Welcome back to the Targeted Wealth Solutions series on building your own financial plan.  This is part 4 in the series and you’re in the home stretch.  If you missed prior installments please feel free to check our previous blog posts at https://targetedwealthsolutions.com/what-we-think/

In this edition, we’re going to cover debt management, risk management, and basic estate planning.

We’ve already touched lightly on managing and eliminating debt so here’s a quick recap.  We view debt in three ways: good debt, bad debt, and toxic debt.

Good debt is carried on appreciating assets such as a home mortgage or debt used to boost your human capital such as student loans.  There are always caveats but good debt may be necessary to increase your quality of life and earning potential.

Bad debt is carried on depreciating assets like vehicles and toys such as motorcycles, RVs, and boats.

Toxic debt is usually associated with credit cards, personal lines of credit, and retail accounts.  This kind of debt usually carries high-interest rates and runs in a cycle; that is, it’s easy to load up on toxic debt because it’s readily available and often advertised to help people pay off other toxic debt.

We suggest tackling debt using a mathematical approach and paying off your highest interest toxic debt first, followed by bad debt and then finally good debt with the ultimate goal of living debt free or using good debt to leverage your quality of life.  That being said, we understand the behavioral aspects of debt (some people just want to be debt-free as quickly as possible) and realize chipping away at debt can be done in various ways.  Also, there may be times when paying the minimum on debt is the correct course of action from a mathematical standpoint.    

Risk Management: AKA Insurance

The term “insurance” likely causes the hair on the back of your neck to raise; however, it serves a purpose and there are some specific considerations we urge you to investigate to help manage your everyday risk.

Life Insurance – We don’t like to think about the impact to our family if we were to die today but it could happen and planning for that is critical for your loved ones.  There is not a one-size-fits-all approach but generally speaking, you don’t want to leave your family in debt and unable to makes ends meet if the unfortunate were to happen.  At a minimum, you want to mitigate your risk by ensuring your family can thrive without you.

As a general rule of thumb, 10-12 times your annual income will provide for things like burial, funeral, debt payments, college tuition, and a grieving period for your family free from added financial hardship. Life insurance needs generally follow a bell curve with the greatest need being the prime earning years and tapering off as you approach retirement and financial independence.  We are also big believers in separating your savings and risk management… which means we typically favor low-cost “Term Life” over expensive “Permanent Life” policies such as Whole Life policies.  

Health Insurance – For most, this is employer provided.  If you have a benefits coordinator or someone in a similar role at your company, go and speak with him or her prior to open enrollment season.  Additionally, make sure you understand the nuances of the policies that are available to you – especially under various scenarios (like the ones outlined on the policy’s “Summary of Benefits and Coverage” document).  If your spouse also has health insurance options, we recommend you gather all of the benefit information, print it off, and carve out some time to look over the details of each policy.  Your pain points may be as varied as needing to keep your existing providers to minimizing the out-of-pocket limit.  You’ll have to put a lot of the decision-making in the context of your specific health needs, so make sure you spend the time to review this information.

Liability Insurance – Often overlooked and undervalued, many people fail to realize the devastation caused in the event you are liable for the death or injury of another.  More often than not, the state minimum liability coverage for auto, home, and toys (boats, RVs, pools, etc.) is grossly inadequate to withstand a liability lawsuit.  We urge you to know your risks, sets your coverage appropriately, and look into an umbrella policy if you need extra coverage.  The cost is often minimal and can be one of the best investments you ever make.

Disability Insurance – Again, there is not a one-stop solution, but if you’re planning for your family’s future, failing to account for the aftermath of a disability is a risky oversight.  Disability insurance is often available through employers but we encourage you to do your due diligence and ensure your coverage is adequate.  Often times you can only get 40-60% of your salary so having a plan to offset the gap is equally important.

Long-Term Care – The days of affordable LTC insurance available to our parents and grandparents are gone.  Premiums are skyrocketing and have surpassed the inflation rates of both healthcare and education.  It’s important to plan for this risk, but as of today, LTC insurance is beyond reach for most of our readers.  Planning for an adequate nest egg to cover LTC is something to consider – we call this self-insuring.

Estate Planning – One of the most overlooked aspects of financial planning and in our opinion, one of the most important.  Estate planning isn’t just for the super-rich and we encourage you to get your basic documents in order. 

Beneficiary Designations – It’s critical to ensure your retirement account beneficiary designations are up-to-date.  We frequently see ex-spouses and blank beneficiary documents and that is a recipe for a very big headache.  Remember that your beneficiary designations take precedence over all other documents include wills, trusts, etc.  It is also important to understand the implications of naming minors as beneficiaries.  The nuances of doing so is beyond the scope of this post but the consequences can be significant.

Wills – Get one.  Even if you don’t have substantial assets a will ensures your property is distributed according to your wishes.

Durable Power of Attorney – Get one.  This is the document that allows a person of your choosing to act on your behalf and manage your assets if you are unable to do so yourself.

Letter of Intent – Get one.  This is simply a document left to a person of your choosing to define what you want done with a particular asset(s).

Healthcare Power of Attorney – you guessed it, GET ONE.  This document allows you to designate an individu