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 →
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 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 →
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?
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 →
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 →
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:
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!
As we continue our mission to financial independence, we also continue our journey along the different types of insurance, which is an essential part of our financial planning. Step 58 focusses on health insurance and what to think about when contracting a health insurance policy.
Why Health Insurance
Depending on where you live, health care can be very if not extremely expensive, and whilst in some countries having a health insurance is a legal requirement, in other countries this isn’t compulsory, meaning that if you haven’t got medical insurance, you might not be able to pay for even basic or emergency treatment without getting yourself into great debt. A health insurance ensures you have access to the medical care you and your family need without afterwards being presented with high bills to pay.
Types of health insurance
The types of health insurance you have access to can vary tremendously from one country to the next, but there are three common routes to health insurance:
State healthcare – if you live and work in a country that offers state healthcare, you likely pay social security contributions of which part will be assigned to health care provisions. This means you usually have access to the public healthcare system, which is usually free although medication might not be provided free of charge or at a reduced fee. Not all treatments might be offered by the public healthcare system, so you might still need to “go private” if the type of treatment you need isn’t included.
Health Insurance through your employer – your company might offer a health insurance that you can register for. In some cases this type of insurance offers a healthcare savings account to which you might be able to contribute to with pre-tax money. Like with pensions your employer might match or add a certain percentage to your health insurance if you have contracted the insurance through them.
Private Insurance – Insurance contracted for you and / or your family through an insurance company that you organize yourself. In this case you will be able to choose more specifically which insurance company to go for and what to get to insured for, as many companies offer different types of policies against different premiums.
Characteristics of health insurance
What should you think about when comparing health insurance options? Different insurance companies and policies include different types of treatment and health care. Below some points to look out for:
High deductible vs low deductible plan. If you have a low deductible plan your health care costs will be covered completely or you might be responsible for a very low first initial contribution. These plans are generally very expensive, as opposed to a high deductible plan, in which you have a relatively high amount of any medical bill that you pay first before your insurance takes over and pays the rest.
What is the maximum and minimum yearly contribution that you have as a deductible?
How is the deductible counted? Is it one big deductible, can you total all of your family members on it, do certain expenses not count towards it?
Is there a family plan to get cheaper rates for your partner and / or children?
Is there a certain percentage of doctor visits that will be covered and do you pay any extra visits yourself?
What types of illnesses, treatments and surgery are included in the insurance. Think about:
Basic emergency and non-emergency treatment
Emergency treatment abroad
Alternative medical treatment
Are you able to choose your doctor or hospital or does the insurance only have contracts with some medical care providers?
Are medications included? Are there any types that aren’t included or are only partially included?
What about treatments that aren’t medically necessary? (Think about plastical surgery, eye laser treatment).
What about maternity services, both pre- and post-natal?
Step 58 – Health Insurance – in detail:
Now let’s apply all of the above points to your medical insurance whether you already have one or are ready to contract one:
If you already have a health insurance, find your actual policy with a list of all the services that are and the ones that aren’t included, find the yearly fees as well as the cancellation policy.
Shop around and find or request quotes for different insurance policies from different companies. Even if you already have a health insurance, it is worth not only checking whether it is all still up to date, but also whether you might be able to get the same coverage somewhere cheaper or with a better service.
Go through the checklist above, marking which are absolutely essential for you to have in your health insurance. Check the various quotes for whether these services are included and what the fine print is or how much extra it would be on top of the yearly fee to include the treatment in the policy.
Check customer satisfaction via the website or on specific customer feedback websites. When it comes to your health insurance, you want to be with a company that deals with claims and questions quickly, efficiently and satisfactory.
When you’re ready to contract or change a current insurance you have, make sure to do so this week. Don’t leave this one pending to you as you can only come to regret it.
Add a reminded to your calendar to check your insurance again in a year’s time to ensure it is still up to date.
Having a decent health insurance is tremendously important to make sure that you’ll be able to get the necessary treatment when needed and making sure that you can actually afford it. It is worth checking your policy at least once a year, to confirm that you are still adequately insured and to readjust in case your situation has changed.