Employees get a paycheck every two weeks, but for entrepreneurs, cash flow can be less consistent. That’s why it’s important to make sure your finances are as efficient as possible without any cash flow leaks. I’m going to give you 12 quick and actionable financial tips to improve your life, recover cash flow, build more wealth, and leave a financial legacy for your family. Let’s get started . . .
When you buy car insurance, you decide how much money you’re willing to pay out of pocket when you get in an accident—that’s your deductible. The lower your deductible, the higher your monthly premium payment will be every month or 6 months.
But if there was a minor accident, would you really make a claim for $250 and risk that your insurance company will raise your premiums? Probably not. It’s better just to pay out of pocket, even up to several hundred dollars. So raise your car insurance deductible and lower your monthly premium.
I find all the time when we meet with people that they don’t have their car and home insurance limits of liability coordinated. (“Limit of liability” is how much your insurance company is willing to pay before you are on your own.) On the one hand, they have a $25k limit of liability on their car, but $300k on their home.
What do you think is more likely: that you’ll get in a car accident, or someone will get hurt on your property? I can tell you that it’s far more likely to be in a car accident than for someone to be seriously injured on your property, yet 90% of the time people have better coverage on their home than their car.
This can be financially crippling if you’re in a car accident where someone is seriously injured and needs long-term medical care. You may think you’re covered, but once your insurer reaches their limit of liability, they’ll tell you it’s no longer their problem. Now it’s on you, your attorneys, your income, and your assets.
An “umbrella” insurance policy is a policy that sits on top of all your car and homeowners insurance policies, and kicks in whenever your limit of liability is reached.
One of our clients, Glenna from Texas, was paying one company for car insurance and another for homeowners insurance. We advised her to consolidate her insurance policies into one company, and then get an umbrella policy to cover them both. This allowed her to get the minimum limit of liability on her car and home insurance, because the umbrella insurance would kick in if those limits were ever breached.
With the savings from lowering her limits of liability, increasing her deductible, plus getting a multiple policy discount by using the same insurer, Glenna was able to save $1,038 per year—easily paying for the $350/year umbrella policy and netting Glenna $688.
When you or someone close to you passes away, the person left behind isn’t in a good emotional state for making financial decisions. For example, when my business partners died, I made the worst financial decisions of my life because I was in the emotion of it.
Plus, when a lot of money is involved, you’d be amazed at the way people come out of the woodwork with ideas to get at the money.
So how do you preserve, protect, and perpetuate your wealth? Set up a settlement option on the life insurance death benefit. It’s free, but once you set it up, when the insured person passes away, their heirs can’t touch most of the principal for a year.
Instead, you give them a small percentage of the principal at first to get by while they focus on family, mourning and all they have to deal with. And then they’ll earn a good interest rate, usually much higher than a savings account, on the rest of the money until it’s released in a year.
I had a client who drowned trying to save a child, who unfortunately also drowned. The parents of the child sued the widow. Fortunately, my client had an umbrella policy that was able to pay the grieving parents some money, but the client’s assets were also 100% protected from lawsuits because they were in an irrevocable trust.
Trusts are great for asset protection, but they’re also great for taxes. Once you reach a certain amount of wealth, your assets can be hit hard by the estate tax. But a trust allows you to pass on at least double to your heirs without triggering estate taxes.
This is very basic, but extraordinarily important. At your home, make sure to have a safe with enough cash inside to cover two months worth of expenses. Precious metals like gold and silver also work too, in addition to cash.
This is important in case of natural disasters or banking crises (like what recently happened in Greece). After Hurricane Katrina, for instance, credit cards didn’t work and banks shut down. Another reason to have cash on hand is identity theft. If your accounts are suddenly frozen or overdrawn, you want to have access to money that no one else has access to.
An investigative TV show on CBS called “60 Minutes,” recently reported that more than 40 million Americans have an error on their credit report. And half of those errors are significant enough to lower the credit score substantially.
Your credit score impacts your interest rates, your ability to restructure loans, and how easy it is to access new money. So it’s important to make sure that you have the highest score possible—780 or higher is the goal. To make sure your credit report is error free, you can go to annualcreditreport.com to get one free credit report per year from each of the 3 credit bureaus.
Once you know that your credit score is as high as possible, now you can go back and get better loans. You may be able to get a streamline refinance for your home mortgage to lower your interest rate. Or you may be able to refinance credit card or other high-interest loans into your mortgage to get a better interest rate and make the interest tax-deductible.
It’s also a good idea to renegotiate your credit card interest rates. Call your credit card company and ask if they’re having any special promotions or specials. Sometimes the first person you talk to doesn’t have the power to give you a better deal, so tell them you’re thinking of canceling the card. They’ll forward you to the retention department, and they usually do have the power to lower your interest rate.
Get another accountant to look at your taxes every 3 years to see if you’ve missed any tax savings. The IRS gives you 3 years to amend past tax returns, and if it turns out that you paid too much, they’ll give you the money back or credit it to next year’s tax bill. One of our clients found out he had overpaid $102,000 over the last 3 years and was able to get that money back, all because he got a second opinion on his taxes.
Instead of investing in mutual funds full of businesses you don’t know, control, or understand, you can open up a whole new world of investing by rolling your 401(k), SEP, IRA, or SIMPLE IRA into a self-directed IRA. This requires you to take more responsibility for your finances, but by investing in your area of expertise, you can avoid a volatile stock market that, despite tales of 7-10% annual returns, hasn’t even kept pace with inflation this century.
Everyone knows that if you take money out of your 401(k) or IRA before age 59 ½ there’s a 10% penalty. But not everyone knows there’s a way around it. It’s called Rule 72(t), and it requires you to take equal distributions from your 401(k) or IRA for five years or until you’re 59 ½, whichever is longer. The money is then subject to taxation just like ordinary income, but there’s no penalty.
Too often financial advisors give you advice based only on your stated tolerance for risk. But the truth is, risk is in the investor, not the investment. If you don’t know anything about investing in the stock market, then that’s a risky investment. And if you don’t know anything about the businesses in the mutual funds your IRA is invested in, you’re not really investing, you’re gambling.
So instead of investing in businesses you don’t know through an IRA, as an entrepreneur, why don’t you put that money back into your own business? Use it to invest in your area of expertise. Or if your area of expertise is real estate, the stock market, or a specific industry, invest your money there. But don’t blindly put your money in the hands of a financial advisor who has no knowledge—or even curiosity—of your strengths and weaknesses.
Better yet, work with a wealth team like the Accredited Network—who is interested in your strengths and weaknesses—to create a comprehensive financial plan for your wealth.
If you’d like more information or additional financial tips, check out my website wealthfactory.com. In the meantime, follow these 12 financial tips to improve your life, recover cash flow, and protect your family’s financial legacy.
Garrett Gunderson is Founder and Chief Wealth Architect of Wealth Factory, and New York Times bestselling author of Killing Sacred Cows: Overcoming the Financial Myths That Are Destroying Your Prosperity. And he’s personally helped countless business owners create efficient wealth strategies that fit their unique strengths.
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