Attention Gen X and Gen Y: 4 Gaping Holes In Your Financial Plan
Comprehensive financial planning is a topic that often eludes younger people. Today thought, more people are thinking about planning at a younger age as they know they have to take care of themselves because with so much spending on the older generations now, there will likely be nothing but huge deficits for Gen X & Gen Y. The focus is usually on retirement planning or creating a retirement income plan, but there are other areas that need focus.
I will cover 4 topics over the next 4 days that you should address immediately. Let’s get started!
Gaping Hole Number 1 – Being Poorly insured:
Typically, working young people have health insurance through their work and auto insurance (because they have to have it) which is all well and good. However, there are other insurances that you should consider – insurances that may not have crossed your mind.
Many young people rent today, and in this increasingly mobile economy, many plan to rent for the foreseeable future. This is all well and good. However, not owning a home means that the idea of homeowners’ insurance never passes in front of them.
Homeowners’ insurance not only protects the outside of a house, but it also:
- protects the contents
- protects items you own
- covers for liability.
If you rent, you likely need these same protections but perhaps you didn’t think of securing a renters’ policy. A renter’s policy would also cover these items but if you don’t have renters’ insurance, you are exposed to liability and to financial loss if your possessions were stolen or damaged. Let’s use some specific examples.
Liability – you throw a party, and at the party someone falls down and injures himself. A couple of months later, you get served with court papers as that person has decided to sue you. Money you have in the bank could be exposed to such a suit and could be fair game if you lose the case. Liability coverage on a homeowners’ policy might shield you from this.
Theft/Loss – do you own some valuable items? Your grandmother’s ring? A $10,000 computer system? A stamp collection? If someone broke into your home and stole something or if you lost something, you might be at a total loss. However, if you’re insured, you might be covered for this (after a deductible: often 500 or 1,000 dollars).
Your Action Plan:
Contact a property & casualty (p&c) insurance consultant or a financial planner /financial advisor in your area and review your p&c insurance – auto, homeowners/renters/liability. Develop and implement a comprehensive p&c protection plan. Of note: consider acquiring renters policy with specific valuable items itemized. You may also qualify for a multiple policy discount from your insurance company if your auto policy is with the same company. Also, for those with a decent net worth, consider an umbrella (liability) policy on top of your auto and renters’ policy to get $1M+ of liaiblity coverage. These policies tend to be very inexpensive ($200-300/year – sometimes = to the multipolicy discount).
Talk about something that it seems like no one owns, disability insurance would have to be the step-child of financial planning.
“DI” falls under the “hate paying for insurance” and “hate paying for something I won’t use” categories. Who wants to pay for insurance? Who wants to think about being disabled? Makes us feel old. However, this is one area needs to be addressed as the rate of disability is much higher than one would think.
A nice feature of DI is that, if its the right policy, it covers your specific job. Therefore, if you write programming, and something happens to your hands, you will be covered – you wont be expected to go deliver pizzas to make money. This type of policy is called a “own occupation” policy. Policies that do not specifically cover your line of work are called “any occupation” policies.
Bottom line – if your lifestyle would be tremendously changed by being disabled, then you should consider getting insured. Obviously, policies are cheaper for those who work in less physical fields and companies require varying levels of health examinations.
Your DI Action plan:
B. get quotes from 2-3 top-rated solid disability insurance companies. Consider consulting with an independent financial advisor to customize features and benefits that match what you need by keep costs as low as possible. Coverage that would allow you to live at home comfortably would be a minimum coverage amount – if money is tight, consider a base policy with a guaranteed future insurability option, which would allow you to buy more coverage later, even if you become uninsurable.
Note: Life Insurance may also be considered as a way to protect insurability later or as a savings vehicle for higher earners. We will analyze life insurance in detail at another time .
For more information on insurance, try some of my other articles:
For Part 2 Click HERE– “Personal Legal Docs”
For Part 3 Click HERE – “No Emergency Fund”
I hope you enjoyed this article. As you can guess, I am a comprehensive financial advisor in the Boston area -specifically in Medford, Massachusetts. I also spend time and serve clients in the San Francisco bay area (right in SF), Maine and Florida. If you are exploring getting started in a financial planning strategy, feel free to send us a quick contact or call us at 781.393.0021. Thank you!