Finance Tag Archive

Emergency Investing

(Note: This article originally appeared in the March 2010 issue of Physicians Practice, where this author was quoted in the article. I’m republishing it here. Read more at: http://www.physicianspractice.com/articles/emergency-investing)

Emergency Investing

March 01, 2010 | Finance, Financing Technology, Hiring Firing, Personal Finance, Staff
By Janet Kidd Stewart

You’ve handled plenty of medical emergencies, but could you manage a financial one?

Young professionals are often urged to begin building an emergency fund of six months’ worth of expenses in a nonretirement account. But it strikes some as counter-intuitive to park money in a low-yield savings account while paying off medical school debt at rates of 5 percent or 6 percent.

And once established with a growing net worth, particularly after getting a late start saving for retirement, others can’t justify keeping a large chunk of money out of the financial markets when it could be invested.

Remo-tito Aguilar, an orthopedic surgeon in his third year of practice in the Philippines who writes a blog about his own and other physicians’ finances, says he was one of those debt-averse professionals. “I paid my debts before I even realized I needed an emergency fund,” he says.

Creating the blog as a way to educate himself on financial issues, Aguilar has since built cash reserves to the six-month level. It sometimes shrinks to three to four months, which he says he’s comfortable with because he’s single with no dependents and feels confident in his ability to stay employed.

Financial pros acknowledge the reluctance to stash away cash when it could be put toward reducing higher-interest debt, but many say the absence of an emergency fund is a bigger risk. Physicians are often urged to keep even more money in an emergency fund than their counterparts in business and law, because of their higher incomes and sometimes longer hiring processes. “Particularly in the earlier years in your career, I’d be very wary of exclusively paying down debt,” says Joan Crain, senior director for BNY Mellon Wealth Management’s Florida offices.

Building toward even the basic six-month rule of thumb is a fine strategy early in your career, says Crain, but there are different ways to get there and beyond, depending on your risk tolerance.

Starting out

The early years are when emergency funds have the least flexibility, says Crain.

Don’t succumb to the notion you can do without one and simply rely on a home-equity loan or even credit cards in an emergency, she says. The mortgage and credit crisis wiped out that easy money for all but the most stable credit-risk customers.

Instead, create a budget that includes paying down the minimum payments on your student loans, credit cards, and mortgages. With the income left over, prioritize any high-interest card debt and getting those reserves built. If you’re comfortable with those amounts and still have income left over, put down extra payments on the student loans next, experts say.

What if you actually need to use the money? These are the years when you begin to define how sacred the emergency fund will be. Nearly everyone underestimates what they’ll need for living expenses, so these funds have a tendency to disappear, says Scott Munkvold, an adviser with FSA Advisory Group in Chicago.

“We try to get a dialogue going with clients that gets them thinking about planning for the worst-case scenario,” says Munkvold. “When you’re starting out, you’re more susceptible to emergencies and have fewer resources should something come up. At this stage, most people need to worry a little less about paying down debt so they can keep some liquidity. If you pay down the house, you may not be able to get it back with lines of credit being pulled away.”

Where should you stash the money? Both experts recommend strict cash accounts, preferably protected with FDIC insurance. Certificates of deposit are an option, but keep at least some of that completely liquid for smaller emergencies to avoid early-withdrawal penalties.

Mid career

By mid career, you’ve hopefully built your savings beyond the emergency account and are now investing those dollars for growth. How should you think about the emergency fund now?

“At this stage you should be socking away as much as possible for retirement,” Munkvold says, not to mention college and other big expenses that crop up in the peak earning years. So you may actually have less in actual cash reserves than you did before. Not to worry, he says, because your higher level of assets provides you with some options.

Now your career and other assets likely will put you in a strong position to have a fairly large home equity line of credit, at least $100,000, he says. And your income can also be a cushion, because (again, hopefully) you can redirect fewer paycheck dollars into savings if a true emergency does come up.

At this stage there are also some alternatives to traditional savings accounts and CDs. Munkvold’s firm uses funds such as the Eaton Vance Floating Rate Fund (EABLX), which invests in loans and other debt securities, and exchange-traded bond funds that invest in municipal bonds and other credit markets. The instruments provide a dividend yield that typically exceeds the cash markets without taking on large amounts of risk, Munkvold says.

You can also explore cash alternatives such as CDs linked to a stock market index, but advisers recommend extreme caution about these complex products. Among their drawbacks are often penalties for early withdrawal that actually reduce principal, which is exactly what you don’t want in an emergency fund, advisers say.

Late career

Heading into the home stretch of your career, hopefully you’ve amassed a portfolio large enough to withstand an emergency, even if it meant selling some stocks designed as long-term investments. And as you approach retirement, more of those assets will be in fixed income-type investments such as bonds, which can act as your emergency fund, advisers say.

Even clients at this stage need to keep some powder dry, however, Munkvold says.

“We always keep some cash available, if nothing else than for having some on hand to take opportunities in the market,” he says. “It’s maybe $50,000 to $100,000 on a portfolio of a couple of million dollars.”

Sound like too much — or too little? Crain says spouses frequently disagree on how much to keep in reserve, with women typically wanting a bigger safety net and fewer stocks. Having a conversation about how much to put in the fund — and why it fits your current life stage and overall investment plan — can help, she says. “At the end of the day you want a figure that lets you both sleep at night.”

Janet Kidd Stewart is a freelance writer based in Marshfield, Wis. As a contributing columnist for the Chicago Tribune, she writes a weekly, syndicated retirement column called “The Journey” that appears in Tribune newspapers across the United States. She holds a bachelor’s degree and master’s degree from the Medill School of Journalism at Northwestern University. She can be reached via physicianspractice@cmpmedica.com.

This article originally appeared in the March 2010 issue of Physicians Practice. See more at: http://www.physicianspractice.com/articles/emergency-investing

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Why I’m Living Comfortably with Frugality

[dropcap1]I[/dropcap1]s it really possible to live comfortably with frugality as a mantra? I suspect the answer varies depending on how you define the two terms-“comfortable” and “frugality”, in the preceding question. [quote_box author=”The Free Dictionary” profession=”(online)”]comfort·a·bly adv. Synonyms: comfortable, cozy, snug1, restful. These adjectives mean affording ease of mind or body.[/quote_box] Comfortable may mean differently to various person. One’s comfort may be another one’s hell. It’s rather a personal choice, the level of which certainly depends on some acceptable norms within a society or community you’re living in. [quote_box author=”The Free Dictionary” profession=”(Online)”]Frugality n. – prudence in avoiding waste  [/quote_box]
Frugality may also be interpreted differently but I want to dispel one thing-its not the same as being cheap. Compared to a cheap piece of equiptment for example, buying a reliable but a bit expensive piece of equipment will ultimately save you from frequent repair cost!
[title type=”h2″]Living below your means[/title]

If you’re just observant of the lifestyle of the [highlight class=”highlight_yellow” style=””]true rich and wealthy people[/highlight], you’ll probably know by now that many of them actually live way below their means! These wealthy people can afford to  buy those  luxury cars and live in sprawling high-end subdivisions. How many of these true wealthy people buy those luxury cars? Or live extravagantly? If we’re talking about the real, wealthy people, its quite a rarity don’t you think? The ones flaunting their extravagant living are the wannabe rich individuals who need status symbol to gain rights to the elite circle. I don’t have any problems with their chosen living, but I’ve long decided it’s not the lifestyle that I wanted for myself. Hence, I subscribed to the idea of “living below your means” a long time ago.

[styled_box title=”How to live below your means” class=”sb_orange”][check_list]
  • [highlight class=”highlight_yellow” style=””]Self discipline plays a big part in this.[/highlight] The discipline to say NO when you don’t need it, or NO, even if you can afford it.
  • [highlight class=”highlight_yellow” style=””]Setting financial priorities according to a need only spending habit.[/highlight] What’s bloody of course is deciding what’s basic and what’s just wants.  One has to take a hard look on his financial status to lay down his priorities.
  • [highlight class=”highlight_yellow” style=””]Financial literacy is a must and should be a part of everyone’s continuing learning process. [/highlight]It’s one thing to be frugal and its another to be blindly frugal.
  • [highlight class=”highlight_yellow” style=””]Patience is a virtue by which most wealthy people commonly have. [/highlight]It gives you time to think about financial occurrences and study ones that are suspicious.
[/check_list][/styled_box]

Frugal living is a pain of the dash(ing), especially in a society who favors extravagant living. Who wouldn’t drool on that new model car? Or that new gadget that was just displayed on the store? I do.  But every time I look my need-only-spending-strategy, the real benefits for me seem dubious at best. The same frugal living has saved me from debt traps, financial compromises and lots of headaches. Frugal living pushed me to live a-need-only-lifestyle that I want for myself. So far, I’m enjoying it.

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How to reduce personal healthcare cost

As a doctor I find it really frustrating when some patients keep complaining about staggering health cost when they do not at all, mind their own excessive “unhealthy” living. The fact that health care cost nowadays is expensive, is old story to most us. But we keep on throwing the gripes at our similarly unsympathetic government without even taking a hard look at our own lifestyle. At the rate health care is deteriorating, we might just see another health care ‘titanic” before our government nudge.

There are ways however, that people can do to reduce their health care cost in the long run. Yes, take the matters into your hand and save your lashing at our government’s inefficient health care system. Believe me, whining at a inattentive ear is, a waste. Try these…

  1. Eat a healthy diet. Everyone knew that the leading cause of morbidities and mortalities for Filipinos are mostly related to our diet.  Moreover, hypertension, cardiac disease, infection, etc are all preventable diseases. The direct relation of diet to some of these diseases are all well established. Why not avoid them to save thousands from medical cost of those preventable disease? Besides, its cheaper to buy non meat products!
  2. Exercise regularly. Exercise has a very positive effect on risk reduction for almost all type of diseases. It also reduces your time spent on other less healthy activities (smoking, alcohol etc). Choosing the appropriate exercises for age and health conditions helps as it reduces unnecessary risk and cost. Take note, exercise does not always mean the gym, which is expensive by the way.
  3. Consult your family physician and seek advice on regular check-ups and cost efficient lifestyle screening program to pick up possible disastrous diseases. Also ask your physician for self examinations that you can perform for health disease screening. Practice this self examination as advised.
  4. Consult physicians that are accredited by your health insurance to lessen cost of clinic visits. Check this coverage whenever you sign health insurance contracts.
  5. Wear protective equipment when you are driving, especially with motorcycles. While motorcycles is the leading cause of death for road accidents in the Philippines, its popularity among Filipinos continues. The staggering cost of hospitalization secondary to a motorcycle accidents is almost equivalent to the cost of your house and lot today. So don’t say we didn’t warn you. At the very least, check if you have a valid life insurance.
  6. Choose a healthy lifestyle and be aware of the dangers of vices (alcohol, smoking etc)not just to your health but also to your pocket. I’ve seen a lot of impoverished Filipinos still languishing on these vices yet complain  they don’t have anything to buy food.
  7. Lessen frequent physician and emergency consults for sickness like common colds where home remedies (followed properly) is advisable. More so, do not give antibiotics immediately whenever you (or your child)begin to sneeze. That might just actually save you money for the next expensive antibiotics.
  8. In some cases, and if from reputable manufacturer, generic drugs are okay as a more cost effective substitute. Ask your physician regarding this  when he gives drug prescription. Also try to avail of pharmacy’s promos (like senior citizen’s and suki card discounts etc.) when buying medicines.
  9. If you have to undergo procedures, ask your physician if this can be done on an overnight or outpatient basis. If not, ask if how can the hospital stay be shorten to lessen the cost.
  10. Examine your medical bill, and make sure everything tallies. If not ask for the billing’s explanation. If there is a refund, make sure you can make the proper claims for refund.

At the bottom line of all these tips is the preventive aspect at avoiding health care cost. Patient education is also necessary to sustain cost reduction without having to suffer health care overheads. Good luck.

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