Losing you would be hard enough, so don’t complicate matters by leaving your loved ones a disorganized financial rat’s nest, loads of debt, and an underinsured and underfunded nest egg they’ll be left with after you die and take all the passwords with you. Dealing with the grief alone is quite enough, they shouldn’t have to deal with your mess and suffer the consequences of your lack of planning.
Ouch.
If you’re a cop, you probably weren’t born with a silver spoon in your mouth. The only cop I’m aware of that fits that description is Mike Lowrey in Bad Boys. To be clear, he’s just a figment of Hollywood’s imagination — along with the body count and the complete lack of paperwork in every movie. If you find yourself driving a Porsche to the station and wearing a shoulder holster over designer clothes you might be living in a fantasy world writing checks your pension can’t cash.
Pushing Up Daisies
All that to say you work too hard for your money to not pay attention to what you’re doing with it. You need to act your wage. And if you have a spouse and a family of your own who depends on your income then you have a responsibility that extends beyond the grave. Just because you’re pushing up daisies doesn’t mean your job is over, but nice try.
Putting your family in a long-term, stable financial position will not happen by accident. No one cares as much about your family as you do, especially crappy state pensions, greedy banks, and heartless insurance companies. It’s your job to set your family up for financial success for when — not if — you die.
There are a couple things you can do right away and a couple more that you can work on over time to leave a legacy for your family so the last thing they have to worry about is money.
Have a Will
If you are over 18 years old and own anything, you need a will. The reason is simple. If you don’t tell the State what you want to happen to your stuff and who you want to have it then when you kick the bucket the State will decide for you. That process can also get dragged out in Probate Court which can be a long and painful process for the people you left behind. That’s dumb and that’s why you need a will.
Tell everyone involved what you want to happen while you’re still alive. There is crazy in every family and they are most likely to emerge from the woodwork after you’re dead and there is stuff to be had. Your will is simply a formal document that lets everyone know who gets what so there’s no confusion with your brother-in-law who thinks you’re besties or your crazy Cousin Eddy who is always asking for a handout.
Wills are state-specific, so if you moved from one state to another, you need to make a new one and file in the state you live in. Keep it up to date with big life changes like having a baby, getting married or divorced, owning a new piece of real estate, and things like that.
Have the Right Amount of Life Insurance
The purpose of life insurance is not to leave a gift for that special person of your choosing or to create your own lottery for one lucky winner when you die. The purpose of life insurance is to replace your income for those who depend on it — that is, your wife and kids.
So how much is enough? If you’re the primary bread-winner you need 10 to 12 times your annual income. If you make $50,000.00 a year, you need $500,000.00 to $600,000.00 in coverage. If you make $100,000.00 a year, you need 1million to 1.2 million dollars in coverage.
Why? The reason is simple. If your spouse invests that money — let’s say it’s a million dollars because you make $100,000.00 a year — and earns an average interest rate of 10%, that creates $100,000.00 in income a year which looks suspiciously like your income. The cool part is that your family can draw on the interest created each year without ever reducing the principle — which means it will never run out.
Get Out of Debt
Have you ever gone to the gym all ready and raring to work out only to find weights and bands and chalk and sweaty equipment everywhere because the last person didn’t clean up after themselves and left a huge mess? It’s annoying and demoralizing! Don’t be that guy. Don’t leave a mess for someone else to clean up.
Just so we’re on the same page, debt is any money owed to anyone for anything. If you make payments on your iPhone to your cell carrier, that’s debt. If you have a student loan or a car lease, that’s debt. Debt is a mess that needs to be cleaned up. The more people you owe money to, the bigger the mess. So when you die, any outstanding debt you have is a mess left behind for someone else to clean up. It’s the sweaty gym equipment no one wants to touch.
When you die, what you own stands good for what you owe. Meaning, that your debt will be paid out of your assets. And if you’re married, your spouse will likely be on the hook for them as well, though there are some exceptions like federally insured student loans. For those reasons, as a rule, you want to get out of debt so it doesn’t cut into the assets you want to leave behind to your loved ones and so they don’t have to untangle all the red tape to pay off your lenders.
Build an Emergency Fund
Having cash set aside for emergencies protects you against life’s storms and prevents you from choosing to go into debt to cover large, unexpected expenses. Once you’re out of debt you can stop sending your money to banks and credit card companies and start sending it into your own account. Imagine that.
When the car dies, the septic tank implodes, or the roof leaks you won’t have to go running to the bank for a loan or to the predatory credit card company to increase your limit. With a proper emergency fund you will self-insure against that and protect yourself from taking on more debt.
How much should you have? Three to six months of expenses — not salary — expenses. Add up what it takes to run your household for a month and multiply that number by at least three, but no more than six. Save that amount up, set it aside in a separate account, and don’t touch it except for an actual emergency.
Fund Your Retirement
If you’re a cop, you likely have a pension, but your pension won’t save you. Once you’re out of debt and have a proper emergency fund you should be contributing 15% of your gross income to a retirement account. That could include a Roth IRA, deferred comp, mutual funds, or a winning combination of all of the above.
At some point you’re going to retire. Don’t depend on the government or anyone else to take care of you and your family. That’s up to you. And if you go out in a blaze of glory or die in a fiery plane crash, that retirement money is there to go to your heirs.
Couple that with a will that spells out your wishes, no debt, actual assets, and your life insurance and you will leave your loved ones in a place where the last thing they will need to worry about is money. That, in my opinion, is one of the best things you can do to care for them and to show them that you love them.
Here’s how to get started on leaving a legacy:
Make the commitment – Just decide. After that, take action and start doing the things that you know you need to. Want more help? Just click the link for the best resource I know of and that I have personally used, Financial Peace University.
File it where your family can find it – It won’t do anyone much good if they don’t know what’s going on and can’t find any of the documents. Put all your important documents in one place and make it neat, organized, and easy to find. That way when things go bad and emotions are running high they’ll be able to find what they need when they need it.
Review it once a year – Life happens, things change. Make sure you review your policies, your will, your budget, your assets, and your wishes at least once a year so that you can make necessary changes and keep everything current. Having a nice neat file won’t be that helpful if it’s out of date, expired, or no longer applies.
It’s all possible, even on a cop’s salary. Ready. Set. Go.
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- If you died today, what kind of legacy are you leaving behind?
- Will it be a pile of bills and confusion or a pile of money and clarity?
- What the first step you can take?
- What is stopping you?
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