Your Wealth is Hidden in the Fragments of your Everyday Life - Part 1 | Financial Planning

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For an extra amount of $34 added to your monthly premium, the deductible will be lowered from $500 to $250. If you do not pay this extra $34 per month, you will have to come up with $500 when you file a claim. If you do pay this extra $34 per month, you will have to come up with only $250 when you file a claim. You are, then, paying an extra $34 per month for $250 of potential value ($500 -$250 = $250 of potential value).

12 monthly payments X $34 per month = $408 per year. You are paying over $400 a year for $250 of potential value. In 5 years, you are paying $2,000 (5 years X $400 per year) for $250 of potential value. At this point, someone will usually argue that the example is not valid because you could have more than one claim during those 5 years. Divide the $2,000 you pay in 5 years by the $250 of potential value and you get 8. You would have to file 8 claims during the 5 years to just break even on this deal. Long before you reached the 8th claim, your insurance would be cancelled and you would be paying a very high premium for insurance from a high-risk pool.

Then consider what would happen if that $34 per month were invested by deduction or automatic deposit into a pre-tax account (401K or IRA) from age 25 to age 70. I looked at 12 aggressive growth stock mutual funds that had a track record of 15 years of more. By age 70, the lowest producing fund in this group would accumulate, hypothetically, over $1,250,000. The highest producing fund would grow (again, hypothetically, with no guarantee that this would happen) to over $6,000,000. This is assuming that the long-range growth would be roughly the same as it had been throughout the life of each fund. There is no way of knowing for sure that the pattern of growth would be the same, but this serves to give you an idea of what is possible by cutting out the survival crutches such as this measly $34 a month and investing it in your future.

A survival crutch is a means of survival that we "rent" that actually transfers our wealth to those institutions such as insurance companies, credit card banks, finance companies, and mortgage companies who "help" us survive on our wonderful trip to nowhere. There are 28 of these that commonly occur in our monthly bills that I will tell you about in later articles. Survival is, of course, necessary, but there are more efficient ways to survive than by renting these crutches and giving our futures away.

To review then, paying $34 extra every month for a lower deductible on car insurance is a survival crutch. Throughout her life, the typical American, then, forfeits over $1,250,000 of wealth to make sure she has $250 when she needs it. $34 a month is a fragment by anyone's definition. Your wealth is hidden in the fragments of your life.

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About the Author

David Unger is a 58-year old Records Manager in Dallas, Texas, who has organized large information managenment systems for the telecom manufacturing industry and for a financial planning/investment management firm. His great passion, though not by profession, has been helping the middle class and the working class understand the basics of personal financial planning. He has taught classes on debt destruction at church, during lunch at work, and in any venue where he could find someone who would listen.

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