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Earl of Texas · 08-08-2011, 07:15 PM

I realize this is an old post, but it ranks high on search engines so I feel it is worth it to share my 2 cents. Both authors have useful advice, but probably for different audiences. One point that you will hear more from Robert is that you need to "pay yourself first". Dave will say to pay yourself first until you have a $1k emergency fund, then channel everthing into debt.

The problem is you cannot predict the future. You can spend the next 3-5 years paying down debt, only to be hit near the end with a malicious lawsuit, outrageous medical bills, or enormous but necessary legal bills, like fighting to keep an ex-wife from bring your kids around her sex-offender boyfriend. Some expenses are just necessary, sometimes even mandated by the state, such as the medical bills for your child or spouse, so "chosing" to live frugally is not enough. Health insurance is still riddled with exclusions and limitations and cannot be relied upon. Many families on medicaid today used to be upper-middle-class until they fell through one of the carefully designed cracks of their health insurance policies.

That said, the person who "pays himself first", by stashing the first 10% of his earnings into a bankruptcy-protected 401k, a tax-protected Roth IRA, a divorce-protected trust fund for his kids, and medicaid-protected equity in his home will have a more secure future than the guy with $1k in an unprotected bank account. This person may spend a few more months paying off his debt, and ultimately a few hundred more dollars in interest payments, but he will be happy paying this "premium" for "insurance" against the following events:
Exorbitant taxes
Divorce losses
Frivilous Lawsuits
Medical Bankruptcy
Insufficient Insurance (medical or liability)
Medicaid necessity (like a special needs child, or a disabled spouse in a nursing home)
Any foreseeable crisis

This effort cannot be a last-minute transfer after the problem comes up. Medicaid will look back 3-5 years and will disqualify you if you transfered a significant portion of your assets. Bankruptcy courts will dismiss your petition and possibly prosecute you for fraudulent transfer if you move assets around just before filing. The only sensible approach is to plan and manage these types of transfers today to protect your future assets. Only after this does it make sense to worry about paying bills to anyone else. If you're destitute and homeless you won't be able to pay anyone anyway, so this is only a prudent measure, and our society would be much more secure if everyone took this approach. As a final measure, $10k in an offshore account could be enough to bail yourself out of a bad situation by relocating to a foreign country with more favorable conditions.

08-08-2011, 07:15 PM	#38 (permalink)
Earl of Texas Junior Member Join Date: Aug 2011 Posts: 2	Protect your future assets I realize this is an old post, but it ranks high on search engines so I feel it is worth it to share my 2 cents. Both authors have useful advice, but probably for different audiences. One point that you will hear more from Robert is that you need to "pay yourself first". Dave will say to pay yourself first until you have a $1k emergency fund, then channel everthing into debt. The problem is you cannot predict the future. You can spend the next 3-5 years paying down debt, only to be hit near the end with a malicious lawsuit, outrageous medical bills, or enormous but necessary legal bills, like fighting to keep an ex-wife from bring your kids around her sex-offender boyfriend. Some expenses are just necessary, sometimes even mandated by the state, such as the medical bills for your child or spouse, so "chosing" to live frugally is not enough. Health insurance is still riddled with exclusions and limitations and cannot be relied upon. Many families on medicaid today used to be upper-middle-class until they fell through one of the carefully designed cracks of their health insurance policies. That said, the person who "pays himself first", by stashing the first 10% of his earnings into a bankruptcy-protected 401k, a tax-protected Roth IRA, a divorce-protected trust fund for his kids, and medicaid-protected equity in his home will have a more secure future than the guy with $1k in an unprotected bank account. This person may spend a few more months paying off his debt, and ultimately a few hundred more dollars in interest payments, but he will be happy paying this "premium" for "insurance" against the following events: Exorbitant taxes Divorce losses Frivilous Lawsuits Medical Bankruptcy Insufficient Insurance (medical or liability) Medicaid necessity (like a special needs child, or a disabled spouse in a nursing home) Any foreseeable crisis This effort cannot be a last-minute transfer after the problem comes up. Medicaid will look back 3-5 years and will disqualify you if you transfered a significant portion of your assets. Bankruptcy courts will dismiss your petition and possibly prosecute you for fraudulent transfer if you move assets around just before filing. The only sensible approach is to plan and manage these types of transfers today to protect your future assets. Only after this does it make sense to worry about paying bills to anyone else. If you're destitute and homeless you won't be able to pay anyone anyway, so this is only a prudent measure, and our society would be much more secure if everyone took this approach. As a final measure, $10k in an offshore account could be enough to bail yourself out of a bad situation by relocating to a foreign country with more favorable conditions.