No.1 Finance

Protecting Our Cash [and Other Asset] We Have

by Lie Dharma Putra on 26/07/09 at 10:27 am

Why do we need to protect our money [and other asset] we have? Because we  work hard. Maybe you know how to save what you make, and perhaps you’re even learning how to invest it so that your nest egg grows and your retirement picture is shaping up. Be proud of yourself that you’ve started to build your financial future. But you can’t stop now. Just as there are forces of nature such as earthquakes and fire that threaten your personal security, there are life forces such as divorce, economic downturn, financial setbacks, lawsuits, and the IRS that threaten your well-being. And you need to be aware of these threats so you can take steps to safeguard yourself and your family.

Who Needs to Protect Cash?

If you’re lucky enough to find yourself in the upper middle class, and you have assets like stock and bond investments, a house, and a car, you know you need to protect what you have and make your money grow for the future. If you’re in the middle class, you know how easy it could be to lose what little assets you may have built up. You could lose your job, you could get sick.

Protecting what cash and other assets you have is also important for the middle class because taxes, tend to eat away more from the middle class’s wallets than from the poor. The rich, too, can worry less since they can shelter their money from taxes in a variety of legal ways. If you have less disposable income to work with, you need to protect every dollar.

If you’re part of the lower middle class, or the “working poor” as it has become fashionable to say, then protecting your money is a very serious matter. You may have few assets, but they may be more than you think. For example, if you have an entry-level job, now is the time to do a little exploring of the company to see what financial benefits it offers. Or if you’re renting an apartment in a bad part of town, you might want to look into renter’s insurance to protect what may be your only hard assets.

But no matter what group you belong to, there is one common obstacle: a lack of personal savings, which is your safety net if things go wrong in your life. Americans are among the worst savers in the industrialized world. The Japanese and the Germans, for example, currently save about 13 percent of their disposable income. In the United States it’s about 4 percent. Even worse, that number is decreasing. So it’s up to you to save more and protect what you have. Remember, no one else will.

What Do You Have to Protect?

Cash. Putting your money in the bank will prevent your cash from getting ripped off by burglars. Bank accounts are FDIC (Federal Deposit and Insurance Corporation) insured and they’ll even earn a little interest. But they won’t earn enough to protect your money from the ravages of inflation. You can prevent your money from depreciating by investing it in vehicles that offer higher rates of return. Also, a lawsuit could wipe out anything you save. Liability insurance can protect your money from legal surprises.

Investments. The stock market gives your money that extra earning power with the promise of higher interest. But stocks are susceptible to all kinds of uncertainties and the earnings will be taxed. You need to diversify and investigate the international landscape and alternative investments such as tax-free bonds, gold, and even art and collectibles.

Nest eggs for college and retirement. If you have kids, college will come sooner than you think. Vehicles such as Education IRAs, Lifetime Learning Credits, and the HOPE Scholarship Credit can help you to keep more of your money. Also, when planning your golden years, you’ll find that not all retirement accounts are created equal. Some, such as 401(k)s, IRAs, and Keoghs, will protect your money from the IRS while you’re socking it away. And Congress has recently added new retirement vehicles like the Roth IRA to meet your needs. How do you decide what’s best?

Income and property. If something happened, an accident or an illness, for example, to prevent you from working, would you be able to meet your expenses? Protect your income with disability insurance. Also, your entire financial structure could be sabotaged if a fire, flood, or other natural disaster made it necessary for you to replace your belongings. Insurance auto and home owner’s protects your money from these dangers.

Your estate. It’s never too early to start estate planning. Your family needs the money more if you die young than if you live to a ripe old age. Keep as much of it intact as you can by providing life insurance, making a will, setting up trusts, and gifting. Learn how to protect your money for the people you want to leave it to.

A Little Cash [and Other Asset] Protection Advice

Asset protection is not just for the rich. You have more to shelter than you realize. In fact, you are likely part of one of the three economic groups that especially need to watch out for their personal finances: the financially comfortable upper middle class, the middle class, and those just struggling to pay their monthly bills. This blog is not published for the rich, who can well afford an army of expensive tax attorneys, financial advisers, and other experts to help steer their money out of harm’s way.
The good news for you is that today much of the saving and investing advice that used to be reserved for the wealthy can be accessed from a number of inexpensive sources: books, magazines, newspapers, even the Internet.

It’s also important to remember that the best financial advice is simple, free, and hasn’t changed in 50 years:

• Define what financial success means to you and then chart a course to meet those goals.
• Don’t live someone else’s definition of success.
• Start early (that means now!) with saving and investing your money and let the power of time and compounding work for you.
• Pay off your debts before the power of time and compounding works against you.
• Make saving and investing a habit.
• Accept that it’s okay to get rich slowly.
• If an investment sounds too good to be true, keep your hands on your wallet and don’t let go.
• Diversify.
• Stay within your risk tolerance.
• Don’t put your money into anything you don’t understand.