Personal Finance advice from my dad

A few months ago I emailed my dad a few questions about money. (I asked about life insurance, who handles the finances, investing and a few other things). I trust him very much and he has done well for himself. He is a partner in a law firm and has access to financial advisors for wealth management. I thought he might be able to provide some valuable advice and I was right.

Here is part of his response to me:

Extra life insurance: Do not purchase a mortgage credit life insurance policy -- they're too expensive, and you may cover the same risk by buying a term life policy, which, at your relatively young age, will be inexpensive. Another suggestion -- if you have the option at work to increase the amount of your insurance, even at your own expense, you should consider that -- it would also be inexpensive. The risk is that you'll leave that employment, and your group term coverage insurance will end. I think you're better off getting your own term life policy. How much insurance coverage?? At least enough to cover the balance of the mortgage plus enough to cover 3 years of your salary. That should be sufficient for now. What Agent to talk to? Check with your father in law -- he may have a good person in mind. Also talk with your co-workers for referrals to an agent. At some point you'll also want to look into disability insurance -- in case your income/salary is lost because of accident, illness and the like. While that risk is minimal, you will be far ahead it if you look into it.

Finances: Your mother pays the monthly bills; I'm in charge of long-range planning. Our system "works", although it is better, I
think that only one of you handles both -- that way one of you will have the complete picture -- but, be sure to have a system that your wife can look at and be immediately up to speed. It's a matter that you and she will have to work out.

Extra $$ saved: Do you have liquid reserves sufficient to pay 3 to 6 months of your bills? Once you have that put into a readily accessible account, then the next place to look to invest, in my view, is the stock market. I recommend that you read about index mutual funds -- a mutual fund (offered by Fidelity and Vanguard and most other fund families) that invests in the same basket of stocks as comprises the S&P 500 or the Dow. The expense for such funds are low; you should choose one without a front end sales charge. The investment will produce a return consistent with the stock market at a lower level of risk than you could achieve with one or two companies only.

Both of you have 403(b) or 401(k) plans at work. I hope both of you are deferring as much as you can, taking advantage of the long-term build up of the fund, and also having your employer match a certain portion of what you put in -- that's a real plus -- does you employer match? Your wife's? That's "free" money for you.

Financial Planner
: Aha! So the financial planner didn't tell you anything you didn't already know -- that's good. Keep reading.
At some point later in your life, you may wish make your investments through an advisor, but I don't think that's necessary for you now so long as you look into these things. As your nest egg grows, though, it will be good to have someone to go to who can provide investments not otherwise easily available to you.

Risks: The unexpected is always going to happen in one way or another. Prices will probably never go down. The plumber has to feed his kids, pay his mortgage, etc; he runs into the same expenses you do. You can't control prices generally, but you can be prudent and careful with your spending -- that you can control and that's how you stay ahead of the curve.

Just some random thoughts. Hope this finds you well. Sorry about the earlier e-mail which was gobbled up by your mother's computer.

Love, Dad

Questions for readers:
Where do you get personal finance advice? From friends? From family? From blogs? Do you trust the people who are giving you advice? Why do you trust them?

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Future articles:
Experiment in trust Part 2 - I'll give you $5 if you give me $1, plus an opportunity to make $50 (open to participants in the Free Dollar Giveaway only!)
My experience opening a Sharebuilder Account
My experience investing in a Roth IRA with Fidelity
My experience at Wachovia and their Financial Advisor


  1. I have a college friend who is a professional financial advisor, he has already set my wife and I up with Life Insurance, Disability Insurance, a proper investment mix for our 401Ks, etc. We'll be meeting with him tomorrow to review the past year and decide upon a college savings plan for our new son.

    His services have proven very helpful and I appreciate his advice.

  2. Great advise , love it,

    Good luck,

    tracy ho

  3. Great advice from your Dad! My wife and I are in the process of working the Dave Ramsey plan. We're debt free working on Baby Step #3 - ER fund of 3-6 months of expenses.


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