J.C.’s Money Blog

I chose to read this book, because it was laying around the house, and the title caught my interest. Reading a free book seems like a no risk venture…the only thing I had to lose is a few hours of reading. A perfect fit for the book title.The book is made up of numbered strategies, so that you have concrete suggestions, which I find refreshing. The isn’t a book full of vague ideas. I will highlight the strategies I have found in the book that I hadn’t thought of before or that were particularly interesting.

Right off the bat, Strategy #1 is already a good one. “IF YOU WANT TO LEARN ABOUT MONEY, LEARN FROM SOMEONE WHO HAS A LOT OF IT.” While this is really common sense, it is not always put to practice. People love to take stock tips from stock brokers… if the stock brokers really knew what stocks to pick, they wouldn’t bother with being salesmen. Wall Street is one of the only places where people drive to in their Mercedes to take advice from people taking the subway.

I would add a caveat to Strategy #1, not only should you learn about money from someone who has a lot of it, but only from those who have a self-made fortune. I never read anything from Donald Trump, since he inherited the base of his wealth. The first million is the toughest. Why pay attention to someone who got to skip this crucial step?

Part 1- Personal Finance Strategies

Chapter 3 dives right into insurance strategies, which may sound like a boring topic, but Givens does a good job of holding your interest. My favorite quote here: “Remember, all insurance is a bet, and with insurance you always lose something. The minimum you lose is your premiums.” You want to work to minimize your premiums to the point that you are insured enough to meet legal requirements and also cover that which you cannot afford to lose.

Also, another statement to think about, your premiums are determined by the maximum amount covered, but the insurance company doesn’t pay you that amount in case of loss. They only pay the damages. Be careful about over insuring… you may be paying premiums on money you couldn’t even possibly collect!

Strategy #9 - BEGIN WITH ENOUGH BODILY INJURY LIABILITY INSURANCE TO PROTECT YOUR NET ASSETS. Givens claims that juries rarely award damages higher than your net assets, so this level of protection is a good starting point for determining your minimum coverage. I don’t like the sound of this, because it means my insurance premiums will rise as my net worth rises, but its nice to have a guideline to work with.

Strategy #11 - CARRY A MAXIMUM OF $50,000 OF PROPERTY DAMAGE LIABILITY, OR A MINIMUM OF TWICE YOUR NET WORTH. Givens argues that you aren’t likely to do much more damage than $50,000 unless you happen to wreck into a Rolls Royce, which is pretty unlikely. Also, if your net worth is under $50,000 you should just go with your state’s minimum coverage, because you need to be building wealth with the money, not spending it on premiums.

This is good news, since I have passed the net worth of $25,000 mark. Following his advice, I don’t need to increase my damage liability as my net worth grows.

Strategy #13 - RAISE THE DEDUCTIBLES ON YOUR COMPREHENSIVE AND COLLISION COVERAGES TO $500 OR MORE. If you follow the advice of pretty much every personal finance adviser, you have an emergency fund set up. Use this to self-insure the deductible. Why not just call your insurance company, tell them you want to raise your deductible, find out the amount in premiums saved and redirect that payment monthly to your emergency fund.

Chapter 5 is all about home insurance, which isn’t so interesting to me, since I do not and have not owned a home. The basic premises about insurance apply here.

Chapter 6 is about life insurance. This is a topic I am also not really interested in, since I have always declined any life insurance offered by companies I have worked for, in exchange for a few extra bucks a month. Life insurance is betting a company that you will die, and hoping that they are right. It just doesn’t make much sense. That is, if you don’t have people depending on you. So far I have bet against my own death and have been right.

Strategy #47 IF YOU ARE SINGLE WITH NO DEPENDENTS, DON’T BUY LIFE INSURANCE. I agree, so I didn’t bother to read the rest of the chapter. Although, I would say this is surely an important topic for families. Based on the number of life-insurance salesmen, there must be some rotten deals out there.

Chapter 7 is about building a good credit score. I am not really sure what my credit score is, but I imagine its pretty good. Bank of America automatically increases my credit limit every now and then. I don’t have any blemishes, I have (for four more days at least) a steady job with a good income. I have paid off an installment loan for a car at a bank, and have had a few revolving credit accounts for the last 6 years or so. I don’t plan on buying a house soon, and I don’t have any debt. so my credit score doesn’t really interest me.

From what I know, your credit score is important for:

1. seeking a job, potential employers often check credit histories now
2. seeking credit, of course. Your credit score determines whether you are eligible and at what interest rate.

I am not interested in either, so I am skipping Chapters 7 and Chapter 8, which is about creative credit repair.

Chapter 9, Mortgage Control Strategies, is more interesting again. I love the idea of Strategy #87 - IF YOU ARE SINGLE, LIVE FREE BY CREATING YOUR OWN LUXURY ROOMING HOUSE.

Here givens claims that he lived rent free in relative luxury by getting three roommates and renting a large house. He claims the rent checks from his roommates went directly to the landlord, so he didn’t even have to pay taxes on this “income”. While I have trouble believing you could convince three friends to let you live with them in a big house rent free, having roommates is a good way to save money for single people.

Another option is to buy a house you can afford that is more than you need, and to rent out the extra space. This is a strategy I would like to look into some more. I have a friend who has done this for years and seems to enjoy it. Having friends around is more fun than sitting at home alone, especially if they are paying off your mortgage!

The first piece of advice that I see as a red flag is Strategy #93 - THE BIGGER YOUR MORTGAGE, THE BETTER YOUR INVESTMENT. Yikes!

Sure the bigger your mortgage, the bigger your leverage, but that kind of advice needs to be qualified. That is kind of the old school personal advice that noone seems to advocate anymore. The old mentality was that your home is your biggest investment, so you should buy the biggest home you can afford.

Well, that’s dangerous advice. A bigger home means bigger interest payments, bigger property taxes, bigger maintenance costs, higher utility costs, and higher insurance costs. Why not put that extra money in a tax shelterd retirement account?

You should buy the smallest house you feel comfortable in, not the most expensive house the bank will put you in!

Givens rounds out Part I with some more mortgage strategies, such as prepaying mortgages to save on interest, and also taking out the equity in the form of home equity loans to invest. He repackages prepayment in a few different ways which are the same basic concept in different manifestations.

His major contradiction is that he suggests prepayment is a good way to save on interest, and in the very same chapter says its a waste of money to let home equity build up, since it should be invested instead. It is very disappointing to see him take both sides of this controversial issue. But in the end, it is up to your risk tolerance, whether you want to try to pay off your house, or use it as a source of cheap debt to invest elsewhere.

Chapter 10 revolves around obvious ways to manage consumer credit, and Chapter 11 discusses ways to finance higher education, which is probably best treated by another entire book.

So after reading Part I of More Wealth without Risk, my opinion is that the book is mostly filled with good ideas, but somewhat short in the motivation factor. Although I don’t feel particularly motivated to conquer the world, I am glad to have the food for thought on the insurance issues.