Your Money_ The Missing Manual - J. D. Roth [124]
Matt is glad he hadn't completely neglected planning for the future. "Thank God that after my daughter was born, I took out a 20-year, million-dollar term life policy," he says. "The process was simple: I filled out an online questionnaire, and then a nurse practitioner came to my house to take a blood sample. After a few days, I was approved. The insurance costs like five or six hundred dollars a year. I just have to remember to pay the bill when it comes every September."
No matter how old you are, if somebody else depends on your income, you need life insurance (Matt's experience has shown him that it's important to have good health insurance, too). If you have children or any sort of estate, you need a will. And if you own a business or have sizeable assets, you may need a living trust.
"My number-one piece of advice for estate planning is to do it while you're healthy," Matt says. "Last summer, this was all sort of a joke: writing down the chain of command of who gets the house or retirement accounts if our entire family were to perish. Now it's not a joke, and it involves a lot of painful questions and deep thinking. When you're unexpectedly faced with the very real possibility of death, it sucks."
Part III. Building a Rich Life
Chapter 12
Chapter 13
Chapter 14
Chapter 12. An Intro to Personal Investing
"Investment performance doesn't determine real-life returns; investor behavior does."
—Nick Murray
Wall Street is filled with jargon and with folks like Jim Cramer shouting at the TV camera, telling you to "Buy! Buy! Buy!" and "Sell! Sell! Sell!" But when it comes time to invest your money, it's hard to know where to start. Stocks? Bonds? Commodities? And what are those things exactly, anyway?
Investing doesn't have to be complicated. In fact, the investing method covered in this chapter—a method recommended by Warren Buffett and scores of other investment pros—takes just a few hours up front, and then a few hours a year thereafter. This method offers solid returns and you don't need a degree in finance to understand it.
As you'll learn in this chapter, smart investing is simple but not easy—human nature gets in the way. And before you invest a penny, you should understand some essential terms and concepts. Let's get started.
Note
This chapter gives you the basic info you need to get started with investing. For a closer look at investing and to learn more great strategies, check out Bonnie Biafore's Personal Investing: The Missing Manual. As with all things financial, the more you know, the better.
Why Invest?
Chapter 5 taught you how to spend less on many kinds of things, and Chapter 6 suggested various ways to increase your income. Together, these two steps can lead to positive cash flow and a monthly surplus of money that can improve your life. But although improving cash flow is the best way to build wealth in the short term, it probably won't be enough to let you meet your long-term goals.
For one thing, many long-term goals are expensive. You want to put your kids through college, right? According to the College Board's Trends in College Pricing (http://tinyurl.com/col-costs), it cost over $23,000 for a young adult to attend the average 4-year private school during the 2007–08 school year. That's plenty expensive already, but in recent years, college tuition costs have risen at about twice the rate of inflation. How will you be able to afford that?
And don't forget retirement. As you'll learn in the next chapter, you'll need a lot of money to retire. Just how much you'll need depends on your income, spending habits, when you start saving (the sooner the better!), and how long you live. But it's unlikely you'll have enough if you just stick your money in the bank—you need a little help from the extraordinary power of compounding.
Note
Compounding is the snowball effect that happens when your money