as I'm working I'll have money to invest, more since I'm not having to pump it into a mortgage.

The point of this is the part about not borrowing against the house, that's where I live, home base for my family. It is essentially outside of my mental realm of investment, and I'll keep it there as long as I can.

-Roger

kliddle,

Thanks for your input.

I do have HO with $1k deductible. Auto policies are $750 deductible.

My number seems high because I have to increase auto liability to 250/500/100 in order to qualify for umbrella.

I am with Farmers.

Our annual homeowners costs one-tenth of a percent of the estimated cost to rebuild our house, to code, to the same level of finish and furnishings. We have a 10% deductible. We could cover the 10% in the case of total destruction and we would not file a claim for anything under that. (File enough 'small' claims and your policy cost increases...if the company doesn't refuse to renew when it expires.)

A few pieces of jewelry I wear frequently are insured on a scheduled property policy -- not subject to the 10% deductible on the homeowners.

Our annual umbrella costs one-one-hundredth of a percent of its face coverage. (Am I correct in thinking that the insurance company would help fight a claim to avoid paying out the coverage?)

BTW 'payday loans' = 'usury' in my book.

payday loans are no where near usury, at least not where i live or where i have invested some of my money.

we have all heard the news reports saying that they charge 400-600% interest. this is usury and it is also illegal.

this is how a payday loan works.

i need $200 to cover my rent or avoid to avoid bouncing a check or incurring a $50 late fee. i have a job and direct deposit into a checking account. i go into a payday loan center. they verify my employment and my direct deposit. they give me the $200 and put a hold on the next $205 dollars to come into that checking account. i get paid in 2 days and the debt is settled. the $5 extra i paid is not interest, it is a fee. if it were interest, it would have been 2.5% in 2 days. factor that over a year and the rate of return is huge. it is mistakenly called interest.

had i not spent the $50 i would now owe the bank $50 for bouncing a check. they probably would cover the $200 and fine me if i was a long time customer (it has happened to me before but with a debit card). if i had overdraft they would charge me there.

the state of california where my money is only allows for loans of $499 or less for no longer than 15 days or one pay cycle. the fee is the same no matter the amount or time.

is this usury? my bank will charge me almost the same to use an ATM to take out MY money. the bank i used when i lived in manhattan charged $6 for every check i wrote or cashed. again, my money. American express charges me $85 for the honor of having their card in my wallet (i have never paid it as each year i tell them i am closing the account so i don't have to pay and they re-up my 1 year free introductory offer for now the 5th year and drop my interest rate which i have also never paid since i don't carry a balance). is any of this usury? are you getting charged by you bank for letting them use your money. let's call the kettle black here.

payday loan places serve a segment of the population completely disenfranchised by banks. no bank will do a $200 signature loan for $5. granted the people who use these places are not the cleanest and most sophisticated people. are you judging the industry by the customers?

they also take 10% of checks they cash. this is rediculous. well the people who are cashing checks there are doing on their own free will because for some reason they do not want to have a checking account. mostly i guess because they are illegal. i am paying taxes on my earning, they are paying me back for what i have bought them with my taxes. they are still coming out ahead of me as my uncle sam is taking more than 10% of my check.

look deeper, it is not all you think it is. i am sure there are shady places. i was concerned as well. i did my homework, i looked at the company, learned the business model and i sleep quite well at night. in fact, i feel like my money is actually in a good place, not only because it is quite safe even safer maybe than with a bank in the current environment. but it is also being used by those who need it for a price they cannot get elsewhere.

the reason these places make so much money is they move the moeny so quickly. the default rate at the place i invested in is 3-5% that was the bank default rate at the time i put the money in and probably much better now days. the bank will make 400-600% on my deposits doing big deals and give me back 3.5% by doing big deals and leveraging 10 to 1 every dollar i give them. or i give it to a payday place and they give me 24-36% of that same margin by loaning my money out 50 plus times a year and very small deals at $5 a piece. who is guily of usury? my payday investment or my bank? if i am thinking about me, it is the bank as they are not giving me my fair share of what my money earned.

when i do the numbers and factor the risks i like payday more than my bank. i use the bank for checking and they provide me with a service. i don't use them to make money, they use me.

like i said before lack of understanding costs money. if you have tens of thousands in a money market right now and feel good because at least it is not going backward like the stock market, you are missing half the equation. factor in inflation, and the money markets and CDs (certificates of depretiation) always loose money in terms of value. banks are not in business to make you rich.

kliddle-"my credentials, i am a financial planner and hold various licenses none of which matter as a license or title does not make you right or worth listening to in itself.

first i hope you did not sink you money into the stock market. i have been in cash for almost a year now and i am no market genius (those who are still in have been shorting the market and making millions all year). it is shocking how many "planners" and brokers urged their clients to "invest for the long term" and hold in the market. if your planner or broker has been saying this this last year, you should fire them."

Great to hear at least one financial planner who openly admits that licenses, etc don't necessarily convey expertise. I also agree with you about holding cash. I could write a book about all the greedy, crooked jerks I've run into in my quest to understand the workings of the financial, banking, regulatory industry. I've since learned that the 'rot" begins directly at the top. It is as if they are holding hands while they piss down on the poor with lies, obfuscations and glad handing among fellow crooks. Some move from State justice dept's, into compliance jobs, into regulatory positions and back again. No wonder arbitration is a JOKE.

Your post is refreshing. Don't let the naysayer's drive you away. I've been accused of fear mongering, inciting panic and promoting an attitude of the "sky is falling' for saying what you have said. This will never stop me from adding my own two cents about what I see in the industry. I'm looking forward to hearing more of what you have to say!

kliddle, I enjoyed your post too, and never heard it explained that way. It was a fresh insight. Absolutely nothing is ever how it appears on the surface, and the deeper you dig the more you find that out. When I try to research all sides of agendas on ballots, or verify information I read in editorials, I usually alternate between laughing at the irony and then getting sick to my stomach at how so many people take the popular mindsets as gospel.

I'm thankful that I'm in a position to be able to refrain from/refuse to borrow to consume ... and would be very reluctant to do so, in almost all cases.

I feel much differently about the idea of borrowing to acquire an asset and am willing to consider doing so, if potential costs, risks and potential profit may be worthwhile ... after considering tax implications, of course.

I've said that, using one set of parameters, I calculate that I can, on average, borrow at almost no net cost to me. So - if I can make some capital gain on the invested amount, down the road ... I'm laughing ...

... but not, " ... all the way to the bank", (unless it's to buy more shares).

I don't like earning interest.

Some time ago, during a discussion of a way of using money on this or another forum, I referred to using a Line of Credit, without specifying anything related to the underlying security, as I did not feel it to be relevant.

During the discussion, someone spoke about being a lot more cautious ...

... but, later, when it appeared that my securities backing the LOC were stock and mutual fund certificates, he changed his tune substantially, related to being willing to take more risk.

It appeared that he thought that my LOC was using my home as collateral, and he did not want to take risks regarding his home.

I said that it looked about the same to me - if the loan went bad and the bank hooked my certificates to recoup their loss, I was a substantial loser, as he would be ... but I did not see that his was a far greater risk, i.e. potential/incipient loss, as he'd get whatever residual value there was in the asset, after the bank's loss was covered ... and that he could go out and rent a place. I'd get whatever value were left in the assets that I'd owned before the loss (and there'd be fewer costs associated with mine, as it relates simply to a phone call to a stockbroker with instructions to liquidate.)

It seems to me that a major part of his fear related to emotional attachment to his home.

With regard to various aspects of home ownership, I can uderstand emotional attachment ... but when it comes to the various issues relating to the financial end of it, it seems to me that involving one's emotional issues just gets in the way: one needs to be unflinchingly objective in one's evaluation.

Years ago, my wife was unenthusiastic about using stocks as collateral to make investment loans (though I'm fairly sure that, years later, long after our parting, as she became more conversant with the field, she made some, herself).

I said that, were we a usual professional couple, we'd be buying a home, using a mortgage, and that she'd feel more comfortable, as she could see the foundation, walls, windows, floors and roof, plus wires, pipes, fixtures, etc. around her every day, and was assured that they continued to be there as she slept within them most nights of the year.

However, if we'd had $2,000. - 2,500. to invest, the bank would have been willing to lend us $7,500. - 8,000. in order to buy a house selling at $10,000., (providing we had closing costs in hand)... and possibly a modest home would have cost us some more than that, in the mid to late 60s.

But that if I had $2,000. available to invest, the bank would be willing to lend only $1,000. ($1,200. at the outside, if conditions were favourable) using it as collateral. That'd be all - which to me seemed a great deal less risk to take on.

I think that, following 6 years of university and seminary training, my first year's employment income (1953-4) was about $1,900.00.

And I would not want to borrow up near the limit, unless I had other assets, or cash, available in case the market values went down and the bank wanted either a reduction in the amount of the loan ... or more collateral ... and that's today, tomorrow at the latest. If I'm lacking cash or back-up securities ... I don't like margin calls!

ole joyful

P.S. That said (and to mention this detracts from my argument above) ... one of my criteria in evaluating various potenital investments does relate to my moral/ethical standards, in that I try quite hard to avoid buying shares in tobacco companies, as I call cigarettes "cancer sticks".

I have high regard for the ancient book referred to above, and my boss, whose biography it traces, says that I should love my neighbour as myself (but makes no mention of my neighbour's wife) ... and to my way of thinking, part of my loving my neighbour is not selling him poison (and advertising to encourage him to partake).

It troubles me also that they are so addictive. I don't want to become a slave to a person, how much less to a little white paper tube filled with dead leaves! Doubly so do I wish to avoid encouraging anyone to enlist him/herself into such slavery.

I have had a similar feeling with regard to the thought of the whole payday loan business, and more so with regard to the thought of becoming involved in one as part owner. I give some credence to the concept of the validity of a fee ... but that only partly alleviates my concern.

I have, however, been willing to be (partial, you understand) owner of one of those nefarious entities called a "bank", for many years.

Was the fact that its share value (if the term, "value" seems inaccurate to you ... would you settle for "price"?) recently went down by 50% partial penalty for my misdeeds? That largely due to its participation in those nefarious home loans perpetrated by nefarious lenders in the good old U.S. of A.

o j

i agree with you conceptually about only investing in thing you believe in, or rather in things you can stomach as most investments and industries have a downside if you look hard enough. eventually you get to exploited workers and poisoned rivers and solid waste. i personally struggled with the payday investment i made. the return was high, but i did not want to be associated with it. i said no for about 6 months. over that six months i learned how they (where my money is now) did business. after i understood it i had a hard time thinking of it any differently than a bank. they both loan money based on ones ability to earn money and pay it back. the only difference is the duration and the size of the loan. a bank allows me to spend money i don't have on a credit card and then charges me 13-18% until i pay them back while they themselves are leveraged 10 to 1 on those dollars loaned. the payday place will only loan me money that will be covered in my NEXT paycheck and charge me a flat fee of $5 or $10 while they themselves have a dollar for every dollar they loan out. when i look at it like that i really had no problem with the payday place, but started to have them with the banks. the payday places are not dragging the economy down because of their recklessness. they are also not enslaving an entire generation by offering them credit they cannot pay back. there are people who use them recklessly, and it is real easy to point them out because they are the fringe. it is a little harder to point out the middle class suburbanite who is a slave to their credit card and bank because they get up and go to work each day and keep a nice yard but are living on credit. both industries lend money and both are technically guilty of charging people who don't have money. they are in business to make money, not give it away. in the end neither is good nor bad just as fire is neither good nor bad. the good or bad all depends on who uses it and how they use it. the payday places service a far less afluent and unsophisticated clientele and therefore gives them very little wiggle room to abuse the system. if they want to stay one paycheck behind for the rest of their lives, that is about all they can do. the bank will let me get decades behind because they assume i am responsible and won't let it come to that but do little to stop me and recently have even encouraged me to do so. in my mind it is a match compared to the bonfire. both can be abused, but the potential abuse of a credit card is far greater. but there may be other payday places that have different policies than where i invested. mind you i don't have equity in the payday place�"they borrowed money from me to lend. in short my money is on deposit to be lent out just as if i put it in a savings account for the bank to lend out on a credit card loan. the main difference is my rate of return is almost 10 times higher but not FDIC insured.

the only thing i do struggle with is the 10% they charge for cashing checks. this is outrageous in my opinion. i can't understand why anybody would do that unless they were unable to cash it elsewhere and i won't speculate as to why. but in the end they have their reason and are paying a premium for it. and with that i leave it.

cigarettes are another issue and i am totally with you. i feel the same way about other products as well most are not as overtly damaging, but their products do carry liability and they push them with abandon to those who are hurt by them. not just talking guns and alcohol. a few minutes watching saturday morning cartoons was an eyeopener to the type of products marketed to kids. slap a mcdonald's logo on a bucket of mud and i think my kids would want to eat it.

a friend of mine who is militant about his hate for phillip-morris and smoking in general (i think he lost a parent to lung cancer) holds half his portfolio in tobacco stocks. he justification was that it "those people" are going to annoy him with their smoke and take his taxes in healthcare, they are going to pay him for it. an interesting take on moral investing practices, but for him it makes sense.

i respect your desire to not follow my practice of investing in payday lending. we not only have to undderstand our investments, but repect if not love them. i do not love payday lending, and to be honest would rather be elsewhere, but for the time being it is a good place and i am no so morally apposed to money lending as to not take the opportunity. i do however own no bank stocks for obvious reasons, i think their model is risky. i also think they are on the more unethical side of business. they have laws and loopholes that allow them to do things that are illegal to any other company. id it because we need their services and that is what it takes, or is it because they have power to influence if not make laws that favor them? i think recent events have shown us it is a little of both.

before i sound too anti-establishment, let me say i think financial institutions are important and necessary�"ie. banks, insurance companies, the US government, the FED, and even payday lenders. BUT they are in busniness to make themselves rich, not us. if you do not understand what they are doing, how they make money, or worse, what you are doing, they will take advantage of you. thus education. it is through education that you can see the smoke and mirrors they use to make you feel good about making them rich at your expense. one of the most ubiquitous is the home mortgage. i am emphatic that the most expensive ways to buy a house are in this order; cash, paid off early mortgage, continually refinanced mortgage, a 15-year note, a 30-year note, ARM, variable rate, interest only, and deferred interest-AKA sub-prime being the cheapest. that said, i don't like differed interest as it assumes the risk in the real estate market and if used by the uneducated or irresponsible it can (and has) blown up in the borrowers face.

what does the bank want you to do? they love you to take out a 30 year and refinance every few years or pay it off early. if you are going to take it to term, they prefer you take out a 15-year because it makes them more money and that is why they have a cheaper rate to take it�"they need to give you incentive to do what benefits them and think you are getting the better end of the deal�"if it makes them more money, how can it also save you money and show up in two places at once? this all sounds like hericy i know. but where do we get our financial education from? our bank? alan greenspan has a nice quote about the variable interest only mortgage being the best deal out there if people only knew how to use it and the 30 year not serving its customers as the think. i will see if i can find it.

the mortgage subject was perhaps the most eye-opening and influential education i ever had in finance. it is the lesson that taught me to see the whole equation and not look at a financial strategy in a vacuum. it taught me to understand finance on a macro economic level to understand how to best use products on a micro economic level. it is painful and feels like you brain is removed and turned around and put back in. but i assure you it is all true and useful information, but it requires the user to be responsible for their financial life and some are not willing to do this and for them it is not wise to have control. just as fire in the hands a of one is destructive and to another the opposite. what i am talking about is basic business finance�"in short figuring out the lost opportunity cost and the taking the greatest margin. if done properly with understanding risk is minimized and growth is maximized. some will refuse to believe, but that does not prove those strategies wrong. i myself do not practice whole-heartedly all the strategies i know an believe because of issues regarding timing, my own laziness or whatever. this does not mean i don't acknowledge their strengths or potential. but it serves me to understand alternatives. there are many i have encountered on this forum and in other places who flat out throw up a wall and won't even try to understand that there are several strategies to use in every situation and they all have merits. my beef is with those who claim merits that are not truly there or ignore others. those who emotionally attach themselves to dogma that was sold to them without trying to understand. i have been guilty of this and still am at times and it only hurts myself.

when i have a few hours to spend with a calculator, i will start a new thread and actually run the numbers on the most popular mortgage products side-by-side including paying cash. i will treat all as equals. it is amazing how different the outcome is from popular beliefs, but if you look at who is selling the mortgages and the information i guess it is not shocking. it won't prove anything other than which is the most expensive in terms of money and what risks are inherent in each scenario. the individual would have to choose which is best for them. the problem is that most choose the wrong thing for what they claim to want. if you know how they each work you can choose more appropriately for your goals whatever they may be.

it makes no difference when you borrow money for any reason you are paying a premium (interest) to have the money now instead of saving to pay cash.

yes 30, 15, ARMs are all expensive in their total cost with interest, however what you dont write about is risk. Risk is always a factor whether you are borrowing money or investing. 100% of foreclosures had a mortgage on them.

For mortgages the largest is someone losing the ability to pay the monthly mortgage payments. With ARMS the risk is in the increase of the payments.

we can never remove risk but we can try to reduce it. paying cash removes the risk of foreclosure, however it doesnt remove other risks (property taxes, uninsured conditions, etc.)

risk can be calculated when compared to other investments (savings, stocks, mutual funds, etc.). there is also the volitality of investments; stocks being the best example. so as we can see stocks and bonds can go up and down but long term they reflect their true values. if we take a traditional 30 year mortgage at 6% there is always the possibility of making more in other investments however when you take risk and volitality into account your return will probably be the same.

saying that, the risk of paying cash for a home or paying it down quickly is depleting your cash reserves. I do not recommend this and you should always have a good cash reserve, pay off unsecured debts and investing for your retirement, then pay off the house.