Whether we know it or not, how our parents viewed money has a significant impact on our money mindset and beliefs. If you think about it, how did you learn about money? What lessons did you learn from your parents? Or your friends and other people you are close to?
For me, I have been blessed to have parents that believed in teaching my brother and me the value of a dollar, along with the importance of also protecting the money we earned. So, it wasn’t hard for me to understand that before thinking about long term money goals, I needed to build some structure into my financial world.
I started at an early age, knowing that I needed to secure my most valuable asset - my income.
I knew that a mistake here could have devastating effects on the rest of what I wanted to achieve. After all, you can’t fix a mistake in protection after the fact. It must be handled first. This way, as I began to build wealth, I would always have the confidence of knowing I was protecting that wealth along the way.
As I thought about this protection, I wanted to make sure that regardless of what happened, I would have all the money I earned in my lifetime replaced if god forbid something happened.
This meant I bought life insurance, and lots of it, at an early age.
I chose the amount of life insurance to own based on my earning capacity throughout my lifetime. This amount came out to be about 35 times my annual income. Since I was just beginning my career, I bought this amount as temporary, or term insurance. Knowing that as I earned more, I would gradually convert this to permanent insurance. After securing the right amount of protection, I was able to focus on my second objective, developing the habit of saving money.
As I learned more about money, I also realized that building the habit of saving a portion of my income was not just smart but necessary. By having money saved, I could avoid going into debt for the big things I would need or want to buy throughout the years.
My first goal was to get to six months of living expenses saved. After some time, I finally achieved that, which allowed me to move on to my next goal of saving 50% of my gross annual income.
I put this money into two separate places. Twenty-five percent of the savings went into a highly liquid savings account for immediate access, with the rest converting my term insurance to whole life insurance, which built cash value inside my policies. By choosing this strategy, I was able to secure permanent protection and build money for my liberty fund accomplishing two things at once. This decision was critical as it allowed me to have access to cash when I needed it.
And the best part about it? It was on my terms.
Something that may come as a surprise is how I have used my permanent life insurance throughout my life. When I went through a divorce over a decade ago, I was able to borrow that money to reboot my life without falling into debt.
At the time, I was a stay at home mom, with a small consulting practice. I didn’t have consistent income coming in, so qualifying for a loan was not easy. Knowing I had this money gave me peace of mind to know that I will be ok after going through with the divorce.
I have since used that money for things as needed, knowing that once the loan was repaid, I had it to use again. I call this money my liberty fund because it gives the liberty to make decisions that are right for my family and me on my terms.
The great thing about this is that I could pay back the loan when I wanted to, not based on some schedule someone else decided for me. I always paid the interest on the loan, and overtime began to pay back the amount I borrowed. Now, as it is fully repaid, I know that if I needed money again, I have it on hand. And something many people don’t know is that even though there was interest on the loan, I was continuing to earn dividends on the money within the policy. This then offset much of the interest I was paying.
And the good news is, I didn’t have to qualify for the loan. I made a call, discovered how much cash I could borrow and processed the request, getting the check in my hands within a couple of days. No credit check. No verification of employment. No complicated paperwork. It was super simple and easy.
Having the security of knowing I have money to handle anything that comes my way, whether it is a challenge or opportunity, gives me such peace of mind. So much so, that I can focus on my long term goals. And I can do this without the fear of taking on debt or reducing my retirement savings to pay for the in-between things.
There is a quote that I think sums this up perfectly, “When we make plans, God laughs.” Having the flexibility to handle life’s craziness is what allows me to have some level of control while easing the anxiety of the unknown.
With life insurance awareness month being this month, I felt it was important to share how life insurance has impacted my life. If you have never thought about how life insurance could play a role in your financial world, perhaps it is time to take a look at this incredible product.
Ande began her 20+ year career as an adviser and quickly realized that many people weren’t taking into account was how emotions play a huge factor in financial decision making. Leaving behind her practice to focus solely on educating both advisers and consumers alike, she became an expert in behavioral finance. Author, speaker, thought leader, and money educator, Ande is helping women to take control of their money.
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