Once a month, finance expert Paco de Leon tackles our pressing questions about all things money, with her dose of humor. Here are today’s three topics, including an easy book on investing…
Q. My company matches our 401(k), but, to be honest, at age 25, I’d rather spend my extra earnings than save for retirement. Can I wait til later? — Amy
This is where your employer cares about you so much that they’re going to give you free money. If they do offer a match and you don’t take it, then you’re basically Randy Jackson saying, “That’s gonna be a no from me, dawg.” Don’t do that. Again: free money. Take the match and make the contribution.
Q. My father-in-law gave my husband a term life insurance policy for his birthday after our baby was born, and I was like, ‘Wow, weird morbid gift.’ But he’s an economist so I’m assuming this was a good financial decision? — Kirsten
A. Ah, life insurance.
Here’s how it works: You may go, ‘I have a baby, I need life insurance, because if something happens to me, that baby will need my money to survive.’ The reason you get 20 year term life insurance is because you believe that baby will have its act together by 21 years old, or because it doesn’t make sense to get term life insurance beyond that. You call this person to sell it to you, and they make you fill out a bunch of stuff, they will ask for your pee and your blood, and then they tell you how much it’s going to cost.
Again, they ask for your PEE and your BLOOD. What else does that? Nothing in the world. Only insurance, one of the biggest industries in the world. Insurance can seem fascinating — like how J.Lo’s butt is insured. But insurance is basically a bunch of people, looking at tables, calculating probability all day, and making a bunch of money off it.
When choosing a policy, here is the simple answer: 85% of people looking for life insurance should probably go for term insurance. It’s the cheapest option you can get for the most amount of coverage. Term life insurance usually comes in 10, 15 or 20 year terms. It’s simple — you know what you’re getting, you get a quote for your premium, you know what you’re paying every year, and you know when it’s going to expire. (When people sell whole life policies, they get a bigger commission than with term policies. It’s a conflict of interest, so I am wary of it.)
Term life insurance is pure insurance. The important thing to remember is this: Insurance is a tool for minimizing loss, it is not for gain. If someone is trying to sell you insurance and they’re talking about what you can gain from it, just try to picture me saying, ‘Pure insurance is a tool to minimize loss, it is not for gain.’ And then act accordingly.
Q. Can you recommend any books for learning about investing? I’ve been figuring out the stock market as I go, but sometimes I feel like I’m attempting calculus before learning basic arithmetic. — Annie
A. The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns by John C. Bogle. It’s a great guide for beginner investors who are just getting their footing in understanding the investment world. The recommendations are solid and timeless. And it’s super easy to understand!
Paco de Leon is a musician who happens to be killer at finance. Her experience includes business consulting, business management, financial planning, wealth management and even some time at a giant bank. Her experiences led her to found The Hell Yeah Group, a financial firm focused on inspiring creatives to be engaged with their finances and giving them the tools and support to stop freaking out about it.
Thank you so much, Paco! Do you have a money question? Please let us know in the comments below…
P.S. Five real-life ways to save and how to ask for a raise.
(Photo courtesy of Paco; illustrated background by Alessandra Olanow.)