I gambled, and I lost. Big time.

I was 100% focused on getting out of debt.  I admit it.  Several times, I was given the opportunity to change some things, but I didn’t want to spend the money, and detract from the pace at which I was eliminating my debt.

But a house and a baby are big detractors, anyway.  And I failed to make those connections.

We have no insurance on my wife, and no insurance on the baby.  So we are paying all of these expenses out of pocket.  To make matters worse, my wife had an eclamptic seizure on Monday afternoon, something that happens in only rare cases after the birth.  An ambulance ride, 3 additional nights in the hospital, and thousands of dollars later, I arrive at the end of this week not really knowing where to go from here.

The baby had already run up costs significantly, so our return to the hospital put an already drastic situation into dire straits.  We will, of course, be negotiating with the doctors, the hospital, and everybody else that comes running to us for money, but, at the same time, it appears that we will also be making drastic lifestyle changes in the coming weeks.

First thing on the list, though, is to get through the current crisis.  Wife and baby are fine, but this process can take 6 weeks to work through.  Thankfully, they are both at home, and most of what needs to be done is simply rest & recover.

I don’t know the damages yet, and it could be months before all of this gets figured out, but there will be a major revamping of the family finances, for sure.

I am not complaining.  There is no question in my mind that whatever sacrifices I must make are worth it, because I have my wife and baby.  And, in the big scheme of things, that’s really what matters.

Well, that pretty much settles it.

Our budget has been blown.  Completely, totally, and without hope of recovery (fast, anyway).  We had our baby, but there were some complications.  I still haven’t received all the doctor’s bills, etc., and the way that payments are done now (at least at this hospital), there is no sending the proverbial $25/month to the hospital for the next 36 years to pay it off.  They said I could either put it on a credit card, and they would give me a discount (about 70%), or they could allow me to send in whatever I could, but it would be for the full amount, and at 18% interest.  So I slapped down my credit card, and was happy that I’ll only be paying about 15% interest.

I will probably suspend updating for a while, at least until I somewhat recover from the reeling I’ve done over the past several days.  Emotional decisions are never good (at least, that’s been my experience), so I want to let things calm down, and allow the logical side of my brain to start functioning again before we get too far down the road.

I will keep updating the debt and savings charts, just to keep myself on top of where we stand, though.

c'est la vie.

Term Life Insurance

I recently bought a term life insurance policy, and, in the process, learned some very good things about how it works, and how I should plan for it.  Listening to Dave Ramsey, the Primerica agent, and several others talk about insurance has helped me develop my own plan for term life insurance.

Some recommend 8-10 times your annual income as the determining factor in insurance (this, I believe, is a simplified version of Dave Ramsey’s approach).  While there is nothing inherently wrong in this approach, and it keeps things extremely simple, there is no real room to tailor the policy to your life, and so you just end up with a random amount of cash, arguably able to cover your family’s living expenses for 7-10 years (depending on the additional cost of the funeral, etc.).

Before we get into evaluating the factors I took under consideration for determining how much and how long my insurance should cover me, there are several things to keep in mind:

1. Life Insurance should cover your spouse and children in the case of your death.  At the point of retirement, my income will be (ideally) passive, so I don't need to plan for term life insurance beyond retirement age.  In most cases, this means having a policy that will be effective until age 60-70.
2. The younger a person is, and the shorter the term, the lower the cost will be for the policy.
3. Health makes a huge difference in the price of the policy.  If you are a smoker, or have a family history of cancer/heart problems, your policy will cost much, much more.

So with these thoughts in mind, I used the following factors to determine our plan:

• I am 35 years of age, leaving me 30 years to retirement.
• We just purchased a house, with a 30 year mortgage.
• I anticipate being in non-mortgage debt for less than 5 years.
• My wife is pregnant with our first child.

These factors played heavily on the length and amount of insurance that we purchased:

1. In the event of my death, my wife would need enough money to pay off all debts (including the house), plus have enough to live on for a while (5 to 10 years) so that she would have some time to begin generating an income.  Eliminating the house debt lowers her income requirement significantly, giving her an easier path to supplementing the income.
2. In the event of my wife’s death, I would need enough money to provide care for our child, in addition to the money I already make.
3. In 10 years, neither of us will have any kind of consumer debt.  Also, our income should be higher and our living expenses lower (inflation adjusted) than they are today.

Bottom line, we settled on a 30-year policy that had enough coverage for me that it would wipe out all debt obligations, pay for the funeral, and still have about 10 years of living expenses, if something were to happen to me tomorrow.  (Of course, as time goes on, our debt will be smaller, but there may be more dependents, so I decided on a single 30-year policy).  For my wife, we decided on a policy that would pay off the mortgage, cover burial, and take care of child care expenses for about 5 years.  We didn’t find it necessary to cover the consumer debt on her policy, since I am the primary wage earner.

Had our circumstances been different, what we settled on would have been different as well.  Instead of having no insurance in place, it would have been wise for me, in my 20s, to purchase about a 10-15 year policy covering all of my consumer debt, paying for the funeral, and a little extra.  Once I got married, I should have purchased a policy for my wife (and revised mine), taking my wife’s situation into account.  Since she brought her student loans into the marriage, and I brought my credit cards and vehicles in, we would need a policy that paid all of that off (plus a little).

Those policies are relatively cheap, because the amounts are not usually very high, the terms are short, and we were younger.

Now that our age and level of responsibility has increased, it was time to purchase a policy that would at least financially take care of our debt obligation.

Naturally, the policies now cost more than they would have when we were 10 years younger, but they would not have carried us all the way to retirement.  In the same breath, I did not want to purchase a policy that would cover us, but would seriously impede our ability to reduce our debt.  If our standard of living changes, I will probably re-evaluate and either change or add to our policy.  (Given inflation the way it is, and just the general tenor of things, I doubt I’ll ever decrease our coverage)

So, in summation, the way I picked Term Life was not based upon income, but expenses.  Rather than looking at life insurance as a replacement to income, I view it as a way to weather a storm.  A strong storm, to be sure, and one that I hope neither my wife nor I have to face.

Update Thursday: 2nd Week of July

We made up some ground this week.  Not much, and after all the money that has been spent (to date) on the pregnancy, I’m really not surprised…  (Kids cost a bundle, and he’s not even here yet!)

Start of the Month:	$3,932
Start of the Week:	3,945
Now:	3,914
Total Paid Off This Week:	31
Total Paid Off:	18
Goal:	80
Left to Pay Off for Goal:	62

 

If we can keep up the pace of $30+ a week this month, we’ll make our goal.  It is beginning to look more and more that I’ll need to get something going in the evenings, though.  The recession added to my debt isn’t helping anything.

Update Thursday: 1st Week of July

Well, nothing like starting the month in the hole!  I didn’t get a chance for a payment to hit, and one of the credit cards charged interest yesterday, so we start with a $13 hit to our goal.  Here’s the numbers:

Start of the Month:	$3,932
Start of the Week:	3,932
Now:	3,945
Total Paid Off This Week:	-13
Total Paid Off:	-13
Goal:	80
Left to Pay Off for Goal:	93

 

At least we are pretty well caught up everywhere else.  Medical could use some help, since I wasn’t anticipating a $55 bill for asthma medication this month, and we’ve apparently been spending more on gas lately, but everything else is just about even.  If we can get a little better handle on our grocery budget, we should be fine.  Hopefully by next week, we’ll have made decent positive progress against our goal, too.

July Goals

Well, we made our goal for June, even if only just barely.  This month will more than likely see the birth of our son, so I’m going extremely conservative on our debt reduction, and we’ll see what happens from there.

We had a few setbacks last month – nothing too major, and nothing impossible, but I’d still like to get a month in like the latter part of last year.  Chances are good that I’m going to be looking for second job again here pretty quick.

In the meantime, I’m setting a relatively low goal, just to be sure that we catch up on things this month.

So, my goal for July is $80 against the credit cards.  I’d really like to do at least that much, even on slow months.  Of course, this really means more than $80, because of the interest that gets put on the cards every month.