Step 64: Tax Planning

Step 64 of the 100 steps to financial independence: Tax Planning
Step 64 of the 100 steps: Tax Planning

Wow okay, I know, tax planning might sound even more boring or complicated than our previous “introduction to taxes”. But what’s the point knowing about taxes if you don’t use that information to your advantage? And if you think that tax planning is again for the rich and famous only, you’re wrong … Most legislations are designed is such a way to even give the ordinary man and woman some tax relief in certain areas. You should use those as that is what they are for.

Now let’s start with the single most important first requirement for this step: never, ever, not in a million years avoid paying taxes or try to mislead the tax authorities. Don’t ever even think of it. The tax authorities are smarter than you and you’ll end up in jail and that is NOT worth the extra money you might be getting or think you might be getting. Besides that, it’s morally wrong. Just don’t do it.

Good, now that is sorted, let’s have a look at some very basic tax planning principles you might be able to apply to your own life, that might help you save some bucks.  Just keep an eye on that fine line between tax planning and tax evasion though as if you get carried away with it too much, you might end up on the wrong side of that line. Continue reading

Step 63: An Introduction to Taxes

Step 63 of the 100 Steps to Financial Independence: An Introduction to taxes
Step 63: An Introduction to taxes

So you might have thought pensions and insurance sounded boring. Well then taxes sounds probably even more dull to you..Yet in order to manage your money well and plan for a secure financial future, you need to have at least a basic understanding of taxes. And with basic I mean a little more than just, “yeah I know the government takes out some money on whatever I earn”. Eh… right, but that’s not enough to use that information to your advantage.

In this step we will look at a quick overview of the various taxes that you are most likely liable to at the moment or potentially in the future. Every country varies tremendously in terms of which taxes apply, how high they are, whether they have a flat rate or a scale and what the exclusion terms are. This step is therefore only meant to provide an overview of possible taxes around the world: you’ll have to do some work afterwards yourself and find out the rates for your country or state.

Taxes are of course meant to fund the main expenditures of the government, such as national security (police and army), infrastructure (roads and sewage), legal system, health care, education system and also to pay anybody working for the state. Now let’s look at the most common taxes that exist:

Income tax

Income tax is charged on the income of individuals and companies. Many countries use a scaled tax system in which the more you earn the higher the percentage you pay. Income tax can be divided into the following categories: Continue reading

Step 62: Warranties and Service Contracts

Step 62 of the 100 steps to financial independence: Warranties and Service Contracts
Step 62: Warranties and Service Contracts

When you make a big purchase such as a new car or appliance for your house, the selling company often provides a warranty on the product. The warranty is a guarantee for a set period of time during which the manufacturer promises a correct functioning of the product and to replace or repair the product if the product is faulty.

Warranties are very important to understand and keep as they can save you a lot of money and worries if you ever need them. This step will look at warranties and extra warranties in detail, so you can assess any current warranties you have and to allow you to compare and evaluate warranties on any future purchases.

What a warranty typically includes

Normally a warranty will specify and /or include the following:

  • How long it is valid for. For some products this might be no more than 6 months, other products might be covered for several years.
  • What circumstances might void the warranty. The manufacturer often includes reasons why a warranty might cease to be valid, such as not having done regular maintenance check ups and servicing or using the product incorrectly.
  • Services included: what happens if the product is faulty? Will it be replaced, repaired or will your money be refunded?
  • Services excluded: this might not actually be stated in the warranty, but make sure you find out what is not included if your product fails. Think of costs to do with transporting the product to the shop or factory, labor charges etc.
  • Does it include costs you might have as a consequence of the product being faulty? For example if your washing machine floods your house, will the damage to other objects and furniture be covered, or if the fridge-freezer breaks will you be reimbursed for any of the contents gone off?

Continue reading

Step 61: Disability Insurance

Step 61 of the 100 Steps to Financial Independence: Disability Insurance
Step 61 of the 100 Steps: Disability Insurance

A disability insurance provides you with financial compensation in the event of a disability that stops you from going back to work. It covers your future wage by paying a certain percentage of your wage, often around 60-70%,  either until you are able to go back to work again or for as long as the policy contracted states that you are entitled to the compensation.

There could be several reasons for somebody being unable to work, including illness, medical conditions or after an accident. The difference with a medical insurance is that the latter only covers your medical bills, not the fact that you no longer have an income to support you financially. In some cases and countries social security might offer a disability coverage, but conditions vary greatly and it might not kick in until after a certain time, sometimes not even til after a year.

Do you need disability insurance?

The chances of becoming disabled before retirement age can be 2 – 3 times higher than the odds of dying before retirement age so there is a relatively big chance you might become disabled at some point. Due to this high chance, disability insurance tends to be fairly expensive. There are several situations in which you might not need disability insurance, including: Continue reading

Step 60: Car Insurance

Step 60 of the 100 steps mission to financial independence: Car Insurance
Step 60: Car Insurance

Car insurance, also known as motor or auto insurance, is often obligatory to have in order to use a public road. Most countries distinguish between insuring a driver and insuring a vehicle, and in some you insure a car regardless of its drivers (as long as the driver has the car owner’s permission to drive it), whereas in other countries you might insure the driver regardless of which car they drive.

Characteristics of car insurance:

A car insurance generally has different parts to it and whilst the terms used for these coverages can vary from one country to the next, most insurances use a similar classification system. Continue reading

Step 1: believe in yourself

Believe in your own magic: Self Development

Anything is possible. Nothing is out of your reach.

The first and one of the most important steps towards magical self-development is accepting that your own potential has no fixed pre-set boundaries. Whatever you need to achieve is within your reach, at least it is if you peg this to being the best you. Each and everyone of us has magic inside of us, each of us has the potential to be better. So believe in it, as when you do; you can and will achieve more.

Nothing that came before need stand in the way of what you can achieve tomorrow.

It doesn’t matter: what grades you got at school, whether you went to university or whether you messed up at work yesterday, all that matters is how you can improve right now and what difference that will make to your future. So say it again:

I can and will achieve more.

Don’t let “can’t” stand in your way. Don’t let your self-doubt hold you back and most of all never think that anyone else is just “better” than you. Yes some people may get higher marks, may have a skill you don’t but that doesn’t mean in anyway that they are pre-set to achieve more than you. If you push yourself forward, try harder and make the most of the skills you have and most of all don’t let anything hold you back, anything is possible.

No one is pre-set to be better than you.

So as you start this journey of self development, this commitment to being the very best you. Remind yourself that you are unique, that you have magic inside of you and that believing in yourself is the step 1 to kick-starting your development journey.

You have magic inside of you, believe it!

 

 

Step 59: Home & Renter’s Insurance

Step 59 of the 100 steps to financial independence: Home & Renter's Insurance
Step 59: Home & Renter’s Insurance
If you own a home, you really can’t do without having a home insurance or homeowner insurance. Apart from the financial protection of probably your greatest asset, it is often also a requirement for getting a mortgage. If you don’t own a home but rent, getting a renter’s insurance is often worth considering as it includes the liability as well as the belongings protection in the same way as a home insurance does. In that case the insurance of the property would be the responsibility of the home owner however, not the renter.

Why Home Insurance

Home Insurance covers you against such things as theft or damage, so that if anything happened, you get financial compensation in order to replace or repair what is needed.

What is included?

What is and isn’t included in your home insurance obviously depends on the company and your specific policy, but usually three main things are generally included in a homeowners insurance:

  • Damage to your house, such as the structure of your house as well as the functioning of or damage to parts of your house or equipment.
  • Theft of your belongings, both inside the house as well as outside of the house such as when you are on holiday or if something was taken from your car. Bear in mind that for off-site loss of or damage to your belongings the payment might be substantially lower however.
  • Liability – many policies include liability insurance which is any damage you or other family members might inflict on others or on their property or house.

What isn’t included

In general the following items or situations are often not included, although many can be added to your insurance as an extra against a higher premium:

  • Damage to your house or belongings due to poor or deferred home maintenance, i.e. issues you have neglected.
  • Certain natural disasters such as earthquakes and land flooding are often not included, though many policies do include hurricanes and storms.
  • Normally the liability insurance includes all members of your household, and this means that even your pets might be insured. Not all dog breeds are insured however when it comes to dog bites as some are considered to be very aggressive and are therefore excluded from the standard policy.
  • Some of your valuables such as jewelry, silverware and electronics might have a limit in terms of what is covered, meaning that the insurance will only pay out up to a fixed amount if any of it gets stolen or damaged.

Types of cover

You can often chose from the following types of cover:

  • Cash value coverage – this is the cheapest option and stipulates that you will be covered for the current value of your property or your belongings, instead of what you originally paid. This takes into consideration that your belongings experience a certain degree of depreciation, i.e. value loss with time.
  • Replacement cost coverage – more expensive than the cash value coverage option, this coverage pays the original price you paid for your belongings or property without deducting depreciation. It covers you up to the original price you paid as long as that is within the policy limits so you can replace it completely for the same price as you paid.
  • Guaranteed or extended replacement cost coverage – the most expensive option of them all, this coverage gives you even more protection so you can replace your belongings or rebuilt your home even if it goes above the policy limit, although this will be capped at a certain percentage, usually at around 25% above the limit. This means that you are protected against inflation as well an any increases in your property value for example.

Step 59 – Home Insurance – in detail

  • Pull out your insurance policy with its details and payments.
  • If you are a renter and haven’t got a renter’s insurance request policies from various insurance companies to compare.
  • If you are a home owner and have a home insurance, or if you haven’t got one anymore because you have paid off your mortgage, you are also going to request policies to compare them and see if a change in insurance or insurance provider is worth considering.
  • Compare the quotes you receive on the following:
    • Annual premium
    • Inclusion of cover of belongings, both in your house and outside of the premises (e.g. on holiday).
    • Whether there is a deductible (i.e. amount you need to pay first before your insurance comes in) and how high this is. Note this might be different for different belongings.
    • How much the limit of coverage is for belongings (check the various categories) as well as for your house.
    • What circumstances are excluded from your insurance (earthquakes, sewage problems etc).
    • Whether you dog is covered.
    • Check how much extra you would need to pay in order to get extra coverage for items or situations you deem essential.
    • Customer satisfaction with the insurance company and / or specific policy.
  • Once you’ve decided on the insurance to take out or change to, do so as soon as possible.
  • Make an inventory of your possessions, keep receipts of valuable possessions and consider taking photos or a video with your camera or phone of your different rooms, so you have an overview of your possessions. This will be required for a claim, so doing this at the same time as contracting, changing or simply checking your insurance makes sense!

As with any insurance, one hopes never to need to use their home insurance as damage can not only be expensive, it is also a hassle to deal with. Yet not having a home insurance for your house, your belongings, as well as the liability coverage might mean that your financial planning turns completely useless and irrelevant if you can’t pay to replace or rebuilt your home or belongings or if you are faced with a bill for damage you have inflicted on others. So be sensible and sort out your home or renter’s insurance now!

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.