Thank you for checking out Telos Financial’s blog for millennials, Gen X, young families, and young professionals. The purpose of the blog is to introduce financial planning topics I believe are important. I want to start discussions about that will educate, benefit, and improve your financial life. Ultimately, to help you focus on your telos!
I recommend everyone have a financial plan. Whether you are a do it yourselfer or you work with a professional, working through the financial planning process will benefit most families and individuals. This blog is intended to introduce you to some of the more common pieces, not all of the areas covered in a holistic plan. These are just some financial planning moves that you should review.
One of the first pieces of the financial planning pie you should have in place is an emergency fund. The account serves multiple purposes; the first is its namesake, for the protection it provides as a cushion for emergency situations. If you have a job change, medical emergency, or urgent home repair. Over time this account will build and many investors will continually invest in additional account to their retirement accounts and this account works for that as well. In retirement, this account will be available for income as well.
To calculate the amount you should have in your emergency fund, a good rule of thumb to determine the amount of emergency fund need for a family is if you have two working adults, keep three months of expenses in this fund. If you are a family with one working adult, keep six months of living expenses in this fund.
Another core piece is to review and optimize your work benefits. You should make sure you are taking full advantage of the benefits they offer that suit your needs. Is there a retirement plan that offers a match? What insurance benefits are available? Have you reviewed the insurance options, costs, and benefits? Do you have stock or other employee ownership options available? The core of this is that you need to read, digest, and understand your employee handbook; or ask your financial planner to read it and advise you accordingly. These benefits are likely to be the most cost effective available to you. Low cost is one of the biggest perks of group benefits. The biggest drawback is that if you change jobs, you will lose the benefits. You may have the option to transfer some, but you should understand that is the exception, not the rule.
If you have options for levels of health insurance, a good rule of thumb is the healthier you are, the higher the deductible policy will make more sense and vice versa. Some of this is personal preference and risk tolerance as well. A higher deductible policy will save you money month to month, but if you need care, you’re on the hook to a higher degree. As always, consult your financial planner, but they should be able to run a break-even analysis for you to help make the decision easier.
If your employer offers matching in a retirement plan, you should be contributing at least the minimum required to receive the full match. The amount you need to save to achieve your goals is a different discussion, but as I earlier stated, you want to fully leverage the benefits offered. On the same thread, you need to make sure your employer provided retirement account is invested according to your risk tolerance and objectives. I’ll elaborate more on that in another blog, but there are tools (and professionals!) that can help you determine this.
Another base financial planning piece is to supplement or compliment your work benefits by adding individual insurance or savings plans. When making these additional purchases or decisions, you need to take them in context of your holistic plan and what you have available and in place already. For example, you may have a 401k through your employer, but your plan may also call for a Roth or Traditional IRA savings not available in your employer plan. Another example is to purchase life insurance outside of what your employer offers to make sure your family is properly insured, if that fits your needs.
The last fundamental financial planning piece I’ll discuss today is one that will benefit many families and individuals; having an estate plan in place. I always recommend consulting with an attorney to get help with this area. Laws vary state to state and goals for everyone are different. Estate planning, like all other planning, is to prepare and in case of something. This is for the worst possible scenarios and makes for a difficult conversation. Death, disability, long term care, incapacity, protecting heirs, protecting families, picking beneficiaries, guardians, custodians, and many other complicated choices. Essentially, these documents allow you to formally lay out your wishes if and when you encounter one of these situations.
Some of the documents are a will, power of attorney, trust, living will, the document needs vary by state, family, and what your wishes are. A will designates how you want your assets divided when you pass away. There are many accounts and assets that will be divided before a will would come into play, but a will will help direct the assets that you can’t list a beneficiary on. Powers of Attorney designates who you want to make decisions for you if you’re incapacitated. It also enables someone with the power to handle your financial life if you can’t, to pay your bills, maintain your home, etc. If you pass away, everything will be split up, but if you are in a coma or unable to take care of these items, when you recover it would be devastating to come home and learn you’re in foreclosure or had a frozen pipe or other tragedy to exacerbate your problems. This is one of the areas where an attorney is key, as the legal minutia can make big differences, if the documents needed to be used.
As I stated, this is by no means a comprehensive description of these areas or universal advice. These topics are complicated, many can be discussed ad infinitum, and will apply to varying degrees of importance to each individual and family. As usual, remember everyone’s situation is different and you should consult a financial professional before making any major financial decisions. These suggestions need to be taken in context of your entire financial situation in mind.
Contact us to schedule an introductory meeting and we can talk about you and these items more in person. Telos is Michigan’s financial advisor for high earner and high net worth millennials, young professionals, recent college graduates, and small business owners.
Telos Financial is a fee based, holistic financial planning firm located in Plymouth, Michigan serving young professionals and families. Dennis LaVoy, CFP®, CLU® is an experienced financial planner and founder of Telos; who is the Michigan’s financial advisor for Metro Detroit, Ann Arbor, and across the country.