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Guaranteed Ways to Go Broke

February 1, 2021 By MelissaB 1 Comment

How to Go Broke

If you look, you can find plenty of material about how to create a budget, save for retirement, and live within your means.  What you don’t find are many examples of people doing just that and living a financially solvent life.  On the other hand, you don’t find much material about guaranteed ways to go broke, but you can likely find people from all walks of life who flaunt the steps to going broke.  Ironically, those are often the people of whom we are most envious.

How to Go Broke

There are many, many ways to go broke.  To most effectively go broke, utilize as many of these steps as possible.

Buy a House You Can’t Afford

One of the best ways to go broke is to buy a house you can’t afford.

When you qualify for a mortgage, you’re given a price range that you can buy in.  If possible, buy a house at the very top of your price range.  This will ensure that you will likely struggle with house payments, and that your monthly payment will be more than the recommended 28 to 36% of your take home income.  (Remember those percentages include not only the house payment but also taxes, insurance, and HOA fees.)

Also ideal is to pick a home with the highest HOA fees.  Then, even after you pay off the house, you’ll be paying hundreds a month in HOA fees.

Buy a New Car and Trade in Frequently

How to Go Broke
Photo by Jakob Owens on Unsplash

After buying a house you can’t afford, the next best way to go broke is to buy new cars frequently.

Buy a brand-new car and only drive it for two to three years.  Sure, you save yourself the headache of costly repairs as the car gets older.  However, you also ensure that you’re absorbing the depreciation that happens in the first year or two of brand-new car ownership.

Ideally, when you sell your car, try to be upside down on your loan so that you owe more than the vehicle is worth.  Go ahead and roll that difference into your next new car loan, and you’re well on your way to going broke.

Give Your Kids Everything They Want

If you have children, make sure to give them everything they want.  After all, kids are only kids once.

Make sure to pay for all the lessons that they want.  Buy them all the clothes that they want.  At Christmas, buy them as many presents as possible.  When they come to you for money, give it to them freely without making them work for it.

Stay Active on Social Media

Stay active on social media and follow as many people as possible.

This is the best way to see what the Jones’ are doing.  Try to do the things that they’re doing.  Book more travel than you can afford.  Get your hair and nails done.  Go out to eat as much as possible at the trendiest, most expensive restaurants.  Buy as much as possible.

After all, the point isn’t a happy, contented life, but one in which you look as impressive as possible.  Who cares that you’re actually broke?  No one can see that.

Don’t Save for Recurring Expenses

Of course, you have your regular bills that come due every month, which you try to pay regularly.  But then you have your irregular expenses like your car insurance and home owner’s insurance, which are due twice a year.  Property taxes also fall into those categories.  But don’t bother saving a little each month so when the bills come due you have money to pay them.  No, that’s no fun.

Instead, pretend like those bills don’t exist, and when they come due, panic.  For several weeks, worry how you will pay these large bills.  Try to cut your spending for a few weeks so you can gather enough money to pay them.  If you can’t manage gathering enough money, ask friends or relatives for a loan.  Six months later, when the same bills are due, repeat the process.

Don’t Have an Emergency Fund

Who needs an emergency fund?  How could you possibly set aside thousands of dollars for an emergency?  That’s too boring for you.  You could never stand seeing that money sitting there and not spend it.  No, enjoy the money that you have, and when an emergency comes, which hopefully it won’t, you will deal with it.

Have as Many Credit Cards as Possible

How to Go Broke
Photo by Avery Evans on Unsplash

Fill your wallet with as many credit cards as possible.  After all, how can you finance your lifestyle without credit cards?

Make sure to charge all of your expenses each month.  Ideally, only pay the minimum payment due.  When one card reaches its credit limit, just move on to spending on the next card.

Don’t worry about the 12 to 20% you’re paying in interest monthly.  Don’t worry that by paying the minimum due you,re only putting a few dollars on principal, so you’ll never get out of the financial hole you’re digging yourself.

Remind yourself that all Americans have credit card debt.  It’s just the way our economy functions.  Plus, you’re actually helping the economy by spending, right?

Don’t Invest

Investing is so boring.  Don’t bother saving for retirement.  After all, you only live once, and who knows how long you’ll live, anyway?  What if you save all that money, and then you don’t even live until retirement?  What a waste!  Take any money you have and spend it now.  Live in the moment!

Final Thoughts

Clearly this is a tongue-in-cheek post about how to go broke.  However, many Americans do try to live this way.  The path to going broke is clear; we’ve seen many Americans do it—from everyday people to professional athletes, singers, and actors.

What doesn’t get highlighted as much is how to be smart with your money and build a sound future.  Don’t worry about what other people are doing; focus on your own life and your own financial future.  You’ll be much happier that way.

Read More

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Filed Under: Financial Mistakes, General Finance, Home, Insurance, Personal Finance Education, Retirement, Saving Tagged With: broke, financial awareness, money mistakes

Are Insurance Companies Just Big Ponzi Schemes?

October 12, 2020 By MelissaB 13 Comments

It struck me the other night, as I was reading a book and came upon a section on Ponzi schemes, that insurance companies are borderline Ponzi’s themselves.

Ponzi Schemes

What Is a Ponzi Scheme?

The definition of a Ponzi scheme is when the broker/banker/agent takes money and promises an unusually high return and then pays said return from the incoming money from other investors.  Eventually, when the incoming investors dry up, the agent can no longer pay the returns and the scheme comes crashing down.

Ponzi schemes are named after Charles Ponzi, an Italian immigrant who was the original Ponzi schemer.  In recent years, the most famous (and longest lasting) Ponzi scheme is attributed to Bernie Madoff.  Madoff’s Ponzi scheme is thought to have begun in the late 1980s or early 1990s and didn’t end until 2008 when he was arrested.  This Ponzi scheme cheated nearly 5,000 customers out of $60+ billion dollars.

Insurance Companies Are Set Up Like Ponzi Schemes

Now, let’s look at insurance companies.  We, as the insured, pay the insurance company our premiums in return for insurance against some sort of event.

With health insurance it’s against some sort of health event.  With car insurance, it’s against some sort of accident.

In any case, it’s a payment.  Or a return on the premium.  Very seldom will you actually come out with your entire investment.  And, unfortunately, you often have to fight for the payment.  Health care coverage may be denied if the health insurance company doesn’t find the treatment worthy of the expense or if they deem it experimental.  Likewise, if you file a home insurance claim too many times, the insurance company can choose to drop you as a customer.

Ponzi schemes
Photo by Daniel Tausis on Unsplash

For the most part, insurance companies are in charge and decide when to cut customers.  But what would happen if the premium payers dried up?  It would certainly get more difficult for the insurance companies to pay any claims.

How Insurance Companies Are Different from Ponzi Schemes

Where the key difference lies is that if you stop paying your premiums, the insurance company stops paying any claims for you.  Also, as a premium payer, you never really expect your money back unless you have a claim.  You’re paying for the “in case”–if it were to happen.

In a Ponzi, you’re investing your money specifically for the return.  You’re not going to stop investing as long as the returns are stable.  And a Ponzi only really dies when the new investors stop coming.  If new insured stopped coming to the insurance company, they would still have their current insured to collect premiums from.  However, as the years go on with no new insured clients and the current clients age, the insurance company could have difficulty paying claims.

Final Thoughts

Even though insurance companies seem to fit many of the criteria for a Ponzi scheme, no.  insurance companies are not Ponzi Schemes.  But, it sure feels that way sometimes.

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Filed Under: Financial News, General Finance, Insurance, Investing, ShareMe Tagged With: car insurance, health insurance, Insurance, madoff, ponzi, ponzi scheme

When Do You Need Umbrella Insurance?

September 7, 2020 By MelissaB Leave a Comment

You likely have the insurance you’re required to get, such as auto and home insurance, and you probably have health insurance, and hopefully life insurance.  For many, that’s enough insurance to adequately protect you and your assets.  However, in some cases, you may also want to consider more coverage.  If you’re wondering when do you need umbrella insurance, there are several situation when buying it may be wise.

When Do You Need Umbrella Insurance?

What Is Umbrella Insurance?

Think of umbrella insurance as an extension of the auto and home insurance you already have in place.  If you have an auto policy with a $500,000 cap for injuries sustained, and you have an accident in which several people are severely injured, that $500K may be used in very little time.  When that amount is exhausted, umbrella insurance steps in and covers the rest of the costs, up to the limit of the policy.

When Do You Need Umbrella Insurance?

Likely, most people living low risk lives do not need umbrella insurance.  The basic insurance they have in place will cover them.  However, there are some times when you’d benefit from umbrella insurance.

You Have Significant Assets

If you have assets over $500,000, you may want to consider an umbrella policy.

You Have a Teenage Driver in the Home

When Do You Need Umbrella Insurance?
Photo by Matt Chesin on Unsplash

Teens are inexperienced and can be reckless, increasing your liability.

You Frequently Have Visitors to Your Home

More visitors mean more chances for injuries or accidents to occur.

You Have a Trampoline

Fun, but an accident waiting to happen, especially if you don’t have net fencing around it.

You Have a Rental Home

A rental home can be a great income source, but having one opens you up to lawsuits and expenses, especially if someone is injured or if the house sustains damage in a fire or other weather-related event.

You Have a Pool

Minimize your liability by having a fence around your pool, but still, someone might drown or fall and hurt themselves.

You Have a Dog

You may think your dog is gentle, but it only takes once for a dog to get aggressive and bite someone.

Caveats

There are two important pieces of information, should you be considering purchasing umbrella insurance.

First, your rates on your existing auto and home insurance policies will likely go up.  If you buy your umbrella policy from the same company that you purchase your auto and home insurance, they may first want you to increase your coverage for those policies.  The umbrella pays out only AFTER the auto or home insurance is exhausted, so they want those limits to be high enough, which raises your premiums.

Second, if you are sued in the future and have your auto, home, and umbrella insurance with the same company, the insurer may hire you an excellent lawyer because they want to avoid paying out the money, if they can.

Few people discuss this type of insurance, and most people don’t need it.  However, if you have liabilities in your life, such as a pool where someone may drown or slip on wet tile and hurt themselves, you may want the peace of mind that umbrella insurance offers.

Read More

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Filed Under: Insurance Tagged With: Insurance, umbrella insurance

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