Everybody Loves Your Money

It’s a question I have asked myself a hundred times.  Is earthquake insurance worth the money?  I used to ask that question when I didn’t have earthquake insurance.  I finally decided to buy it because I live in a high risk area for earthquakes.  I’ve had the insurance for just over a year now and I still find myself asking whether it is worth it or not.

Here are the details of our insurance:

2700 square foot house

$460,000 valuation

Two story, wood built home on a flat lot

Insurance cost: $365 per year

Insurance deductible: $50,000  (yes you read that right)

As you can see, I’m not buying insurance to cover every little possible crack in the drywall that might happen.  I’m really just insuring our home for the big one.  If we were to experience a smaller quake, we wouldn’t even bother calling the insurance company.  With such a high deductible, they wouldn’t even want to hear from us.  I looked at policies with a lower deductible, but the lowest I could find was around $20,000 or so.  I figured that I might as well drastically lower the premiums by choosing the higher deductible.

So, that begs the question.  Is it really worth buying earthquake insurance?  I’m basically paying about $30 per month for the peace of mind that if we were to have a massive quake, I’d still end up with a house after it was all done.  After watching the catastrophe in Louisiana and the gulf coast and hearing first hand from my inlaws what it’s like to experience such a huge loss, I just don’t want to lose so much.  We have a lot of equity in the house and I’d hate to lose it all due to a natural disaster like an earthquake.

What is your opinion?  Do you have insurance that covers natural disasters?  (In addition to your standard homeowners policy)

I’ve often wondered why people have such radically different relationships with money.  Certainly the way their parents handled money impacts how they handle it but I believe there are other things that also affect how each of us deals with money.  I think that there is a strong correlation between people that worked as young children and those of us who choose to save as adults.

I started earning money when I was pretty young.  I would earn small amounts of money helping neighbors with chores when I was between 7 and 10 years old.  I learned to love the satisfaction of helping someone and getting something in return.  By the time I was 10 years old I was dying to have my own paper route.  I didn’t fulfill that dream for another two years, but when I finally did start earning money from a paper route, I was thrilled.  Unfortunately, I didn’t save a cent of it.  Every month I would go around and collect the money from each customer and then, after I paid the newspaper company, would then proceed to blow every last cent of it.  At the time it didn’t appear that I learned anything but I did.  I learned that in order to have the things I wanted, I needed to work hard for them.  After about a year of having to wake up early 3 days a week to deliver newspapers, I decided that I wanted more so I started delivering an afternoon paper as well.  I had to deliver the afternoon paper every day.  I can still remember the weight of all those newspapers hanging on my shoulders as a 13 year old kid.  I would pack my cloth newspaper carrier as full as I could and then carefully get on my bike and start pedaling.  More than a few times I had to walk my bike around until the load was a little lighter.  On those hot summer days, I can remember wishing that I had chosen another type of work, but no matter how badly I wanted to quit, I kept going.  I had a responsibility to deliver those newspapers and I took it seriously.

In the summer months, on top of delivering newspapers in the morning and afternoon, I would also mow lawns in the neighborhood.  I had a route that wound through my neighborhood and during the peak of the season, I would mow about 6 lawns a week.  I must have pushed that lawnmower at least 50 miles each summer going from lawn to lawn.  I can still feel the heat of the pavement as I pushed that lawnmower up and down the hills around my neighborhood.  Unfortunately, I was also cursed with terrible grass allergies.  I had to take a pocketful of Kleenex in order to make it through each lawn.  By the time I was done with the lawn, my eyes were red, my skin itched and my nose was running like a river after a tropical storm.  It was pure misery, but I never dreamt of quitting.  If I wasn’t mowing lawns or delivering newspapers, I wouldn’t have had any money to spend and would have just sat around the house.

All these years later, I don’t yearn to mow other people’s lawns or deliver their newspaper.  I yearn for the day that I can sit back and make money without lifting a finger.  It only took me 30+ years to realize that what I really want to do is work smarter, not harder.

Just in case you were ever considering investing your hard earned money with the promoter of boy bands, this story is for you.  Lou Pearlman, who is best known for his creation of boy bands, ‘N Sync and the Backstreet Boys was also apparently quite the smooth talker.  Over the years he has been taking money from unsuspecting investors in a massive pyramid scheme.  Pearlman disappeared a couple weeks ago and there is no money to be found.  Well, that’s not entirely true.  Officials just froze $250,000 that Pearlman was trying to transfer to Germany.

Here’s the thing.  I don’t think I’d ever consider investing money with someone like Pearlman.  If there is one thing I’ve learned in life so far it’s that just because someone might be good at one thing, it doesn’t mean they are good at everything.  Pearlman got lucky with the boy bands.  He figured out a formula that was hot at the time and made some money at it.  So, there are lots of people that lost hundreds of thousands of dollars to this crook.  A lot of them crowded a Florida courtroom on Monday to hear that the chance of recovering their money is very small.  Pearlman has been living a pretty comfortable life at the expense of others and officials think that either he has spent most of it, or has it hidden in offshore accounts.  Luckily one of the victims did receive an autographed edition of Pearlman’s book called “Bands, Brands and Billions - My Top 10 Rules For Making Any Business Go Platinum.”  I’m sure that’s got to be worth at least .99 if they sell it on Ebay.

I need to keep an eye on that Charles Schwab character.  If he ever starts really living high on the hog, I’m going to take my money back.

I’ve always like Ben Stein.  The guy is just plain smart.  I’ll always think of him as the teacher in Ferris Bueller’s Day Off, but over the years, I’ve also come to think of him as an intelligent investor.  In Ben’s latest post he talks about two different friends of his.  One spends his days working and buying cars and facing the impact of poor financial decisions and the other has done a good job of having their money work for them.  The post is strikingly similiar to countless personal finance blog posts, including a couple from ELYM.  Nevertheless, it’s worth reading to reinforce what many of us already know.

So, check out the article. It really is good reading, although there are a few typos in it.

As I sat reading the Sunday paper yesterday, I found an article that talks about Motorola cutting out their pension.  Approximately two years ago, Motorola stopped offering pensions to new employees.  Now, they are changing the way the benefits are calculated for current employees which will result in smaller pensions for 24,000 of their workers.  Just one more example of why we each have to look out for ourselves.

The article also points out other companies that have started reducing or have cut out their pension benefits altogether.  They mention Lockheed Martin, Hewlett Packard, IBM, Coca-Cola, and Circuit City as well.

Unfortunately, this is just the new reality.  As newer companies come online and take a dominant position in the market, they force the older, more tradtional companies to change or die.  If companies like Dell don’t offer pensions, how can Hewlett Packard compete on price, if they have much higher overhead?  It’s not just US based companies that are part of the equation either.  Our US companies are now competing with other companies all over the globe.  In many of these countries, companies aren’t saddled with pension obligations or employee health insurance.  While I think it sucks, I understand the harsh situation.  The days of monthly payments from your company after you retire are winding down. 

I used to joke that I longed for the day that my only responsibility was to walk down the driveway to open up the mailbox and take out my check each month.  I think I’m going to have to modify that dream a bit.  Instead, I think I’ll long for the day that I can log on to my 401K account, or Roth IRA, or brokerage account and transfer some money in to my credit union’s checking account.  I guess the one upside to this is that I don’t have to walk all the way down the driveway.