Weekend Investor: Don’t Put Off These Important Financial Decisions
Life was easy when I went to college, it was almost like being in the real world yet really having few actual responsibilities or liabilities. When you grow up and take on the responsibilities of adulthood, it becomes necessary to plan financial decisions. I’ve listed here a few that are pertinent to my own personal situation right now. I have been putting these off for a while so this article is a good reminder for me to get moving on these important topics.
These are not time consuming, but they do require an effort on your part to get started. The hardest part is finding competent professionals in some of these cases.
Safe Deposit Box
When you acquire things, such as cars, houses, passports, etc. you will need to put the documentation somewhere. When you sell your car, you will need to use the title, e.g,, to complete the sale. It’s a good idea to make an effort to secure these documents. Here are a few options, from worst to best.
- Lock the documents in your filing cabinet at your residence. This is a good start, but doesn’t fully protect you against fire or theft. A recent apartment fire in a neighboring community that wiped out an entire building caused the personal loss of many resident’s personal documents (passports, titles, VISAs, etc) plus in some cases cash and valuables.
- Put the documents in a personal safe. This is better, because the safe better protects against fire and theft. Safe’s are not fool proof, they typically have limits regarding fires. For very long, intense fires they can still fail. Be sure to inspect the fire rating before buying.
- Safe deposit box at your bank. This is the best option. An offsite location avoids the issues that arise from your residence, plus you get better security and fire protection.
TIP: Keep a copy of your passport in the safe deposit box in case you lose it while traveling. This will make the process easier to get a replacement.
Trusts are conceptually not that complicated, but do require legal help to setup and maintain. There are many trusts to consider, probably too many. Who needs a trust? Probably everyone who has assets that they want to manage, not simply wealthy people. The basic premise of a trust is:
- A trust causes you to relinquish control of the assets to the trust.
- Trusts give you control over an asset to specify how you want it managed (the purpose, the people and the timeline).
Trusts are very useful as tax planning, estate planning, and asset planning tools. Because you give up ownership of the assets, they give you the ability to keep more of your money while you are living as well as control how you want your assets spent or distributed in the future. Trusts are setup to follow your wishes so first determine what it is that you want to accomplish then seek out the trust that suits the purpose.
TIP: Consider a Pour-Over Trust that activates upon your death. This trust provides many benefits for your estate plan.
Life insurance is a tool to provide protection for your family in the event of your early death. There are many different kinds of insurance products that each have specific purposes. By far the easiest and most economical life insurance product is term insurance. This product is low cost and pays out over a specific time frame only if you die.
Due to increased lifespans, better medical care, better health awareness term life insurance policy rates have been declining. If you have dependents you will want to buy a policy that at least covers your responsibilities for them through childhood. If you are planning to have kids in the future, you can still buy a longer dated policy (say 30 years) which will cover you after the children are born. The younger you are the lower the rates, so buying early is an advantage.
Not every one needs life insurance, if you are single and have no dependents or responsibilities to take care of in the event of your death.
TIP: Don’t buy life insurance at work, the policy goes away after you leave the job.
A will is a must have document that specifies how you want your assets disbursed upon your death. In addition to providing specifics for your own wishes, a will can eliminate the need for complicated legal proceedings after your death. Nobody likes to think about their own death, but it is a reality of life. It doesn’t take that much time or effort to setup and once it is done, you can go on about your life.
You don’t need an attorney to create a will, but if you go to a lawyer to setup one or more trusts, simply add this on. A good lawyer will integrate all your needs in a plan that handles your will, estate and trust accounts.
TIP: Wills cover only assets in your name. Accounts such as 401(k)s, pensions, life insurance or other accounts that require beneficiaries are outside. Be sure to specify beneficiaries for these accounts.