From ashes to freedom – Spending that insurance money

First things first

I have definitely been in a writing slump lately. After the Tubb’s Fire I had a burst of energy for writing and moving. I think this is common. The adrenaline and the rush of the entire experience. Then as the weeks have turned into months there has definitely been a level of situational depression. Some good days and some bad days. In my personal life it has led to an even closer relationship with my wife, brother, and parents. In my blogging life it has led to less reading and writing.

I told myself that 2018 would be the start of many more things. We are moving into our new rental home and out of our 700 square foot apartment in a arguable part of town (just last night I had to ask 3 cop cars to move so I could pull out of my parking spot and drive to the hospital). I will be writing more, working out more, and continuing to focus on the important things in life- family and friends (and this personal finance community).

So this is the first of hopefully many posts ranging the topics of forced minimalism and rebuilding with intent, the intricacies of home insurance, why you need to be well insured for life’s unexpected emergencies, and financial freedom.

So on to today’s post: From ashes to freedom- spending that insurance money. I chose this title because despite the sudden and traumatic loss of our home, daily routines, future plans, and implosion of our community we are finding ourselves much less financially burdened these days thanks to insurance money. Insurance itself is a long topic and one for a future post, but let’s just say that we had a lot of stuff and were well insured for that stuff. So when the fire came and turned all of our items into ashes, we came out financially ahead.

It was literally a fire sale

How can that be? We had excellent Coverage C which is personal property coverage. Our policy was for Replacement Costs which means insurance has to pay for what the item costs to replace and not the depreciated value. This is primer #1 for insurance- ALWAYS INSURE FOR REPLACEMENT COST. 

Seriously go now and see what your home insurance says- are you insured for replacement costs? If not go and change it now.

Over the course of 37 years (10 together with my wife) we have managed to accumulate a bunch of stuff. Some of this was handed down to us through our parents, some was gifted through our wedding, and some we purchased. We had some high end items like antique wooden boats and old hand sewn Persian rugs. We had some cheap items like a ton of toothbrush heads and deodorants purchased at Costco. All of these items add up and at the end of the day we received more money than we could possibly spend today.

Now some of this money has been spent and some will continue to be spent. There is furniture to buy, laptops to replace, and toys for our son to enjoy. Still, since we are being intentional about our purchases, making them over the long haul, and likely never going to own as much stuff again, we come out financially ahead. So from the ashes we have earned a large sum of insurance money in the 6 figures. This provides a lot of freedom, much like winning the lottery.

 

This cod, the birds, and the plate below were the few items we saved from the house. Thanks to our wonderful photographer Laura Turbo from Berkley for capturing them in these images. Check out her website here.

Now comes the fun part…what to do with that insurance money?

By a bunch of $..t? Nope not us.

Fast forwarding our financial plan by 10 years while keeping a lot of cash on hand until we figure out how much this whole rebuilding a home is going to cost. HECK YES!!!

The first thing I did when I received the check was sit on it for a week. It was nice to see the large figure in my bank account. It is the most cash I have ever had on hand. If you include the check for rebuilding our home we were sitting on over $1.5 million. 

Unfortunately the rebuilding money had to be sent to the bank to be held in escrow…It was good while it lasted, but now time to spend that personal property check.

After a week I paid off my not surprisingly large October credit card bill. Replacing clothes, computers, toiletries, kids books and toys surprisingly costs a lot. Even as we are slowly and deliberately adding things back to our lives, it is still expensive. I haven’t carried a credit card balance in a few years so this was not reducing our debt, but was just paying what we had currently spent.

THEN CAME THE FUN PART…Time to fast forward our finances…

Insurance money

Debt destruction

I took a portion of it and paid off a 401K loan. When we purchased a little over a year ago we had taken out a sizable loan from our 401K. This is not something I necessarily recommend anyone doing, but we did it. It was being paid off over 3 years with 2 left to go. In one click of the mouse, I paid that bad boy off. All of a sudden I saw a double net worth bump- I took the amount due off of my debt and added that back into my 401K for a total gain of 2X! Yes it is funny math, but it works for me.

Next up- pay off my student debt. Now my student debt was still quite sizable. Let’s put it between $100 to 200k. It was low interest at 3.1% but I had always wanted to pay it off early. It stared me in the face each month. Taunting me! Holding me down.

While I never regretted taking the money out for my medical degree, I always regretted that I was not disciplined enough to pay it off quickly. 5 years out of training my plan was to pay it off over the next 10 years. By 2028. Ouch that seems like an eternity. So instead, I took that insurance money and transferred a huge chunk of cash to my loan company and slashed that debt to $0!

This left me with just my mortgage and the new 0% car loan I took out for our recently purchased Highlander. The mortgage is there for now because it is at 2.85% and likely lower than anything I will get in the current market. As we decide to rebuild, keeping the lower interest mortgage will keep me from having to take out a new higher interest rebuild loan. There still is the chance I will pay off the mortgage if rebuilding is going to take 2-3 years which some people predict.

The 0% car loan is there because…well it is 0%. I had my checkbook ready to go at the Toyota dealership, but when they offered the financing I decided to go for it. In the future I may pay this off out right, but for now it is worth keeping

Setting up my future self

The debt that has been stressing me out for the past 5 to 10 years is now a thing of the past along with all of our worldly possessions. Freedom in so many ways. This is huge.

For someone who has been thinking and talking financial independence, it is actually some seismic, tectonic plate moving event. (Okay maybe I should not make earthquake jokes after just getting through a fire and living in California!) It was like I am winning despite losing. The light at the end of the tunnel.

Now…ah now with no to low debt, I get to decide what are the next important things for me to do. So what did I do…well time to set myself up for the future. As Fritz at the Retirement Manifesto states, sometimes you have to move from Good to Great. So today we take his advice and do it.

First off was my son’s education. I always had set certain goals I wanted to meet to consider myself financially independent. One of these was funding my son’s college. So I took some money and added it to our already funded 529s.

My son now has $50,000 sitting in his 529 plans at the age of 2.5. If the rule of 7 works, this will hopefully grow to $200,000 by the time he is 17 and thinking about college. Who knows how much college will cost in 15 years. Heck it may even be free. I figure I can let this cash ride for a long time and revisit it when he is 10. (Also now that the tax plan has changed, we could use that money if needed for private education…let’s hope our public schools remain good). 

On Christmas Eve I funded a Donor Advised Fund with Fidelity to the tune of $40,000. I have always donated small amounts to charity but now want to increase that donation rate. After being the recipient of many great organizations open hand and warmth, I appreciate the importance of a hot meal or a hug after such catastrophic events. Plus, by placing money into the Donor Advised Fund in 2017, I can take a tax deduction in 2017. I suspect that my itemized deductions will be much higher now than the few years coming up, so I might as well maximize them.

We are still sitting on some liquid cash. It’s not burning my pockets like liquid lava, but I am still contemplating what to do with it. We may need some to actually rebuild of our home as builders are quoting outrageous costs ($400 a square foot!). So we are gonna stash some cash until we figure this out.

Finally, I started contributing to the after-tax account at my job. I have always maxed out my traditional 401k but now am dropping an additional amount into after-tax accounts. If and when my income drops, then I can convert it into a Roth account. Not a bad deal and one of the perks of my job. 

Conclusions

So there you have it. From the ashes comes a financial windfall and freedom. I am not financially independent but my path has advanced by 10 years easily. Debt is gone, kids college is funded,  money for charity is set aside, and some is left to invest. 

Not that I would wish this on anyone, but might as well take the positives with the negatives.

Here is to a great end of 2017. Be safe this weekend and may 2018 be a good year of progress for us all!

Happy New Year!

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DadsDollarsDebts

I am a Dad and Doctor trying to find financial freedom by owning my dollars and debts. Helping dads with their finances so they can focus on the family.

19 thoughts on “From ashes to freedom – Spending that insurance money

  • January 11, 2018 at 6:59 am
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    Great way to create some positives out of such a tragic event. Wishing you all the best this year and beyond.

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  • January 6, 2018 at 7:23 pm
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    You guys are true survivors, very inspiring how you keep it positive after such tragic event.

    How did the insurance claim go? Did they insist on receipts, pictures,..even though they know it could have burnt? Did they try to challenge some of your claims?

    I have a friend who used to work for an insurance company, and her whole job was about challenging and rejecting claims. She got bonuses based on how much money she saved the company a.ka how much claims she was able to reject 🙁

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    • January 6, 2018 at 7:35 pm
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      We have been fortunate but had to itemize every possession to Max out the personal property aspect of things. As far as our home, still working on it but our company has been good.

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  • January 5, 2018 at 8:13 pm
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    In 2006, Mrs. Groovy and I received a $250K windfall from selling our Long Island condo. We know we were lucky to get that windfall, but we are very proud of the way we managed it. By relocating to North Carolina, we set in motion a path to financial independence that was as close to foolproof as imaginable. Managing good fortune, however, is easy. Managing bad fortune is the true test of one’s mettle, and in this regard, you’re doing inspiring work. Bravo, my friend. Congratulations on turning ashes into freedom.

    P.S. $400/sq ft is coconuts. I’m sure part of that has to with earthquake-related construction regulations and the value of dirt in your corner of California. But it’s still intimidating to a little ol’ country blogger from NC. Mrs. Groovy and I are looking at a $125/sq ft cost on our future home. How do people with modest incomes survive in California?

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    • January 5, 2018 at 8:57 pm
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      Windfalls are nice…$400 a square foot is not so nice. Relocating for geographic arbitrage (and family) is not a bad way to get to financial independence. I am quite jealous that you are building a Groovy ranch…seems awesome to me.

      As for modest incomes in California. I don’t know. I have met medical assistants and nurses that commute an hour each way because that is where it is affordable to live. Hard to believe.

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  • January 2, 2018 at 1:29 pm
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    I’ve stepped up my health insurance plan. After a really bad injury last year, it really drove home the message that “I may be young, but stuff happens. You never know.”

    Happy New Year!
    Troy

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  • December 31, 2017 at 7:20 pm
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    Something I did was to fund a Gift trust for my girls at about your son’s age. Smart move. That money becomes theirs when they hit 18 BUT I never told them about it, I just use it to fund their lives. Daughter #1 is in Italy singing with her concert group at 12 venues across the country. Cost $7k Funded by the gift trust. Daughter #2 is commuting to college so she needs a car, cost $15k funded by the gift trust. They both get a monthly allowance you guessed it… When #1 graduates in 2018 she will get a car funded by the gift trust. In the mean time I’m retired trying to understand my budget and are not crimping not crimping my cash flow at all. It’s all been planned into the mix for 20 years. 2K-3K per year is all it takes. You’re going to pay one way or the other. This money only needs to cover 4-6 years of college spending beyond 529 money and can be spent on anything, computers cameras (both my kids are photographic entrepreneurs) plane tix home from college, summer abroad.

    For me it took 2 years to begin to feel normal. Have you decided to rebuild and sell or just rebuild? If you rebuild and sell maybe you could leave some of the McMansion unfinished but easily build-able to the new owners spec. The problem with custom property is it’s built to your spec and that may not sell easily to someone else. When I bought this house I was able to build out certain parts the way I like it and it made all the difference in my happiness with the purchase. The fact I could readily customize my purchase at $5 bux a ft^2 was a big selling point. Just an idea.

    HYN DDD n best in ’18

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    • December 31, 2017 at 8:38 pm
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      Good point on both the home and kids…I gotta look into the gift trust…maybe worth doing in 3 years or so.

      As for the home, we are still waiting on insurance to get back to us. We would like to build but at current quoted rates are under insured by a hundred or two thousand…way too much for my liking.

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  • December 31, 2017 at 11:31 am
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    As I have said before, I am truly inspired at how you have handled this situation from the beginning. I’m sure it wasn’t easy and has challenged you in ways that you probably never even thought possible, but it sounds like you are in an even better place now than you were. I commend you for sharing your story with us through this difficult time.

    “Not that I would wish this on anyone, but might as well take the positives with the negatives”. This is exactly how we felt after Mr.Wow’s bike vs car accident. Although it is not at all the same as losing you house in a fire, the same concept applies that it was an unfortunate and negative event. Its something I hope no one ever has to experience, but the positive was that we came out ahead because of it. Mr. Wow’s memory seems to be intact and the settlement covered all the medical expenses, bike & equipment replacements, while still leaving us a bunch of money left over.

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    • December 31, 2017 at 12:38 pm
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      Yeah tragedies are brutal but can improve financial life a bit. As long as there are no longer term health issues we can all overcome. With the fire I worry that folks in the community will have PTSD, anxiety and other mental health issues.

      Glad Mr.WOW is doing a okay these days. Happy New Year’s.

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  • December 30, 2017 at 8:29 am
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    Glad to hear you’re moving into a more tolerable housing situation. Ironic to think you’ll likely look back at this 10 years from now as a gift in disguise to get you to “FIRE” (bad pun) earlier than planned. Don’t worry about your posting frequency, your priorities are in the right place!

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    • December 30, 2017 at 8:43 am
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      Ha…funny how life turns out. Also I am not sure how long it would have taken to make buying the McMansion profitable and then this happens…from Good to Great in many ways.

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  • December 30, 2017 at 4:25 am
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    Personally, I don’t see insurance as an expense. I consider it as an investment.

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    • December 30, 2017 at 6:32 am
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      You make a great point. Insurance is an investment and something that should not be overlooked. If we had been poorly insured our current situation would be way different.

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  • December 30, 2017 at 3:34 am
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    Happy New Year DDD. You really did a lot to advance your financial future out of this unfortunate event. Wishing you & your family nothing but the best for 2018.

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    • December 30, 2017 at 6:31 am
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      Luckily for most of us there are few tragedies in life. This one will hopefully be the only major one we have to deal with so we might as well make the best of it. Happy New year to you and your family!

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  • December 30, 2017 at 1:14 am
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    A Nice silver lining to your family tragedy. Good Luck with everything. Thanks for bringing us along for the ride.

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    • December 30, 2017 at 6:28 am
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      Very nice silver lining indeed. A big step towards financial freedom. Thanks for the well wishes and happy New year’s.

      Reply

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