Are You Financially Healthy?

I love personal finance.  I am a long-term strategic  financial planner.  I plan to ensure the security of myself and my family.  People don’t want to discuss or think about the inevitable – death, but you have to protect your family so that they can just focus on their grief and not have to contend with a financial disaster.

My mom passed away in 2010, but when she died, she died without any debt.  The funeral expenses were completely covered.  She left us without any financial stress. We just dealt with the pain of losing her.  You have to plan not only for death, but you also have to plan for the possibility that someone (you or your spouse) becomes temporarily incapacitated.   How do you manage? Can you manage?  Can the household be sustained with the loss of you, your spouse, or both of you?  Will the expectations and needs be met? It is your responsibility to ensure that everything is met. 

 

·         Living Trust:  It is estimated that only 20 percent of Americans have a living trust.  This is an absolute MUST.  You do not want your estate to go into probate and have the courts determine who gets your assets. Additionally, if it does go into probate, you will have a substantial amount of your estate eaten up by the judicial system.  People often delay, but you cannot procrastinate.  This is so critical especially if you have young children.  I think it is also very important to establish a guardian for your children.  What will happen if you die? Who will care for your children?  Once a living trust is established, you need to advise your executor so they know what is expected of them and the responsibility they have…

·         Resource Book:  You need to have one central location to store/maintain information so that it is easily accessible by your trusted partner/executor.  I’ve created excel spreadsheets that have all of our accounts, the balances, the online user IDs and passwords so that either Lance or I could manage these accounts if someone is unable.  I am also including this information in our living trust binder so the executor of our trust can pay any outstanding debt.   I also created a document that shows all of our debts and assets so if Lance and I are incapacitated or deceased, the executor will know the balances and have what he needs.  It is all in one place.

·         Life Insurance:  I believe in term life insurance especially since I have young children.  I have three policies totaling over a half million. This is to ensure my children’s security.   This does not include the funds from retirement accounts, which they will receive nor does it include the asset of the house.  As my children grow older, the need for additional life insurance becomes less necessary, but for now, due to their young age, it is a MUST.

·         Retirement Funds:  In addition to my company’s sponsored retirement account,  I started a 457K (deferred compensation) account in my late 20s.  I am very aggressive.  Currently, I contribute 13.3 percent of my annual income towards this account.  I am aggressive in my investments because my retirement age is not near. I have time on my side.  As I approach retirement, I will transfer my investment to more conservative options.  I routinely monitor the growth of these accounts.  When I met Lance, he was not contributing towards a 457k plan, which was a huge mistake.  The moment we got married, I started him immediately in the plan.  Not only are you planning for your retirement, but the tax-savings benefit is substantial.  If it we were not contributing aggressively, we would be in an even higher tax bracket.  It is a win-win solution. Compounded interest is an amazing thing!! Pay yourself first before you let Uncle Sam take your money.  There are several on-line tools/calculators that you can use to see the tax-savings benefit of these retirement accounts. (i.e. You may be contributing 100 dollars a paycheck, but your paycheck is only less by $75 because it is all pre-taxed.)  Many companies also provide a matching benefit.  Our company does not match at a 100 percent, but it matches my contribution by 3 percent and Lance’s by 1 percent.  Over time, this is a substantial amount.

·         Assets/Debts:  You have to build your assets and limit your debt. Live within your means. This is just common sense.  I think the average credit card debt in America is $15,519.  Ridiculous!  I think the priority for every young couple/family is to own property.  What I think is a drastic mistake is taking equity out of this property and refinancing your home to a longer term, which many people do.  The goal should be to have your house paid off by the time you retire.  You should NOT have a mortgage when you retire.  If you do refinance your house, it should only be to lower your mortgage rate and/or lower the length of your loan.  Never extend it.  Lance and I are in a very good position.  Our house will be completely paid off in 14 years.  This will be a huge relief in our retirement years because we will have no mortgage.  A California mortgage in retirement is almost impossible to pay.  You are on a limited income (not the same income you had while employed) so you really want to eliminate this from your monthly bills.  Debt, I think, is unavoidable.  It is important to have some debt so that your credit score is high, but you cannot have a debt that becomes so overwhelming that you cannot manage it.  Moreover, you don’t want a debt so high that by the time your debt is paid off when you are deceased, you will have no assets/funds left for your beneficiaries.

 

I think it is very important to be actively involved in your financial health and to communicate the financial portfolio to your spouse. When I say financial portfolio, I am talking not just the financial accounts, but the insurance policies, assets, debts etc.  Lance lives in the present day.  He creates a detailed spreadsheet outlining our monthly expenditures.  He is very good at this.  I review and follow it.  I, on the other hand, am more of the long-term planner.  I foresee our financial future in 10 – 15 years from now. We balance each other. What I find also refreshing is we both are financially responsible.  It would be deadly being in a marriage with someone who lacked financial responsibility.  I get quite excited when I talk about our financial health because we are putting ourselves in a position to live comfortably in retirement. Forty-five percent of working age Americans have not planned for retirement.  I am in shock.  In the words of my great mentor, Art Leahy, who once told me, “I am not going to retire poor"...well, I take heed.  We may not be rich, but we will be very comfortable.  It does not take a huge annual income. What it takes is a lot of thought and planning.