Estate planning may feel like something you don’t need to do until later in life. However, the sooner you begin the process, the better. Here are a few estate planning items you should stay on top of in your 20s and 30s, including calculating your assets, making investments, asking about employee benefits, preparing a will, and long-term savings strategies.
Calculate Your Assets
Assets essentially come down to the money you have in the bank or invested. That includes checking and savings accounts, retirement savings, and real estate. Be meticulous. If you and your spouse have separate accounts but file taxes together, combine those assets.
If you’re a homeowner, some calculations are required since you’ve both invested money and have more payments to come. To calculate your home’s equity or the amount of your home you actually own, start by finding its current market value. Next, you’ll subtract the balance you have on your mortgage. This is your home equity.
Investing is always smart, but it is especially important as a young adult.. Compounding interest is a major factor; essentially, it’s the interest you accrue on the interest you’ve already accrued.
You have an abundance of options when it comes to investments including:
- High-yield savings accounts
- Real estate
- Series I bonds
- Value stock funds
- S&P 500 index funds
Depending on your situation, certain options will be more desirable than others. You should speak to a financial advisor before deciding how you’ll invest your money and how much risk you are willing take.
If you're already in the workforce, you should consider the benefits offered at your job and analyze their potential for estate planning. For the best advice, consult your direct supervisor or the Human Resources (HR) Department. A 401(k) retirement plan is a great way to start. The amount you choose to contribute t your 401(k) is deducted from your paycheck before taxes are taken out. As a result, you're paying taxes on a smaller portion of your salary and your overall tax rate may be lower.
Your 401(k) savings is tax-deferred, not tax-free — you will be taxed on the amounts you withdraw in retirement. But many people find their tax rate drops when they enter retirement, so you could end up paying less tax on your savings in the end.
Your employer may contribute to your retirement plan. Many employers offer what is called a “matching contribution.” That means they will match the dollars you contribute to your 401(k), usually up to a certain amount.
Next, inquire about benefits like life insurance, stock options, and pension plans. You may discover that your job offers even more perks than you’d realized, like life insurance for dependents, 401(k) matching, and discounted stock programs.
Remember that other benefits could contribute to your estate planning as well, even if they don’t appear to at first. For example, comprehensive health insurance can save you hundreds should a medical emergency arise. That means lower and fewer bills, allowing you to more easily continue making payments into your savings.
Prepare a Will
Creating a will now can save your family a lot of stress and legal hassles in the long run. It doesn’t have to be extensive yet as it will evolve over time. There are four main components to a basic will:
- Name of your executor (the person designated to ensure that all will provisions are carried out)
- Name(s) of the guardian(s) who will care for your children
- Property designations
- Name of the person to manage any property you leave to minor children
Also include the kind of funeral services you want, burial arrangements, cremation, ash scattering, and any other details you deem necessary.
Create a budget that includes a savings plan - see 8 simple ways to save money. Record every expense, including entertainment, restaurants, and even haircuts. This will give you the opportunity to see where you are spending the most and where you can cut, and then redirect those funds to savings. It could be as simple as only eating our once a month and skipping that morning coffee run.
It’s also important to incorporate money-saving habits into your daily life. This includes unplugging electronics when they’re not in use, creating your own cleaners and detergents, growing your own produce, installing a faucet water filter (versus purchasing bottled water), and adjusting your thermostat. Once you start looking, you’ll find all kinds of small ways to save that will accumulate into great savings over time.
Don’t delay when it comes to estate planning — it’s too important to ignore. Chip away at the list, and don’t forget that there are plenty of professionals who can help! Contact Westchester Financial Planning for guidance and comprehensive services today.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
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Submitted By Christopher Haymon