Archive for Emergency Funds


Here are a few simple strategies to build your wealth:

• SPEND LESS THAN YOU EARN. You can’t make your money grow if you spend it all.
• LIST YOUR FINANCIAL PRIORITIES. Put your retirement at the top of the list.
• ESTABLISH AN EMERGENCY FUND. Low-risk, accessible cash will lessen the temptation to dip into retirement savings in an emergency.
• MAKE SAVINGS A HABIT. Even a little can add up, thanks to the power of compounding.
• PAY YOURSELF FIRST. Stock away at least 20% of your pay. Have the money automatically deposited so you’ll never miss it.
• CUT EXPENSES. It’s one of the fastest and best ways to make money. Clip coupons, buy second-hand on eBay, eat out less often. Funnel this “found money” into your investments.
• CREATE INCOME. Take a second job, rent out a room or downsize and invest the profits.
• INVEST REGULARLY. Use time and timing to get into the marketplace. If you don’t know how to invest, find out how! Go through training, read books, ask an expert and then apply your knowledge. Remember: Don’t work for money. Let money work for you.
• CREATE LONG-TERM WEALTH. Money in a savings account is safe, but inflation will erode its value. Stocks provide long-term growth.
• DIVERSIFY. The best way to balance your risk is with a portfolio that spreads your money out over a variety of financial instruments.
• REVIEW. Revisit your spending plan, savings and goals monthly to be sure you are on track.
• AVOID BAD DEBT. Don’t borrow for things such as vacations, clothing or furniture. Borrowing to remodel a home, on the other hand, may be good debt that can provide long-term financial benefits.
• BEWARE OF HIGH-INTEREST LOANS. Look at the total cost of repaying the principal and interest, not just the low monthly payment.
• GET OUT OF BAD DEBT. Otherwise, finance fees eat up principal that could be earning interest.
• HANDLE CREDIT CARDS WISELY. Keep only one or two cards. Transfer high-interest balances to zero-interest cards.
• PLAN TO RETIRE LATER. If you’re doing what you love, work is fun! You can work longer, work part-time or become a consultant.
• DELAY TAKING SOCIAL SECURITY. Benefits will be higher when you start.


I find that as each new year comes, people often state, “Gee, where did the year go? It went by so quickly.” And yet, other times people bemoan that things are moving too slowly. Since we, in general, are here on this planet for 100 years and then pass away for eternity…here is a glimpse of how long eternity is….

“In the cold northern wastes there is a mountain a thousand miles long, a thousand miles high. Once each thousand years a small bird flies north. This small bird flies north to sharpen his beak on the cold hard stone of the mountain. When the mountain is thusly worn down, one second of eternity shall have passed.” –Tibetan Poem


The Deficit Reduction Act 2005 (DRA), signed into law February 8, 2006, brings new rules that make it far more difficult for seniors in need of long-term care to get assistance from Medicaid. Currently, only 10% of Americans over the age of 65 own some type of long-term care protection, and only 17% of baby boomers have planned for long-term care needs. People assume their health insurance will pay LTC bills, but it won’t. Even those who qualify for Medicare benefits will only be provided with a maximum of 100 days of nursing home care, and individuals are eligible only when going to a nursing home immediately after a three-consecutive-day stay in a hospital. Then the first 20 days are covered, but a co-pay ($141.50 per day for 2011) will be required for the remaining 80 days. All benefits end after 100 days.

Currently, 49% of LTC recipients are relying on Medicaid, but keep in mind, while some in this group come from our nation’s poor, many in this group start out paying out-of-pocket then go on Medicaid after their assets are exhausted. Only 7% of people are actually paying for long-term care with private insurance coverage they have purchased. The government took a step to reduce Medicaid roles with the passage of the DRA, making Medicaid eligibility more difficult. The three-year look back is gone. Under the new law, the look-back period is five years for all transfers, and the beginning date for the penalty period is now the later of the date the person enters a nursing home or the date the person applies for Medicaid.

What this boils down to is the penalty period will not begin until the nursing home resident is virtually destitute.

Gifts made by seniors in the most innocent manner could jeopardize their eligibility for Medicaid even if it is legitimately needed. For example, a grandparent making a monetary gift to a grandchild for a wedding or college graduation could end up delaying their Medicaid eligibility.

Also, watch out for filial responsibility. Filial responsibility laws derive from England’s Elizabethan Poor Relief Act of 1601. This law required grandparents, parents and children, to the extent they were able, to support family members who could not care for themselves. Currently, 28 states have filial responsibility laws. Pennsylvania has re-enacted its law making children liable for support of their indigent parents, and other states are likely to follow suit.

The DRA of 2005 also affects the exemption of a person’s home, the use of interest-only annuities and the forgiving of loans.
• A person’s home, formerly exempt from Medicaid eligibility limits, will be counted as an asset if the equity in that home exceeds $500,000. States are allowed the option to increase that amount to $750,000.
• Some advantages in using interest-only annuities have also been eliminated. These annuities provided a small income during life and left the original investment to heirs upon the senior’s death. Under the new rules, the state must be named beneficiary of any leftover funds in the annuity for at least the amount of the medical assistance paid on behalf of the annuitant.
• A senior can no longer loan money to their children to get it out of their estate, then, forgive the loan. In order not to be considered a transfer of assets, the repayment of a loan or mortgage must be actuarially sound and cannot be forgiven or cancelled upon the death of the lender.

Projected growth in the senior population has caused states to seriously review Medicaid programs.

For a reasonable cost, life insurance with a long-term care rider can be purchased. This plan will provide funds for the insured should they need long-term care, protecting the loss of other assets they have worked so hard to accumulate. However, in the event no long-term care is ever needed, the insured has a death benefit to leave to heirs, enhancing even further the legacy they will be able to leave their loved ones.


I experienced this with a close friend. We will call her, “Marg.” She is 72 years old and had a double mastectomy done about 20 years ago. She has recovered wonderfully and lives a full life. Every two years she goes in for a special test to determine if any cancer cells have developed in her body. The test costs about $2800 to $3000 per exam. Medicare usually covers the majority of the expense except for her office visit costs and a deductible.

She recently had the test done. When the bill came in, it stated…“the test costs are no longer covered under “Obama Care. You will have to pay the bill in full.”

So look at this convoluted Government thinking…. If she cannot pay for the test out of her own pocket, then, she will not find out if she has cancer. Now the treatment will be covered if cancer is detected, but if she does not pay for the tests, she will never know if she has cancer. Looks like the old Abbott and Costello routine, “Who’s on First?”

Do you see this sleight of hand? They laughed at Sarah Palin when she said the plan has “death panels.” The way these new rules are set up…sure looks like “death panels.”

There are so many wonderful options that could be instituted to cover people with health insurance at a lower cost but the Government won’t allow it. You have seen how all Government programs like AmTrack, the Post Office, Social Security, Medicare, and Medicaid work. They are all losing money and are insolvent. This program is in the same league and will follow the same route. It is slated to go before the Supreme Court. Contact your representatives to let them know how you feel.

I bring this to your attention to help you (1) plan for increased costs for your insurance when you retire, and (2) better plan in your budget to help pay big money for your parents’ health insurance retirement needs.

Emergency Funds

An emergency fund is needed to meet unexpected expenses that are not planned for in the family budget, such as short-term illness causing a loss of income, unexpected medical expenses, property losses that purposely are not covered by insurance (deductibles and co-insurance) and to provide a financial cushion against such personal problems as prolonged unemployment or some other financial crisis.

Need for an emergency fund has received greater attention in recent years. Many capable people have lost their jobs because of mergers and acquisitions, economic dislocations or plant closings. A reasonable emergency fund can help to prevent a temporary unemployment from becoming a financial crisis. The fund will give the family time to adjust without having to drastically change its living standards or disturb other investments.

The size of the needed emergency fund varies greatly. It depends upon such factors as family income, number of income earners, stability of employment, assets and debts. The size of insurance deductibles, health and property insurance exposures, and the family’s general attitudes toward risk and security are also important. The size of the emergency fund can be expressed as so many months of family income. As a guideline, it is advisable to reserve a minimum of two and a maximum of six months of income. The larger the percentage of your monthly expenses that are fixed and must be paid, the larger should be the emergency fund.

By its very nature, the emergency fund should be invested conservatively. There should be almost complete security of principal, marketability and liquidity. Within these investment constraints, the fund should be invested so as to secure a reasonable yield, given the primary investment objective of safety of principal. Logical investment outlets for the emergency fund would include:

• Bank savings accounts (regular accounts)
• Credit Union accounts
• Money market accounts
• Mutual Funds
• Life insurance cash values

Access to emergency funds is important. If check-writing services are available, even at a fee, it might be wise to arrange for them. The careful person may also want to have some ready cash available for emergencies, even if it is non-interest earning. Such an individual might consider setting aside $200 in cash at home to be used ONLY in case of dire emergency.