It should be no surprise that many people have zero idea of where their money is going. I’ll be the first to admit that it’s really hard to keep track of every dollar we spend year after year.
Many days it feels like everyone – bank, kid’s college, insurance company, grocery store, Netflix – wants a little slice of my financial pie. And their tentacles can be found everywhere, including some deep unchartered places.
Sometimes I feel like a detective … hunting for hidden expenses that don’t want to be found. Normally, I’d look for treasures at the Big 3 – Home, Transportation, and Food – but this time I looked at my pay stub.
Today, I found $4,200 yearly hiding away in my pay stub. These savings will be redirected to my investments or to help accelerate the payoff of my mortgage.
Hiding In Plain Sight
Like most people, I have group term life insurance taken out of my paycheck. It’s become automatic and I’ve it renewed each year. Over the years this has served me well but my life has evolved and so have my needs. It’s not an expense I’ve ever challenged or reviewed …. until today!
And that brings me to my second term life insurance policy. Nine years ago (when I was 47), I took out an additional $1,000,000 life insurance policy. It’s a 20-year term life policy that costs $166 per month at a very strong insurance company. I’ve still got that policy and I’m still paying $166 per month.
Like I mentioned earlier, I’ve always had a group life term insurance policy at work. Today, it will pay $650,000 if I die and it costs $351 per month. Quick math says I’m paying $517 total per month in term life insurance for both policies. Let’s see if this passes the eye test:
- Personal Policy = $1,000,000 at $166 monthly cost
- Work Policy = $650,000 at $351 monthly cost
A quick look at these two policies says that I’m paying too much for less insurance on my work group life term insurance policy. How did this happen?
When I started over 20 years ago at my current company, I’m sure the life insurance was reasonable. I was in my mid-30’s and the policy was probably only $200,000.
But as my income increased over the years, the policy amount rose and I was getting a year older each time I renewed the policy. This combination kept the policy (and costs) rising each year and I didn’t even notice.
Now What?
Now that I know this, I’ve got some decisions to make.
- Question: Do I cancel the $650,000 term life insurance policy at work?
- Answer: Yes! I’ve got $480,000 in portfolio assets, a pension, and social security available for my wife. My kids are almost independent and I’ll be debt free in about 3 years. Plus, we’ll keep the $1,000,000 life insurance policy at $166 per month.
- Question: When do I cancel the $650,000 term life insurance policy at work?
- Answer: Since it’s a group life policy through work, I’ll be able to cancel it during the next sign-up period in November. I’ve considered keeping it for another year but it’s just so costly. I’ll run the numbers again but I’m guessing I’ll cancel it in November.
- Question: When I cancel the $650,000 policy, what do I do with the extra $351 per month?
- Answer: My two choices are accelerating the payoff of my mortgage or funneling the funds to my taxable Vanguard account. I really want that mortgage gone though. I’ve got several mortgage payoff acceleration tactics in place and this will add another $4,212 per year to the plan.
Conclusion
Looking back on my actions nine years ago, I would have changed my decisions. I should have increased the $1M term policy to $2M and locked in the rate when I was younger. Plus, I would have cancelled the group term life policy at work a long time ago. That would have simplified things and cost much less.
So you see, there is money to be found everywhere. Our financial lives have gotten so complicated that it’s hard to remember all the things we’ve done over the years. Plus, we’ve put so many things on auto-pilot because we thought it would make things easier for us. This approach may just get us in trouble later (i.e. my current life insurance example).
I found $4,212 per year hiding in plain sight and I’m sure there are several more treasures to find – I just have to find them. How about that PMI insurance incurred because we didn’t have 20% down on the mortgage? (I took care of that long ago) How about cell phone replacement insurance for a 6 year old phone? (I already took care of that too)
And don’t forget about car insurance. Do we really need a $250 deductible on a $1,500 car? I guess I’m heading back to the Big 3 again to review those expenses.
Go plug the leaks in your finances if you want to retire early or on time. And put those savings straight toward building your retirement.
Thanks for reading!
Mr. TLR