It has been on my heart to write about the considerations families should make in securing their financial future. I spent over twelve years of my career in the insurance industry and learned some very important things along the way. Some of this education is also a product of my 14 year marriage and 7 years with children. I maintain that I will not touch on every topic close to my heart here, as there just is not space in one post. With that, please be sure to always consult your personal attorney, tax advisor, and insurance agent on all matters of planning.
First, most couples’ first large purchase together is a home. If you can buy instead of rent, do it. And always, always, buy something that you could comfortably afford on ONE income. You will most likely get qualified on two incomes, and that is okay. However, work with your mortgage specialist to find a price range that would be suitable if one or the other spouse could not work.
Insure Your Life When It’s Young
Second, buy life insurance and disability insurance while you are young. I really don’t care if you think you need it or not. Two things are guaranteed in this life: you were born and you will die. This is a guaranteed payout to your beneficiary. Your life insurance through work is not enough. It will be one to two times your annual salary and you are likely to lose the policy or to have to pay exponentially higher premiums if you are ever ill and cannot work or are fired. Same goes for disability insurance. But, more than anything, the thing folks do not tell you is that, as you get older, things break down, blood pressure goes up, you report to the doc with an ache here or a pain there, and each of those things create debits against you when you apply for insurance. This drives your rate UP.
Also, buy more insurance than you think you need. Your income WILL increase over time and you may not be eligible (or able to afford) increases later. A good rule of thumb: consider what you think your income will be as you near retirement. Buy enough insurance that that would be an investment return if you could pull 5% off an annual annuity. For example, if you make $50,000 a year, you need $1,000,000 in life insurance for your partner to be able to replace your income off a 5% investment if you die. (I know, where do I get an annuity that pays 5%? If I knew, I would tell you. Again, your advisor is your BEST advice on these matters.)
Reach out to your attorney, tax advisor, insurance agent and have a conversation about what is needed. You can make a plan and implement it easily.
Look at your partner right now and consider the plans you have made, to travel with the kids, to send the kids to college, to pay for braces. Now consider your partner being gone and you not having that income. As a side note, I once had someone tell me, “my spouse and I do not consider each other ‘income’”. Well, neither do Adam and I, but I can assure you that if he passes, or if I do, it’d be a shame for us to have to raise our kids alone with no assistance.
Disability insurance goes hand in hand with the life insurance. Your health will affect rates/eligibility. Discuss your benefits with your HR professional and find out what travels with you if you go (change jobs, get laid off/fired, become ill), then buy enough protection to replace your income if you need to. I bought less life insurance than I needed and never bought disability. In 2006 I was diagnosed with 2 congenital heart defects and underwent surgery for one defect in 2011. It was partially corrected. I am not eligible with a reputable company. That is the last thing I will add to that: be sure you pay for coverage with a reputable company with a high financial rating. You need to be sure your policies will pay you (or your beneficiary) should anything ever happen.
Get It In Writing
Third, make sure you have a will and a living will. Be sure your lawyer and partner know your plans if you become ill, need life support, or when you die. Make sure you have discussed the care of your children with their designated guardians and make sure your will clearly delineates what happens if something happens to you and/or your partner. Be sure your life insurance proceeds will go to said guardian for the care of your children.
Fourth, open a home equity line of credit (HELOC). Let me repeat that. If you have equity in your home (you know, the one you bought when you were young and silly and freshly partnered?), open a line so that you can access that money IF YOU NEED IT. Opening the line can help your credit and charges against the line may be tax deductible. DO NOT USE THE LINE to travel or do frivolous things. Use the line if there is an emergency or for the improvement of your home.
Fifth, find a monthly/annual financial plan that works for your family and STICK TO IT! If you can invest even $50 a month into an IRA, do it. Talk with your advisor about how the money might be used later for education costs (if needed).
Just Like Winter, College Is Coming
Sixth, create a college savings plan that fits your family and stick with it. That is all I can say about that one, because I am human and my kids are 7 and, due to there ALWAY BEING SOMETHING, we have never saved a penny toward college.
And that is where I will close my post… with the admission that I am 38. I am in the process of changing careers. My partner and I bought a home below our means (smartly) then invested our life savings in IVF (thankfully) and are now at a place in our lives that we thought we’d be far past. Folks don’t usually talk about their finances, and I am not asking you to. However, I do not mind being honest. We are human. We’ve lived frugally. We do not live with debt. We do have a mortgage and one car payment. We do have a HELOC (with a balance…but a much improved home to show for it.) We do not have enough life insurance or disability insurance. We do have wills (in death and for life). We do have a plan for our children should something happen to us. Ultimately, you are planning for and buying peace of mind. I took my time to write this in hope that, should I catch a young couple or a seasoned couple ready to implement an adult plan, that these guidelines might provide a sense of what is truly needed.
Reach out to your attorney, tax advisor, insurance agent and have a conversation about what is needed. You can make a plan and implement it easily. Happy planning!