Financial wellness is like eating healthy – it’s hard work and no fun but you know it’s good for you. Think about it, you always feel better after a healthy meal instead of a highly-processed one. But building a balanced meal plan takes more time and effort to accomplish. The same is true for a healthy financial plan. Not every financial planning task is exciting and groundbreaking, but each step secures your goals and vision for the future. So let’s dust off your to-do list and explore actionable resources to help you accomplish some healthy financial tasks.
1. Increase (or Get) Life Insurance
Life insurance is one of the easiest tasks to forget, yet it’s crucial if you carry significant debt or have dependents who rely on your income. The truth is, everyone who buys life insurance hopes their loved ones never need to use it, but it’s a true safety net for your family.
Life insurance comes in many shapes and sizes; the two broadest categories are:
Permanent life insurance
Term life insurance
Permanent policies can offer good benefits but aren’t right for everyone. Due to the comprehensive nature of these plans, premiums are nearly four times higher than term policies and often don’t offer enough benefits to justify the sky-high rates. While these policies can accumulate a cash balance and investment opportunities, you can usually see more substantial returns through regular portfolio contributions.
Term insurance lets you buy a policy for a set time, anywhere from 10 to 30 years. The coverage lasts for that specific time and stops when the term ends. Term coverage is much more affordable than permanent coverage, which makes the monthly commitment much easier to stomach. Your coverage cost usually depends on:
The provider (you can get a better price depending on the company you buy a policy from, so shop around and understand any fees before signing on the dotted line).
The amount of coverage (a $1 million policy will be cheaper than a $2 million).
Your age (younger people tend to have lower premiums).
Your health (healthy people (i.e non-smoker, physically fit, etc.) tend to pay less).
One of the most common questions about life insurance is how much coverage you’ll need. Your coverage level is unique to you and your situation. Here are a few things to consider:
Your income
Family size and additional income
Existing insurance coverage
Net worth
Current portfolio and retirement assets
Did you just start a family, buy your first or second home, or start your own business? All of these should spark review to potentially increase coverage that meets your changing needs. Keep in mind, not everyone needs life insurance. Someone with no debt or dependents doesn’t need the added monthly expense.
2. Prepare Your Estate Planning Documents
People have a laundry list of reasons to avoid estate planning. But it’s not as painful as it’s made out to be.
In fact, in the wake of the pandemic, many are re-evaluating their documents to ensure everything’s up to date. From video conferencing with their attorney to digitally updating or drafting a new will, people have been creative in how they approach this financial chore. Not sure where to get started? Let’s look at some key estate planning documents:
Will
A will outlines your wishes for your estate. One of the most common reasons people put off creating one is a perceived lack of assets. Do you own a car or house? Are you an entrepreneur who owns their own business? What about valuable jewelry or collectibles? Maybe even a coffee can full of cash? Once you start looking, you’ll find you have several assets to plan for. A will gives you a dedicated space to help ensure your estate gets divided according to your wishes.
Guardian/Trustee
In their will, parents either need to add or update guardians for their children. A guardian is someone who will care for your children should you be unable to. While a guardian cares for the children’s wellbeing, a trustee handles the finances like taxes and inheritance.
Trust
For those planning to leave significant assets to family and loved ones, a trust is an excellent vehicle to consider. Trusts are private and secure, giving you the freedom to select one that will work best for you. For example, if you want your legacy to have a charitable-focus, you might consider a charitable remainder trust which funnels a certain amount to your chosen charity and the remainder to your beneficiary.
Financial Power of Attorney
This gives someone the ability to handle financial matters on your behalf like settling debts, paying taxes, and more.
Medical Directive
This gives the person of your choice the ability to make medical decisions on your behalf should you become incapacitated. It’s best to choose someone like-minded who will respect your wishes.
All these tasks can’t be completed at the same time. Sit down and see where you’re at and make a detailed plan from there. If you’re starting from scratch, maybe start with drafting a will. If you haven’t updated your plan in years, see if your beneficiaries are still aligned or if you need to change a guardian or power of attorney.
Estate planning is meant to bring confidence, clarity, and peace of mind to your financial plan. Taking the time to update your documents ensures your life is in order to create a seamless financial transition to children, family, or charitable organizations.
3. Set Up or Rebalance Your 401(k)
A 401(k) is a tax-efficient way to save for retirement. Pre-tax contributions lower your taxable income and boost future savings. But to maximize the plan, you first have to set it up. Creating a new account can seem daunting (which is probably why you put it off in the first place), but it doesn’t have to be stressful.
When creating your account, you’ll have to make a few decisions:
Choosing which account to fund
Traditional, Roth, or even both depending on your plan.
Selecting your contributions
Most 401(k)s are funded by payroll deferrals, which means you select a percentage of your salary to fund the account. Struggling with how much to contribute? Start by putting in enough to qualify for a company match if you have one (normally 4-6%). A good rule is to increase your contributions with a raise, bonus, or other salary bump.
Making investment choices
While your company’s provider has some control over the pool of investments you have to choose from, you are able to decide how you want to allocate your investments. Start by determining how much risk you want to assume (high, moderate, or low) and assess from there.
Establishing your 401(k) is not a one and done activity. It’s important to periodically rebalance your portfolio. Rebalancing means buying and selling funds in your plan to maintain a consistent allocation and risk preference. It’s best to make rebalancing part of your annual (or even quarterly) process as it limits volatility and helps maintain your risk levels and time horizon.
Having the appropriate amount of life insurance, getting your estate documents in order and setting up your 401(k) and rebalancing every six months are just a few of the tasks you need to make progress on (and are probably avoiding). In our next post, we’ll cover four additional areas that I see people drag their feet on when it comes to taking care of their money.
Episode 77: Planning For the Unexpected with Nikki Semanchik
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This week I sat down with estate planning attorney, Nikki Semanchik to discuss what estate planning documents are a must and who should have them.
Nikki is the Founding Attorney of Semanchik Law Group (SLG), a business, nonprofit and estate planning firm located in San Diego. Nikki started SLG because she wanted to create a modern law firm that felt accessible to clients. As an entrepreneur herself, Nikki has a real passion for helping other business owners realize their dreams. Nikki truly believes that a huge part of her job as a business attorney is teaching, motivating and inspiring her clients to dream big.
Nikki is also passionate about helping families protect their assets and plan for their futures through estate planning. As a parent herself, Nikki understands how having a proper estate plan in place can give you peace of mind knowing that your children are taken care of it the unthinkable happens.
HERE’S WHAT YOU’LL LEARN FROM THIS EPISODE:
Why you should care about estate planning & the reasons people avoid it
Why the amount money you have doesn’t matter when it comes to this kind of planning
What it means to have an estate plan in place and who it’s actually for
The items that should be included in your trust and why they should be in there
The differenced between wills and trusts
Mary Beth’s favorite aspect of having a trust
The document you need to have if you can’t make your own medical decisions
Understanding why your trustee might not be the best person to execute your health care directive
Why everyone over 18 years old should have a HIPAA document
The purpose of having a Pour-Over Will
How to handle determining and designating guardians for your children
The importance of informing those you designate in your estate planning documents
When and why you would need a durable power of attorney
When to work with an attorney vs. creating your documents online
How frequently you should be reviewing and updating your documents
Think you don’t have an estate? Almost everyone does, including you.
Your estate is what you own. That includes your car, home, checking and savings accounts, investments, insurance, and personal possessions. And no matter the size of your estate, you can’t take it with when you die.
What would happen to your assets if you were to pass away?
An estate plan helps answer this question. An estate plan is something that, upon your death, will guide the transfer your assets according to your wishes, minimize the transaction costs of transfer, provide liquid money for common costs, and protect and provide for loved ones.
Almost of all of us will need at least three things in an estate plan: a will, a durable power of attorney, and a living will. A will will dictate how your property is distributed and provide instructions for taking care of any minor children. A durable power of attorney helps someone make healthcare and property decisions when he or she is incapable of doing so alone. A living will contains your last wishes regarding sustaining life.
I’m A Millennial. Do I Really Need An Estate Plan?
As someone in your 20s or 30s, you’re probably focused on living your best life now. Estate planning might seem like something to tackle when you’re older (or richer!). But if you have assets, and especially if you have anyone depending on you, you need to take care of this important financial planning task. An estate plan provides peace of mind that your loved ones are taken care of, even if the worst were to happen.
If you don’t have your affairs in order, the processing of your estate will be dictated by state law — and you might not like the result. Probate laws vary from state to state, but the unintended consequences could include:
Single: A court-dictated property distribution, even for pets
Married: Some states dictate sharing of property between parents and siblings.
Married with children: Some states automatically give a part of your estate to both your spouse and your children. If you have 5 kids, it could be that only 12% of your estate would go to your spouse. That money might not be enough to live on. Plus, many people prefer for their spouse to have more control to provide for the children in the best way they see fit. If both parents pass away before establishing a guardian, the care and custody of your children will be up to the courts.
Married to a non-US citizen spouse: If your spouse isn’t a U.S. citizen, he or she could face an estate tax. This applies even to permanent residents. A trust will be needed in this case.
Own Property in Multiple States: Your assets will go through probate court in multiple states. That’s costly and time-consuming for surviving family or friends.
This is just an introduction into the complexity of the probate system. Many other situations — like those of a business owner, blended family, or a family with a special needs child — will benefit greatly from an established estate plan.
Given the choice, wouldn’t you rather your estate be handled by your family — not the courts — in the way you see fit? Probate does provide a legal, open way to administer an estate. But it’s costly, complex, and it takes a long time. Make an estate plan to simplify the process for your family.
Get Started Now
No one likes to think about their own death or disability. That’s why so many families are unprepared when the worst does happen. The best time to start is now. Even if money is tight, you can keep the costs in line by starting with the basics. Your estate plan can evolve over time.
So how do you take the next step?
You might be considering using one of those legal sites online. Most likely, it’s not worth the money. Estate planning is very complex, and it varies from state to state. The document might not hold up in a court of law. You might as well save your money and put it towards the cost of an estate attorney.
Look for an estate attorney licensed in your area. Consider asking a financial advisor or a CPA for a few recommendations of good estate lawyers. Interview a few lawyers, and you’ll find the one that’s right for you.
Take the first step towards putting an estate plan in place today. It’s not fun or easy, but it’s a great boon to your loved ones if the worst were to happen.
Do you use social media every day without a second thought? Is Twitter, Facebook, or Instagram the first thing you check when you wake up? If so, have you ever thought about how you want your online presence managed in the event you pass away?
Most of us haven’t thought about what would happen to the life we’ve created online once we’re gone. But we spend so much of our time on social media that we need to think about this (no matter how morbid it seems). And that brings us to the importance of creating a social media will.
Let’s look at exactly what a social media will is, what it does for you, if it’s truly necessary, and how you can go about drafting one.
Managing Your Social Media Presence After You Pass Away
The purpose of having a social media will is to manage your social media presence after you pass away in accordance with your wishes.
Even though we might not be there to post updates, our accounts will still be active. People can still interact with “us.” They can view our past photos, tag us in theirs, or mention us in passing.
If you’ve experienced a friend or family member passing away, you might have seen this play out. This is especially true for Facebook, where surviving friends can memorialize a person’s page. Others can post stories and pictures, virtually gathering together in honor of someone’s memory.
Deciding what to do with your social media accounts after your death is an extremely important part of your overall estate plan. If you don’t have a social media will in place, then it might be difficult for your family or friends to gain access to your accounts to handle them as you wish.
When Is a Social Media Will Needed?
Generally, social media wills are for those who rely heavily on social media for personal or business use or want to ensure any accounts in their names are handled in a certain way after they pass.
If it’s your main form of communicating with the world, you want to look into creating one. Those who lead more private lives or those who don’t have social media accounts probably don’t need a will dedicated to this, as there’s no presence to manage.
This isn’t just for those with Twitter, Facebook, or Instagram accounts, either — this is for those who own a blog, site, or other piece of “online real estate.” If you have a connection with an online community who would be concerned about your lack of activity, you also want to designate someone to control your accounts after you pass.
What You Need to Consider
When drafting a social media will, you need to take a few factors into consideration.
Create a list of usernames and passwords for:
Each social media platform you use,
All email accounts you use,
Any websites or blogs you own,
Any forums you’re a member of, and
Any other online community you connect with on a regular basis.
Determine exactly how you want your profiles handled after your death, so your family can amend them according to your wishes:
Do you want them deleted?
Do you want them maintained?
Do you want them to stay around permanently, or just for a set period of time?
If they do stay, should people be allowed to comment?
Try to leave instructions on how those who survive you can handle your social media accounts by reviewing privacy policies of the platforms you use. For example, Twitter specifically states how to request that a user’s account be deactivated, and they also require a death certificate. Your will should include that your executor needs a copy of your death certificate.
It’s understandable you might not want to share your social media accounts with certain people, but you need to select one person you can trust enough with the information to serve as your executor. Be sure to review your instructions with that person so they understand how you want everything to be handled.
Resources You Can Use
Do you think a social media will is something you should create? Drafting one doesn’t have to be difficult. Here are a list of resources you can use that will help:
USA.gov has a useful social media will template in an Excel format you can download, along with a list of considerations to take into account
Rocket Lawyer allows you to draft a social media will
DeadSocial.org, a UK startup founded in 2012, is one of the leading services for helping individuals and families plan for handling digital assets after death. They have full guides on how to plan for each major social media platform, as well as blogs and websites. They also offer a free planning template for Excel.
Mashable has a great infographic that quickly reviews privacy policies and who has a right to the content on your platforms after you pass away.
If you’re wary of keeping a list of username and passwords around (or don’t think you’ll remember to update it), try an online tool like Legacy Box. It allows you to save your passwords and designate an heir to receive them in the event you pass away.
Be Prepared
A social media will doesn’t have to be an involved document. It shouldn’t take you long to make one, and it will make a big difference for your family and friends if you unexpectedly pass away.
Trying to find the usernames, passwords, or email accounts you use will be difficult when they’re grieving. Make things easier by giving them the necessary information and instructions on how you want your digital life managed after you’re gone.
When it comes to building wealth, it pays to have a money team. As Thomas Stanley, author of the Millionaire Next Door, found in his research, the best wealth accumulators usually assemble a team of advisors when making important financial decisions.
If you want to build and preserve your wealth, you need a money team, too. When you’re talking about something as important as your financial security, it’s crucial to get it right. With the right professionals on your side, you’ll have peace of mind – and end up with more in bank.
Financial Planner
A financial planner, or financial advisor, will help you look at the entire picture of your financial life. A planner will help you figure out how to accomplish your financial dreams by establishing goals, evaluating your current money situation, and creating a plan to help you get there.
Even if you like to manage your own money, it’s helpful to have a trained eye to look for opportunities and risks you might not see yourself. Sometimes the most valuable thing a financial advisor can do for you is to prevent you from making emotional decisions.
An advisor can help you with money management, investing advice, estate planning, insurance planning, business planning, and more. They’ll help you pull together the big picture of your financial life, and they’ll work with the other members of your money team to help you implement your financial plan.
When choosing a planner, make sure you look for someone who is fee-only and is willing to work as your fiduciary. They should also have the CFP® designation.
Attorney
No money team is complete without the help of a good attorney. An important task for your attorney will be to create an estate plan. We all need a will, living trust, and power of attorney.
These documents help friends and family navigate settling your estate according to your wishes. If you have children that are still dependent on you financially, this is extremely important. You want to make sure your children will be taken care of by a person of your choosing.
Many of us will want a trust to protect our assets. And this is when having an expert can really help. For example, if you’re a doctor with a risk for a malpractice suit, some states have more favorable laws than others. When it comes to estate planning, it’s wise to have an expert.
Depending on your investments and your financial situation, you may call on an attorney on a regular basis. They can help review business deals, real estate purchases, and more.
Accountant
Even if you consider yourself to be good with math, you’ll still want an accountant on your team. Many high income earners put more towards taxes than they do towards any other expense.
With so much money at stake, it makes financial sense to work with an expert on tax strategy. Your accountant can help you prepare your taxes, offer appropriate tax shelter recommendations, manage depreciation schedules, and more.
Insurance Broker
The more your wealth grows, the more you have at stake. An insurance broker will help determine the right insurance products to help you manage this risk.
Insurance products can be complex. Take disability insurance as an example. There’s a wide range of products and prices available. Since disability insurance depends on your occupation, one person might not even qualify for certain policies. An experienced broker will help you navigate the insurance marketplace.
Your financial planner and insurance broker will work together to help you create a comprehensive insurance plan.
Additional Team Members for Entrepreneurs
As a business owner, you’ll need a few more people on your money team. For one, you’ll want a seasoned attorney that understands your business. Depending on your business, you may need to consult multiple attorneys, such as a contract lawyer, patent lawyer, and so on.
You might also benefit from working with a bookkeeper. A bookkeeper will help you track your expenses and profits so you can make better money decisions on a daily basis.
Build Wealth with a Money Team
A money team is an important part of building your wealth. With smart people on your side, you’ll be able to optimize your financial picture to build wealth and create the life you want.
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