No Debt Plan

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Last year my wife and I were sitting in our apartment cooking dinner and waiting on a friend to come over and join us. We were making some awesome lasagna and just enjoying being newlyweds. We kept hearing some loud noises outside and for those of us that have lived in apartment complexes that was nothing new. These noises were persistent, so we finally went out on the patio to see what was going on. Much to our surprise, our entire complex entrance had been blocked off by firetrucks and police cars.

Let me tell you, that gets your heart rate going for a minute or two.

It turns out two apartment buildings down from us was smoking from the top of a chimney and no one had a fire in their fireplace. The complex had neglected to get the chimneys cleaned annually and leftover stuff somewhere in the chimney was now on fire.

We went outside and got to see the entire action. Firefighters on the roof chainsawed off the top of the chimney and then sprayed water down through the hole. They had cleared the building (and scared some of the unknowing inhabitants) before doing this. Imagine you live in the bottom apartment, you have to evacuate your apartment because their might be a fire in your building. Now imagine they dumb gallons and gallons of water down the chimney and it runs down to your place. I’m guessing every apartment got some water damage, but you would think the people at the bottom would get the worst of it.

Thankfully, no one was injured and no serious damage occurred to the apartments. But it could have been different. The entire building could have been gutted by smoke and fire damage — those folks could have lost everything.

What would you do?

If you came home one night and your house was just… gone, nothing but ashes, what would you do? Hopefully you would have insurance, but there are some extra steps you can take to truly protect yourself. This post is going to show you how to do a complete home inventory for insurance documentation purposes.

Why do I need a home inventory?

When your house is destroyed and all of the contents within it are unrecognizable, the insurance company may not give you full value for your belongings. You say you just bought a 46″ plasma TV. You lost the receipt, the TV, and the box in the fire. Hmmm… could be kind of hard to prove. The insurance company may think you’re trying to scam them (and I’m sure people have in the past). Having proper documentation can help you prove you owned what you really say you owned, and get that insurance check faster.

Five Easy Steps to a Complete Home Inventory

1. Have insurance

It almost goes without saying, but you would be surprised how many people live in apartments without renter’s insurance. As a home owner, you can’t get a mortgage without insurance. The banks simply won’t do it. But there is no stipulation for renters. If your downstairs neighbor leaves the space heater on and burns down all of the apartments in your area and you don’t have renter’s insurance, you’re pretty much up a creek without a paddle.

The beautiful thing about renter’s insurance is how ridiculously cheap it is. When I was in college and living in a duplex with two other guys I got renter’s insurance through the same company that held my automobile policy. The absolute cheapest insurance I could buy was $12/month for almost $24,000 in coverage. I could not only have replaced everything I owned with that money, but probably everything my roommates owned as well.

If you don’t have insurance, call your agent today and get it setup.

2. Know what is important to document

You don’t need to document the notes you took in science class in the 10th grade. You don’t need to document the peanut butter in your pantry. You do need to document your couch, tv, and furniture.

Don’t waste time documenting things that are worthless in the eyes of an insurance company.

3. Grab a camera/video camera and go

The easiest way to document your belongings is to grab a camera and start taking photos or video. Digital cameras are so inexpensive these days that even if you don’t have one, you probably know 20 people who do have one.

You’ll want to take pictures of all the major items in your house. Here’s a short list: furniture, electronics (iPod, computer, laptop, TV, DVD player, stereo), clothing (especially high quality, expensive suits and the like), and even your appliances. For electronics it would be wise to document the serial and model numbers off of the back to prove that you did have this brand DVD player and that brand expensive gizmo.

4. Create extra documentation

The pictures are a great start and you’re already ahead by doing that. But you’ll also want to convert those photographed items into some sort of easy to digest list. I would put the items into an Excel worksheet and document room by room. Something like this: In the living room, we had the TV, the couch, the DVD player, and the stereo system. Those items are worth $X each. Now in the office we had…

Having a list that you can hand over to your insurance company (along with photos) can go a long way in helping you out.

5. Store your documentation in a safe place

All of this work is essentially worthless if you don’t store your documentation in a safe place. What’s a safe place? Somewhere outside of your current home (and not with your neighbor). Try a safe deposit box, or a box at your parents’ house.

Imagine you do all of the above steps, but leave the Excel worksheet and photos on your computer. Your house burns down or is destroyed by a tornado. The computer is gone, and along with it your documentation.

I also recommend storing it at least a state away. Look at Katrina. If you have your documentation in a safe deposit box at the bank down the street and the bank is also wiped out by the natural disaster, you’re still up a creek without a paddle. We store ours with our parents who live 6 hours from here and are unlikely to be affected by any natural disaster that affects us.

What about you? Do you have your belongings documented? Where do you store them? How did you go about it? Leave a comment so others can learn from you.

A major focus for many families during financial planning is life insurance. The loss of one spouse in a two-income family can be financially and emotionally devastating. This is very, very true. However, a lot of people forget or ignore disability insurance which can be just as crucial. (Photo by bravenewtraveler.)

The simple face is you are much more likely to be disabled than killed (where disability is defined as being out of work for longer than 90 days). While disability isn’t exactly a fun thing to think about, it is something we all need to take some time to look into.

I will use my wife and I as an example of why uninsured disability can be devastating to your personal finances.

We each rely on the other’s income for our monthly budget. We aren’t at the liberty to have one of us stay from work right now. (Maybe in the future!) If I were unemployed we would burn through our emergency fund extremely quickly. Even if we made some serious cuts to our life style, I doubt we could get to a break-even point. And that is just using unemployment as example.

Disability isn’t the same as unemployment.

Not only are you not earning income, you are also (most likely) draining more income than you would otherwise. If I were in a car wreck and permanently disabled, not only would I not earn a paycheck, I would need rehab or additional medical treatment. This would cause us to burn through cash even more quickly.

This situation is where disability insurance can be a huge help. Most of the policies I have seen pay out a monthly check worth 66% of your individual gross monthly income. Let’s say I earn $3,000 gross each month. I would then receive $2,000 from a disability policy. Of course that doesn’t make up for all of the issues, but that would help us keep our heads above water.

Wait Longer, Pay Less

Disability policies give you the option of when the policy kicks in. The faster you want the policy to kick in, the more you pay each month. If you have an emergency fund, I recommend pushing the policy start date back as far as possible. This lowers the cost of the policy per month. Paying less for the same benefit just makes sense.

Where To Get It

1. Your employer may offer disability insurance as a free benefit to you. If they don’t offer it for free, they may give you the option to use the employer rates to buy additional coverage for yourself. This is probably the least expensive option.

2. After that, don’t forget to check with any professional associations you have membership with. This is where we are actually getting my wife’s disability insurance with — the National Education Association. The NEA policy includes short and long term disability.

3. If you have no other options, try an independent insurance agency or broker like AccuQuote. We got life insurance through AccuQuote, and they have a division that brokers disability insurance called AccuSource. However, when we called AccuQuote/AccuSource, they said they don’t cover government employees including teachers. Not sure why, but we couldn’t get coverage.

So, do you have disability insurance? If so, when does your policy go into effect after disability?

There was a discussion over at the GRS forums that made me want to write this. What do you do with all of those bank and credit card statements that come to your house? Throwing them in the trash is asking for trouble. Identity thieves could steal your information and then you’ve got a whole new set of problems to deal with.

I recommend buying your own paper shredder. But is a shredder really worth it?

The likelihood of someone stealing your garbage that just happens to contain a piece of paper with your social security or account number on it is slim. Still, identify theft does happen and it is a major pain to get cleared up. How would you like to not only have to completely start over with your financial life, but when you start you are further back in the race than you were when you started originally? It must be very frustrating. Varying reports have said it can take more than 60 hours to recover from identity theft. Thankfully (knock on wood), I have never experienced it.

A lot of personal finance is changing habits. Buying a shredder is just another way to change your behavior ever so slightly for a positive result. You want to completely destroy anything with your social security number, account number, or other sensitive information (brokerage statements, what’s left of your checkbook after the last check, etc.). I even shred the return portion of credit card offers. Every day we go through the mail and sort it into various piles. There’s an action pile, a throw away pile, and a shred pile. A very simple system. It takes maybe an additional minute to shred the extra documents rather than just throwing them away. I feel the effort and cost are definitely worth it.

Types of Shredding

There are several different types of shredders. Money magazine did a test a while back for home use (the website says the article is from 2005 and I have to think there was another best since then, but I can’t find it). What we use is a 8 sheet cross-cut shredder. A cross-cut does exactly what you might think it does — it shreds sheets in both diagonal directions. This results in small diamond shaped confetti. I guess if someone was really determined they might be able to piece all of the small pieces back together, but this works for us.

In the discussion at the GetRichSlowly forums (linked above), someone mentioned there are different levels of shredding quality. I found a website, ABC Office, that discusses the various types of security.

Our shredder cost $50 at Office Depot. You should be able to find one for a similar price point, maybe even less. If you use FatWallet, you could probably earn some cash back. It is a bit of an investment, but it gives us peace of mind.