Half is better than none

Roger Schlesinger
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Posted: May 29, 2007 2:31 PM

A young man who I am acquainted with had a heart attack a week or so ago and had to have open heart surgery. If that wasn't enough, he didn't have health insurance. One of the 45 million people in the United States without the coverage which is just about the number one insurance coverage most people should get. Number one because if you suffer the attack as he did, it pales in comparison to the financial problems he will be facing for years to come. No disability insurance either, which makes this example as bad as any I could have conjured up, only this one is true.

It brings me back to my earlier years when my Alma Mater cancelled their alumni health insurance and I didn't switch over fast enough. My son, who was born with asthma, was then uninsurable because he had a pre-existing condition and I was self employed and couldn't get into a group to cover him. My only choice at the time was a $10,000 deductible which was affordable and kept me safe from the one attack that would have been my financial ruin. In my opinion it was better than nothing, and it was as good as I could get (afford).

My thoughts now go to those who aren't covered. I am sure that most people wouldn't choose to go with coverage that had a huge deductable when shopping for insurance. I am not sure it's even offered now, but if so, isn't this type of coverage better than no coverage at all? In the era of $100,000 plus hospital bills, a $10,000 deductible could be a life saver. At least a financial life saver.

Too many of us believe that if we can't have what we want and need, it's better to get nothing at all. Not true. Let's look at reserves. I believe everyone should have a year's income in liquid assets to be safe from a major calamity. But few can afford that. Next best is a year's debt payments including the house, auto, monthly costs etc. If that doesn't work, then how about three or six months of either? If all you can scrape together is a few hundred dollars, then so be it, that is a start. The important part is starting. Then getting to the ultimate goal is that much easier.

Now most of you who have read my columns know that you can take money out of your house and build reserves with that. We have gone over what happens if you spend that money foolishly and the basic answer is it will only happen once. Too many believe they need to have enough money to complete the maximum dollars for their reserves, and they will just wait until they get it before moving forward. Not a good plan, not even close to one. Start with what you can afford and go from there even if it is well short of what you need.

Review all of your financial decisions and see if you have passed over something that is necessary, important, desirable, and not just a luxury that you could go back to now and begin the program with a smaller contribution.

This can also be true with your mortgage. Many of you simply have a mortgage and no other debt. It generally is a 30 year fixed and hard as you try you can't find a way to get to a 20 year or a 15 year. I understand that and suggest that perhaps you go 60% of the way with a new 15 year loan for 60% of what you owe and the rest in a HELOC or second trust deed.

It is unusual to do it this way, but it is a start. Comparing the 30 you are in to a 15 year and a Heloc, the 30 will amortize 12-15% over the next 10 years. The 15 will pay off half of the loan in the same time frame. Even though you aren't paying down on the Heloc, assuming that it is interest only, you will owe at the end of 10 year 40% of the original loan that is in the Heloc and 30% that is in the 15 year fixed. (Half is paid off) Another 5 years and you will only owe 40% of the original loan as the 15 year loan will be paid off.