Define Your Financial Legacy
Dealing with your own mortality can be difficult and overwhelming. So much so, that often times you may choose not to think about it at all. You may put off, or ignore altogether, your responsibilities to your loved ones because you are either beleaguered by the subject or you simply do not know where to start. In so doing, you run the risk of diluting your legacy and failing to preserve many of the things that you have worked so hard to achieve.
Financially speaking, most of your focus is probably on the here and now. You concentrate on paying your bills, earning enough money to support your family, and setting aside some money for retirement. A big part of your overall financial responsibility, however, is to ensure that you do not leave unanswered questions and undesired consequences for your family and friends. Your focus on the present will mean a lot less if you do not complete the picture by planning for the future.
This is a huge topic that requires a lot of consideration across a variety of matters, most of which are complex enough to warrant the attention of an attorney, a CPA, and/or a financial advisor. Developing a will and a detailed estate plan involves multiple steps and careful thought and these actions are absolutely necessary if you want to ensure that your intentions are clear and your wishes are protected.
For our purposes, we are going to concentrate solely on the financial aspect of this planning and some simple guidelines that will assist you in making some decisions that are key components in securing and strengthening your financial legacy.
The first step in this process is to define your goals. It is impossible to accomplish anything without first defining what you want to achieve. Your financial goals are exactly that, yours. By definition, your goals are going to be personal to you. To properly set these goals, you will need to ensure that you have considered all aspects of your personal financial situation, developed realistic expectations, and set your top priorities.
Timing, as always, is key. You may fool yourself into thinking that you should put this process off until you have had a chance to get better established, to make more money or to accumulate more assets. You will certainly need to adjust some of your planning as you acquire more wealth, but there is no time like the present to begin to define your goals and create your vision for your financial legacy. It may even be easier for you to set goals early on because you know that you have your career and your whole life ahead of you.
Whether or not it is mentally or emotionally easier for you to start early, the sooner you form goals and work toward them, the better chance you will have in achieving those goals and securing your legacy.
The main questions that you will want to address involve what you intend to spend or distribute and what you want to leave for your family. Virtually everyone has an opinion about what they should do or want to do with their money and their assets. It is up to you to make sure that your planning reflects your thoughts and that your decisions are consistent with your intentions.
Once your goals are set, your next step is to develop a plan that will help you meet those goals. Goals are worthless to you if you do not put a plan in place that starts you and keeps you on a path toward achieving them. Again, your plan is going to be personal to you. Seeking advice from friends and trusted advisors will always help you gain perspective and a better understanding of the choices you are contemplating, just keep in mind that what works for your neighbor or co-worker will not necessarily work for you.
Your goals and the plan you create may require you to set more or less money aside. You may have a larger or a smaller family than the person from whom you are seeking advice. You may have a substantial amount of debt or no debt at all. Your job is to consider all of these aspects, gain perspective, and then plan accordingly.
Your plan should include both short term and long term measurements that will serve as your checkpoints along the way. Progress toward your legacy goals may be slow at first, but you will have a much better idea of where you are if you clearly define targets that are representative of your individual situation.
Meaningful measurements will include a savings target, set in real dollars or as a percentage of your earnings, for each year going forward. Most of us will earn more in later years than we do early on in our career, so factor that into your target. You will want to make sure that you save enough to meet your long-term goals, but that you do not unnecessarily deprive yourself in the short term.
You should also set some sort of spending limit or budget that will help you control your costs and balance your daily decision-making. Even if you do not intend on leaving any assets for your loved ones, you will want to make sure that you do not spend beyond your means. If you do not do an adequate job of managing your finances, some of your liabilities may unintentionally transfer to your estate and unfairly burden your family.
If your legacy goals include assets to be left to loved ones, you should consider acquiring or adjusting assets or investments that are designed more for the future, such as insurance policies and IRA’s. Even within these options, there are many different choices and some are going to be much better suited for you than others.
If you are managing your finances in a sound and responsible way, you will review your budget and measure your progress at least once a year. Effective legacy planning, however, may only require that you examine your progress every five years. A plan that calls for you to stay on top of your current financial situation with an eye toward the future will help keep your decisions in balance. The more that you do on the front end of this planning to set strong goals and implement a plan that will keep you on track, the less you will have to do as you get older.
With your goals in mind and your plan in place, your next step is perhaps the most important one of all. Communicate! Make it a point to let everyone who is part of your plan know what your intentions are and what you expect from them. If you are counting on a relative to carry out some or all of your wishes, they deserve to know about that up front.
Talking to your family about life after you are gone is not easy and no one looks forward to those conversations, but the discussion is absolutely necessary if you want to ensure that your thoughts are understood and clear to everyone involved.
Not having this discussion or discussions isn’t a viable alternative because it leaves too much to chance. No contract or estate plan can entirely capture what is in your heart or what your motives are for the decisions that you are making. No amount of written detail can replace a face-to-face talk. Your written plans do not provide an opportunity for your loved ones to ask you questions or to seek clarification, no matter how well thought out or detailed they are.
Your financial legacy is not created until after you are gone, but the only way to ensure it is an effective representation of you is for you to take these steps and make these decisions while you are here.
Once you have set your goals, created your plan, and talked about your intentions and wishes with those who are impacted by them, the only thing left to do is rest easy. Enjoy the peace of mind that only arrives once you have tackled a difficult, but necessary subject and taken the steps that you needed to take to ensure that your financial legacy is one hundred percent consistent with who you are and what you worked hard to achieve.
And, don’t forget, members of the Credit Union enjoy free and confidential Credit Counseling and Financial Planning through our Financial Planning and Education Center. We are here to assist you every step of the way.
Chief Executive Officer
Chicago Patrolmen’s Federal Credit Union