You’re The Master Of Your Destiny!

Read a great post today from Jacked Finance on the attitude you need to become financially independent.  Check it out!

Jacked Finance

As I continue my journey to Financial Independence, I am noticing two very different characteristics amongst the people that I interact with when talking about FI.

When I talk about Financial Independence with individuals, some people immediately give up on ever reaching FI, as if there is a magical barrier trapping them in their current situation. On the other hand, some people I talk to totally embrace FI and are truly committed to reaching it.

What is the difference between these two types of people?

The first type of person seems to concede to failure before even attempting a task. This predisposition of giving up on a task before you even start the task is caused by “limiting beliefs“.

The second type of person is very different. This type of person has taken control over their lives and believes in their personal ability succeed. This person is…

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Fixing the US Health Payment System: Repeal and Remove

Many say the US healthcare system is broken, but they are wrong.  To see a broken healthcare system, go places like Vietnam and see people dying on gurneys in hospital corridors, or even Great Britain  to see people waiting months for critical procedures.  See also cases like Charlie Gard, where the government of Great Britain is basically telling the parents that they must just watch their child die, forbidding them from going and get care elsewhere.  Because the waits are so long, “good” Canadian insurance includes a clause that allows for treatment in the US if the lines are too long in Canada.  In the US you can almost always get into see a doctor the same day or at least within a couple of days, which is not true in many countries.  Even if you don’t have the money required to pay for care, you can still get the care needed to preserve and even better your life through the emergency room.  You may get a bill, but the hospital will just write the cost off and pass it on to other patients who have insurance.  No one is dying in the streets for lack of care.
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The issue in the US is not healthcare, but the effects of health insurance and government programs on the healthcare markets.  Because most people get insurance through work, and because each insurance company has their own deals cut with providers, it is virtually impossible to figure out how much you will pay for a procedure ahead of time.  You might get the list price:  “Popping that pimple will cost $20,000 plus doctor’s fees, billed separately,” but the actual price you and the insurance will pay will be maybe 10-20% of the list price.  The trouble is that the person who goes in without insurance will need to fight to get a better rate, and that rate usually depends on how much the hospital thinks they can get out of them.  If you can pay $20,000, you’ll pay $20,000.  If you can only pay $200, you’ll pay $200.

Health insurance also distorts the cost of routine care at your doctor’s office.  They charge $120 for the visit and $500 for x-rays and screenings, but they know they’ll actually get $60 for the visit and $150 for the screenings from the insurance company.  If you knew you would be paying $60 for a visit and $150 for x-rays, you wouldn’t be willing to pay $1200 per month for health insurance – you would just pocket the $1200 and write the doctor’s office a check during the half dozen times your family went in during the year.  Put the rest of that $1200 away each month and you’d have the money needed for the times you did end up with a hospital stay or more serious issues.

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The issue is that you don’t know what things will cost and what you will pay because insurance has distorted the prices so much.  As a personal example, after a family member spent a couple of weeks in the hospital recently, we received a bill for $60,000.  Insurance reduced the amount down to $15,000, then we paid $3,000.    A $60,000 bill is scary.  A $15,000 bill is significant, but manageable with some savings and perhaps a payment plan, particularly if we weren’t paying $12,000 per year or so in health insurance.  Without insurance, however, we would have needed to fight the hospital to reduce the bill, and perhaps seen it cut to $20,000 to $30,000 after a significant back-and-forth since we don’t have the negotiating power the insurance company does.  If insurance did not exist at all, however, the hospital bill would have been $15,000 to start with since no one would go to a hospital charging $60,000 when another one across town was charging $15,000.  There would probably be a phone app that you could use from the waiting room to compare prices at local hospitals and you would transfer for a $45,000 savings.

The Affordable Care Act (Obamacare) has not brought healthcare to millions of people as some advertise.  Instead it has just amplified the issues caused by the insurance market by making all plans cover the same thing (everything) and forcing everyone to pay with insurance instead of paying out-of-pocket.  It has also added government subsidies, which have the effect of making health insurance cost “whatever you are able to pay” rather than being based on the value of what you receive in return.

In addition, while you may have insurance through Obamacare, it doesn’t mean you’ll actually get healthcare.  Customers are stuck with insurance policies that they cannot use since the deductibles are so high.  It doesn’t do anyone any good to have a policy with a $9,000 deductible since very few people would ever reach that level in a given year.  Even if they did, how many would have the $9,000 to pay?  They would be better off just saving the $4,000 to $8,000 they spent on the insurance policy and just paying for healthcare out-of-pocket.

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Even those who are now on Medicaid, which covers all of the costs, are having trouble getting care since the government is not reimbursing providers enough to make them want to treat Medicaid patients.  In California the free and reduced price clinics have gone away due to the ACA, but doctors are not accepting Medicaid patients.  One individual was quoted in a recent Wall Street Journal article who went to mexico for a critical gull bladder operation after waiting for months in the US for the surgery needed to save her life.

The actions needed to fix the US health payment system are actually quite simple and could be summarized as follows:

  1.  Repeal the ACA in its entirety.
  2.  Eliminate the tax deduction for companies that provide health insurance to their employees.  This would incentivize them to stop providing employer healthcare and just pay higher salaries instead.
  3.  Create a tax deduction for individuals who buy insurance.  This would further create the incentive for insurance to be something individuals buy instead of the norm to be to get health insurance through work.
  4.  Outlaw insurance with deductibles of less than $3000 per year for a family of four.  This would cause most people to pay for routine care out-of-pocket, which means they would be more sensitive to prices and shop around.
  5. Require that all doctors and hospitals publish their rates for procedures online and outlaw charging different people different rates.  Pricing transparency is critical to an effective, efficient market.  Prices would fall as people sought out the best deals for healthcare just as they do for everything else.
  6. Require that everyone put 10% of pay into an HSA.  This would ensure people had the money to pay for healthcare as needed instead of buying a bunch of other things and then not having money for the doctor.
  7.  Provide a direct tax credit for donations made to organizations like free clinics and hospitals.  This would provide a safety net for those between jobs or who were unable to work.  Individuals would be funding these causes directly instead of the money filtering through the government first.

Take these actions and the issue would virtually disappear.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

Starting a Teenager’s IRA

My son has started to earn a bit of money through odd jobs, and I’ve convinced him that it would be a smart thing to start an IRA account rather than just blow all of his money on cars and stuff.  The reason is the effect of compounding.  Basically, for every six years that you have to invest in a wide basket of growth stocks (such as in a diversified mutual fund), you double your money.  This means that you’ll make twice as much starting at 16 than you will at 22.  How significant is this?  Well, a 16-year old who starts and IRA and puts in $2,000, then never touches it, will have about  $1.2 M at age 70.  To get the same result, he would need to put in $4,000 at age 22, $8,000 at age 28, and $16,000 at age  34.

In order to put money into an IRA, you need to have earned income, meaning money that was earned through a job or through starting a business, rather than money that is given to you or money that you earn through investing.  All of the money needs to be earned in the year it is put into the IRA, although you actually have until April 15th of the following year to send in the money.  So if you earned $2,000 in 2017, you could start an IRA with $2,000 and send in the money until April 15th of 2018.

One issue with a child starting an IRA is that many places have minimum amounts to start the account and minimum amounts that can be invested in a fund.  Many of these fund companies require minimum investments of $3,000 or more, which can be difficult for a minor to earn, let alone part with at the end of the year.  I found that he could start one with Vanguard with a $1,000 minimum investment, and that he would have two funds to choose from.  These would be the Vanguard Star fund and the Vanguard Target Date Retirement funds.

An issue he is having, however, is that even earning $1,000 will be difficult.  You see, his summer break is only 2 months long because we have a “modified year-round” schedule where   they only get two months off in the summer, then they get a two-week fall and spring break.  Add a family vacation and maybe a camp in there, plus he starts with the marching band a couple of weeks before school starts, and he doesn’t have very long to work a job.  He could work during the school year, but he has quite a bit of homework each night, so his grades would probably suffer.

Luckily, my son is something of an entrepreneur.  Seeing a need for regular chips and other good-tasting snacks due to the restrictions placed on the school lunch program by Michelle Obama’s initiatives, my son started a covert chip business where he sells chips to his classmates (and sometimes a teacher) between classes.  He claims that there is nothing in the school rules against selling snacks out of his jacket, and we’ve checked as well.  He has even started using an ice pack to keep chocolate bars from melting so he has added Hershey bars to the product mix.  (He says that girls almost exclusively buy the chocolate, where guys tend to buy chips.)  He is learning about running a business since he needs to keep a careful inventory of his expenses and sales so that he can file taxes and start an IRA.

Unfortunately, with his business he was only able to earn about $300 last year and is unsure if he’ll be able to continue this year or not.  I checked to see if there was a way he could start an IRA with less money.  I found that he could actually start a custodial IRA with as little as $100 at Schwab.  We will probably open his account this week with the $300 he has earned so far and then add to it as the year progresses.  I’ll provide reports later on what we invest in and on how his IRA is doing in future posts.  Stay tuned!

Anyone out there start a custodial IRA?  What has been your experience?

Have a burning investing question you’d like answered?  Please send to or leave in a comment.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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