One suggestion I had during the Quicken Online review was for the Intuit team to add in the ability to aggregate user data for comparisons.  If you’ve ever used TurboTax you’ll remember the section towards the end where the software shows how you compare to other tax filers.  I think it would be interesting and useful to see how you compare to other Quicken Online users in terms of where you’re spending your money.

The Trends feature of Quicken Online already offers some insightful data you can use for comparisons but nothing that compares your spending behavior to other people.  Of course you can get a good snapshot of your income and expenses with the current Trends section.  The charts make it easy to see where you’re spending most of your money for the current month and trending over time as well.  Another cool feature is that Quicken Online looks at your highest spending categories and makes savings suggestions on how much you could save a year by cutting a certain percentage of that spending.

One last thing about Quicken Online and Intuit products in general that I think helps add to their usefulness is a program they call their Inner Circle.  It’s a user feedback program that anyone can join.  You have to sign a non disclosure agreement but you get early access to new features in some of their products and can offer your feedback so they can incorporate user preferences into their products. That wraps up the Quicken Online overview, if it sounds like a useful tool for your money then give it a try, it’s free - Quicken Online Signup

As the story indicates, Nortel’s long term disability benefits was funded by the company itself, through what are known in the insurance industry as health and welfare trusts. On a very simplistic basis, the company creates the trust with the named employees as beneficiaries of the trust. The employers and employees can contribute to the trust.  The administration of the trust is out-sourced to insurance companies who administer the payouts and report to the trustee (who, realistically, report to management of the company) the financial position of the trust.  A trust is used since it is creditor proof. In other words, it is self-insurance with a benefit to the company of the contributions being tax deductible.

But the trust is not an insurance company. It is administered by an insurance company as self-insurance. What is the difference? Primarily, insurance companies are regulated to maintain some minimum capital requirement to adequately fund payment to the policy-holders. Self-insurance has no such requirements. Additionally, a person holding a policy from a bankrupt insurer can typically apply to a government insurance program to maintain coverage for some set period of time. No such insurance exists for self-insurance program.

In other words, it has the sheen of being insurance without being insurance. In and of itself, it is a good struture- PROVIDED it is adequately funded. If the company cannot continue to fund the health and welfare trust fund adequately, the company ceases to fund, there’s a large run on claims or any combination of the three, the self-insurance tends to collapse eventually on to itself. As the recent past has showed us, companies run the same way as governments in that they are deferring their current costs by underfunding pension or employee benefits to make the books look good.

What are the practical implications for you and I? A Nortel situation is not common-place so most of us would not be denied coverage tomorrow by our employers. Instead, I would check to see whether your health benefits are actually insured by an insurance company or self-insured by the employer with the insurance company as administrator.

If it is self-insurance, it is, frankly, hard to tell whether there is adequate funding since you would have to know both the claims history of all the named employees in the trust plus the company’s funding history. This type of information is difficult to obtain unless you are in senior management. But at least you know the risk factors involved in claiming on your employee benefits.

On a more sober note, one tends to learn a lot about people and structures when times are bad. What we are seeing is that the concept of security is self-made rather than given by third parties who ultimately live in self-perservation rather than for your benefit. If there is one lesson reinforced by this recession, it is that the only person who you can rely on for your own security is yourself.

You can get rich in just three weeks with my $99 tape course!

We can eliminate 70% of your debt immediately!

Gold is the only thing that will save you when the economy fails!

Do you smell the snake oil yet?

There are countless sharks in the water that want your money. One powerful technique for selling you something you don’t need is to prey on your fears. Perhaps you fear the government’s long term future (been listening to too much talk radio, haven’t you?). Perhaps you fear immediate personal financial failure. Perhaps you fear your professional failure - and what others might think of you if you’re not successful.

People will prey on those fears. They try to do it all the time. Commercials telling you that you can eliminate your debt. Pitchmen talking about how great an investment gold is. Smooth talkers telling you about their “program” for quick income at home.

Almost all of these plans do two things. They grab onto your fears and they combine it with some sort of widely-spread myth. The myth of the person who got rich quickly. The myth that debt can be whisked away through this or that loophole in the law.

Myths are dangerous things. They’re usually based on information that might have been true a hundred years ago - or are based on extremely rare cases that, again, don’t reflect how you live your life. Yet they persist because they sound good.

Denying Risk Because of Laziness
Early in the chapter, Ramsey goes on a rant about the dangers of denying risk in your life. One point he makes on page 52:

Sometimes risk denial is a kind of laziness, when we don’t want to take the energy to realize that energy is needed to win.

I think this very factor holds people back from a lot of career advancement. They look at the huge amount of energy they would need to expend to get ahead - networking, building a business, and so on - and decide that they’d rather expend their energy doing something else.

Another example: we look at the effort that it would take to keep track of our spending for a few months and get a real grip on our finances - and we decide that the status quo is just fine.

Or we think about the effort that it would take to actually build a price book and figure out which grocery store really is the cheapest for what we buy - so we shrug it off and just go shopping at the Wal-Mart Supercenter.

Laziness is the enemy of success in every area.

Denying Risk Because of the Beat Down
Dave’s rant against risk denial continues:

Other times, risk denial is a kind of surrender in which we settle for a bad solution because we are so beat down or beat up that we wave the white flag and do something stupid.

I’m reminded of those ludicrous debt elimination programs advertised on late night television. “We can eliminate 90% of your debt with our program!”

Well, this means one of two things. You’re either going to file for some sort of bankruptcy protection (which has a whole different can of worms) and pay them for the “help” or you’re going to sign up for their debt repayment plan, where you pay them money for something you could cook up yourself.

Either way, you lose. Why not just make your own debt repayment plan? It’s easy and a lot cheaper than paying outrageous monthly fees for companies to do this for you.

Denying Risk for False Security
Yes, I liked the denying risk theme. Dave goes on to say:

At still other times, risk denial can have an active component in which we search for a false security that simply doesn’t exist.

Gold investing immediately comes to mind. The local talk radio station in Des Moines carries tons of ads for buying gold as an investment, coupled with shows like Glenn Beck which talk breathlessly about the fall of the American government (I wish I were kidding).

Gold sellers prey on that fear, bringing up the old tales about how gold is the safest thing to own when governments are falling. In practice, though, that’s rarely true - gold is scarce enough that most people resort to a barter system until things straighten out, and land, skills, and resources have the real value.

Gold is that false security. It makes people believe that they’ll be safe if the government collapses. In a fearful environment, people seek out that safety.

That’s not to say gold doesn’t have a role in a diversified investment portfolio, but people with enough of a bankroll to need diversification into precious metals probably aren’t reading The Simple Dollar or listening to talk radio all day.

Cash Value Life Insurance Is Junk
This is one of those points that I absolutely love in this book. Dave lays out the case against whole life and universal life insurance on page 58:

All of the [extra payments beyond the price of term insurance] per month disappears in commissions and expenses for the first three years; after that, the return will average 2.6 percent per year for Whole Life, 4.2 percent for Universal Life, and 7.4 percent for the new-and-improved Variable Life policy that includes mutual funds. These statistics are from Consumer Reports, Consumer Federation of America, Kiplinger’s Personal Finance, and Fortune magazine, so these are the real numbers. Additionally, a recent article in National Underwriter, The Industry Mouthpiece, showed charts of returns from fourteen national companies. The returns they show average only 6.29 percent over twenty years. [...] Worse yet, with Whole Life and Universal Life, the savings you finally build up after being ripped off for years don’t go to your family upon your death; the only benefit paid to your family is the face value of a policy [...]. The truth is that you would be better off to get the [inexpensive] term policy and put the [extra payments beyond the price of term insurance] in a cookie jar!

That pretty much sums it up. If you want insurance, buy bread-and-butter term life insurance. If you want an investment, buy an investment from a brokerage with low-cost investments (like Vanguard, for one). Mix the two and you’ll find yourself eaten alive by fees and commissions.

Look, I don’t blame a well-meaning grandparent for buying whole life insurance for their grandchildren. Their heart is in the right place - they want to protect their own children when their grandchildren are young and give the grandchildren a valuable investment when they’re older.

However, I’d encourage them to split that $100 a month into two batches instead of putting it all into the insurance. Use a small part of that money for a small term policy on the child so your own children won’t have a financial burden if the unthinkable happens. The other $93 a month? Put it in an investment account.

Important/Not Urgent
One of the handful of useful ideas in Stephen Covey’s book The 7 Habits of Highly Effective People (which I reviewed a while back) is the idea that our tasks all fall into four groups - Urgent & Important, Urgent & Not Important, Important & Not Urgent, and Not Important & Not Urgent.

Covey argues that the distinction we should make is whether something is important or not (tasks in the Important & Urgent and the Important & Not Urgent groups), but in practice we usually focus on the urgency instead (Urgent & Important and Urgent & Not Important).

This has a huge impact on personal finance. Dave spells it out on page 62:

We take care of the Urgent/Important stuff, but what is Important/Not Urgent [...] is planning. You can pay the electric bill or sit in the dark, but if you don’t do a monthly spending plan, there is no apparent immediate damage.

I think this is one of the biggest reasons people put off financial planning. They are aware that it’s important, but they’re also aware that it’s not urgent.

Since so many of our lives are seemingly in constant “crisis mode” where we move from one fire to the next, we find ourselves falling easily into a situation where we just deal with what’s urgent and don’t even consider what’s important.

The end result? We find ourselves often missing out on many very important things in life because they’re not urgent. We skip playing with our kids because a client is calling us about a minor detail. We gloss over financial planning because there are fifty eight household chores that need to be done.

That lost time costs us. Every month we don’t save directly hurts our retirement. Every week we don’t contribute to our 401(k) hurts us. It comes around.

A Weird Argument for Cash
I think Dave goes off the rails on page 71 when talking about the risk of carrying cash versus carrying credit cards:

The crooks assume that your purse is like all the others filled with credit cards that are over the limit. Look, I’m not making light of crime. There’s a chance you may get robbed, because people do get robbed -whether they carry extra cash or not. And if it happens to you, the cash will be taken. But, trust me, you need to be far more worried about the danger of using credit cards than the danger of being robbed while carrying cash. Carrying cash doesn’t make you more likely to get robbed; on the contrary, the mismanagement of plastic is robbing you every month.

First of all, why not use a debit card instead of cash? A debit card allows you to only access the cash you actually have - the stuff sitting in your checking account. It also has virtually the same consumer protections as a credit card - if someone steals your debit card, just call up your bank and things are secure.

Second, having $200 in your purse (or wallet) makes it just as easy to blow $200 on something unnecessary as it is having a credit card in your purse (or wallet).

A credit card is just an excuse to exercise a lack of self control.

Having a large amount of cash on you is a security risk, no two ways about it. Dave is making the mistake of confusing one kind of risk (the risk of a lack of self control, which can take hold whether you have cash or a credit card in your pocket) with another kind (the risk of having your money stolen, which is much easier to fall prey to with cash on hand than with a credit card on hand).

Do you have any other thoughts on the fourth chapter of The Total Money Makeover? Please share them in the comments - and feel free to respond to any of my impressions as well. After all, a good book club is all about discussion!

On Saturday, we’ll tackle the fifth chapter - Two More Hurdles.

1,100 notes, without any sort of structure at all.

What does it all mean? That’s what I’m really puzzling through right now. I definitely see some huge patterns in the notes, but what’s the big theme really tying all of these ideas together?

Lately, I’ve been taking long walks and puzzling through all of this. I’ll spend an hour reading through note after note after note, then I’ll get up, put on my shoes, and go walking/jogging for a while. Connections pop into my mind when I’m out there and by the time I’m back, I see things in a new light.

It’s coming together. The shapes are beginning to emerge.

Here are some interesting personal finance articles I found in the last week.

The Basics Behind a Budget that Works After reading tons of articles describing different versions of “a budget that works,” I’ve come to the conclusion that no budgeting technique really works for everyone. For me, a much simpler approach works well. (@ simple mom)

Things Wear Out I agree - the best value is an item that simply wears out. It’s worn, well-utilized, and useful until the very end. Like a good pair of shoes. (@ wise bread)

A New Era of Personal Finance The old advice isn’t working any more. (@ saving for serenity)

Why Pursue Financial Freedom? I think different people have different answers to this question. For example, my reason is simply so I can pursue some of my major life goals - writing a novel and having it published and well-promoted - without worrying about an income. (@ get rich slowly)

30 Days to a Better Man This is a set of truly great articles, but a better name for the series would probably be “30 Days to a Better Person” as most of these articles apply well to well-rounded women, too. (@ art of manliness)

Helpful Finance Tips, or Sneaky Payday Loan Ad? Proof positive that you need to be very careful about what you read online. I think the future of the internet is “trusted advisors” - people who build long-term relationships with readers and give them advice on any number of things. I would probably be in that category. (@ red tape chronicles)