Primerica Life Insurance Company may be relatively young in the insurance field, but it sure is bent on making waves. Barely two years old as an independent insurance group, it enters the investment scene with fresh ideas and youthful enthusiasm to inculcate a savings attitude among Americans. Its President, Glenn Williams, shockingly notes how there are much fewer people nowadays who invest for their future. But with the stock market crash in 2008, the public is hopefully made more aware of their financial vulnerability, which is magnified when they have no savings plan.
Primerica follows a six-point framework that allows the company to educate its clientele on the importance of creating an investment portfolio. First of this is the concept of paying yourself first. This means that before you buy anything, which in essence is throwing away the money you have labored all the month for, you have to set aside a certain portion for your savings. Although it is easy to think that we have nothing to spare, what with all the bills and groceries, careful and thoughtful reconsideration of our spending behaviours will usually reveal otherwise. There is that pair of shoes that we might not have bought, or that pint of ice cream that is not exactly a basic need. Now following the concept of paying yourself first brings saving for your future a step further: by first putting aside investment money, one will be confined to budget more conscientiously what money is left on hand. Don't you notice how you are spending all your income as they come, no matter how big your salary gets through time? This is because our preferences become increasingly expensive as our salaries increase; in fact, our lifestyle changes faster than our incomes grow. But if we learn to pay ourselves first, we can control this lavish impulse. Developing the practical habit of saving can save us from being dependent on welfare in the future.
Following this concept is the theory of decreasing responsibility. This premise is the product of reality - a person who is in the young adult stage would just be starting a family, armed only with a less stable career compared to an experienced individual who is in the latter stages of adulthood. The older person would likewise have fewer responsibilities as his children may already be of legal age and have altogether left the nest. The young adult therefore has a greater need to insure himself against any mishap, lest he puts his young family at the mercy of welfare, too. The good news is, the younger you invest, the lower is your premium (the amount you pay for an insurance policy), which is connected to the next concept.
The third concept is the longer you wait to invest, the more expensive it will be for you. This is because you would have to put in more to reach a target amount compared to if you started investing at a younger age. This is basically the effect of two factors - your insurability, and the use of time as a multiplier. Insurability is an idea anchored around your capacity to pay: if you are younger, you are stronger and more resilient; hence you are in a better position to pay an investment company. In an unfortunate event that you are laid off, you still have more years ahead of you to find employment and pay your debts. On the other hand, the older you get, the more risks you acquire and the lesser are your chances of getting hired (particularly in a society that gives premium to young and vibrant employees who can attract more business). Thus, insurance and investment companies will charge you more for a plan of the same value as the one subscribed to by a younger policyholder. Aside from this, you cannot optimize on the multiplier effect of time, which is connected to the fourth concept, the power of compound interest.
The power of compound interest can grow your money at an amazing rate. This is because your investment plus interest enters into a revolving cycle in which it becomes the new base for the next interest computations. Simply put, it is increasing your base money without you depositing an additional dime; all the increase comes from the interest generated and recomputed every financial cycle. That is passive income, growing your money without you doing anything but allowing the magic of compound interest do its work. Therefore the sooner you save, the greater are your chances of increasing your wealth.
Knowing exactly how long it will take your investment to double can be computed following the fifth concept: the Rule of 72. Primerica may not have originated this theory, but they have simplified it with their earnings calculator example (visit their site for detailed examples). They want investors to realize that calculating for their target savings is not that hard. By simply dividing 72 by the interest rate their investments are getting, ordinary people can track their funds' growth. If one sees he is not earning enough, then he can opt for a different investment plan than can earn him his desired amount.
Lastly, Primerica wants to impart the idea of debt stacking. With the company's help, you can identify your debt that poses for you the greatest liability, most probably because it incurs the biggest interest. This becomes your "target account", the debt that needs paying off first. Then the company helps you plan out regular payment schemes that will address your other financial obligations. This develops discipline, as well as a fixed fund that will later on enter your savings account after all your liabilities have been paid off. Remember, no one can become financially free if he is held back by his creditors. Thus, saving for the future involves making sure you are free from credit bondage.