January 2016 Newsletter

When a Saver Marries a Spender, Every Penny Counts

If you’re a penny pincher but your spouse is penny wise and pound foolish, money arguments may frequently erupt. Couples who have opposite philosophies regarding saving and spending often have trouble finding common ground. Thinking of yourselves as two sides of the same coin may help you appreciate your financial differences.

Heads or tails, saver or spender
If you’re a saver, you love having money in the bank, investing in your future, and saving for a rainy day. You probably hate credit card debt and spend money cautiously. Your spender spouse may seem impulsive, prompting you to think, “Don’t you care about our future?” But you may come across as controlling or miserly to your spouse who thinks, “Just for once, can’t you loosen up? We really need some things!”  Such different outlooks can lead to mistrust and resentment. But are your characterizations fair? Your money habits may have a lot to do with how you were raised and your personal experience. Being a saver or a spender may come naturally; instead of assigning blame, try to see your spouse’s side. Start by discussing your common values. What do you want to accomplish together? Recognize that spenders may be more focused on short-term goals, while savers may be more focused on long-term goals. Ultimately, whether you’re saving for a vacation, a car, college, or retirement, your money will be spent on something. It’s simply a matter of deciding together when and how to spend it.

A penny for your thoughts?

Sometimes couples avoid talking about money because they are afraid to argue. But talking about money may actually help you and your spouse avoid conflict. Scheduling regular money meetings could help you gain a better understanding of your finances and provide a forum for handling disagreements.  To help ensure a productive discussion, establish some ground rules. For example, you might set a time limit, insist that both of you come prepared, and take a break in the event the discussion becomes heated. Communication and compromise are key. Don’t assume you know what your spouse is thinking–ask–and be willing to negotiate. Here are some questions to get started.

• What does money represent to you? Security? Freedom? The opportunity to help others?
• What are your short-term and long-term savings goals?
• How much money is coming in and how much is going out? Never assume that your spouse knows as much about your finances as you do.
• How comfortable are you with debt, including mortgage debt, credit card debt, and loans?
• Who should you spend money on? Do you agree on how much to give to your children or how much to spend on gifts to family members and friends, for example?
• What rules would you like to apply to purchases? One option is to set a limit on how much one spouse can spend on an item without consulting the other.
• Would you like to set aside some discretionary money for each of you? Then you would be free to save or spend those dollars without having to justify your decision.

Once you’ve explored these topics, you can create a concrete budget or spending plan that reflects your financial personalities. To satisfy you and your spouse, make savings an “expense” and allow some room in the budget for unexpected expenses. And track your progress. Having regular meetings to go over your finances will enable you to celebrate your financial successes or identify areas where you need to improve. Be willing to make adjustments if necessary. Finally, recognize that getting on the same page is going to take some work. When you got married, you promised to love your spouse for richer or poorer. Maybe it’s time to put your money where your mouth is.

Are There Gaps in Your Insurance Coverage?

Buying insurance is about sharing or shifting risk. For example, health insurance will cover some of the cost of medical care. Homeowners insurance will assume some of the risk of loss in the event your home is damaged or destroyed. But oftentimes we think we’re covered for specific losses when, in fact, we’re not. Here are some common coverage gaps to consider when reviewing your own insurance coverage.

Life insurance

In general, you want to have enough life insurance coverage (when coupled with savings and income) to allow your family to continue living the lifestyle to which they’re accustomed. But changing circumstances may leave a gap in your life insurance coverage. For example, if you have life insurance through your employer, changing jobs could affect your insurance coverage. You may not have the same amount of insurance, or the policy provisions may differ. Whereas your prior employer may have provided permanent life insurance, now you may have term insurance that will expire on a predetermined date. Review your income, savings, and expenses annually and compare them to your insurance coverage, and be mindful that changing circumstances may require a change in the amount of insurance coverage.

Homeowners insurance

It’s not always clear from reading your homeowners policy which perils are covered and how much damage will be paid for. It’s important to know what your homeowners policy covers and, more important, what it doesn’t cover. You might think your insurer would pay the full cost to replace your home if it were destroyed by a covered occurrence. But many policies place a cap on replacement cost up to the face amount stated on the policy. You may want to check with a building contractor to get an idea of the replacement cost for your home, then compare it to your policy to be sure you have enough coverage. Even if your policy states that “all perils” are covered, most policies carve out many exceptions or exclusions to this general provision. For example, damage caused by floods, earthquakes, and hurricanes may be covered only by special addendums to your policy, or in some cases by separate insurance policies altogether. Also, your insurer may not cover the extra cost of rebuilding attributable to more stringent building codes, or your policy may limit how much and how long it will pay for temporary housing while repairs are made. To avoid these gaps in coverage, review your policy annually with your insurer. Also, pay attention to notices you may receive. What may look like boilerplate language could actually be significant changes to your coverage. Don’t rely on your interpretations–seek an explanation from your insurer or agent.

Auto insurance

Which drivers and what vehicles are covered by your auto insurance? Most policies provide coverage for you and family members residing with you, but it’s not always clear-cut. For instance, a child who is living in a college dorm is probably covered, but a child who lives in an off-campus apartment might be excluded from coverage. If you and your spouse divorce, which policy insures your children, particularly if they are living with each parent at different times of the year? Notify your insurer about any change in living arrangements to avoid a gap in coverage. Other gaps include no coverage for damaged batteries, tires, and shocks. And you might not be covered for stolen or damaged cell phones or other electronic devices. Your policy may also limit the amount paid for a rental while your vehicle is being repaired.  In fact, insurance coverage for rental cars may also pose a problem. For instance, your own collision coverage may apply to the rental car you’re driving, but it may not pay for all the damage alleged by a rental company, such as loss of use charges. If you’re leasing a car long term, your policy may cover the replacement cost only if the car is a total loss or is stolen. But that amount may not be enough to pay for the outstanding balance of your lease. Gap insurance can cover any difference between what your insurer pays and the balance of your lease. Policy terms and conditions aren’t always easily understood, and you may not be sure what’s covered until it’s time to file a claim. So review your insurance policy to be sure you’ve filled all the gaps in your coverage.

Periodic Review of Your Estate Plan

An estate plan is a map that explains how you want your personal and financial affairs to be handled in the event of your incapacity or death. It allows you to control what happens to your property if you die or become incapacitated. An estate plan should be reviewed periodically.

When should you review your estate plan?

Although there’s no hard-and-fast rule about when you should review your estate plan, the following suggestions may be of some help:
• You should review your estate plan immediately after a major life event
• You’ll probably want to do a quick review each year because changes in the economy and in the tax code often occur on a yearly basis
• You’ll want to do a more thorough review every five years

Reviewing your estate plan will alert you to any changes that need to be addressed. There will be times when you’ll need to make changes to your plan to ensure that it still meets all of your goals. For example, an executor, trustee, or guardian may die or change his or her mind about serving in that capacity, and you’ll need to name someone else. Events that should trigger a periodic review include:
• There has been a change in your marital status (many states have laws that revoke part or all of your will if you marry or get divorced) or that of your children or grandchildren
• There has been an addition to your family through birth, adoption, or marriage (stepchildren)
• Your spouse or a family member has died, has become ill, or is incapacitated
• Your spouse, your parents, or other family member has become dependent on you
• There has been a substantial change in the value of your assets or in your plans for their use
• You have received a sizable inheritance or gift
• Your income level or requirements have changed
• You are retiring
• You have made (or are considering making) a change to any part of your estate plan

Some things to review
Here are some things to consider while doing a periodic review of your estate plan.
• Who are your family members and friends? How do you feel about them?
• Do you have a valid will? Does it reflect your current goals and objectives about who receives what after you die? Does your choice of an executor or a guardian for your minor children remain appropriate?
• In the event you become incapacitated, do you have a living will, durable power of attorney for health care, or Do Not Resuscitate order to manage medical decisions?
• In the event you become incapacitated, do you have a living trust, durable power of attorney, or joint ownership to manage your property?
• What property do you own and how is it titled (e.g., outright or jointly with right of survivorship)? Property owned jointly with right of survivorship passes automatically to the surviving owner(s) at your death.
• Have you reviewed your beneficiary designations for your retirement plans and life insurance policies? These types of property pass automatically to the designated beneficiary at your death.
• Do you have any trusts, living or testamentary? Property held in trust passes to beneficiaries according to the terms of the trust.
• Do you plan to make any lifetime gifts to family members or friends?
• Do you have any plans for charitable gifts or bequests?
• If you own or co-own a business, have provisions been made to transfer your business interest? Is there a buy-sell agreement with adequate funding? Would lifetime gifts be appropriate?
• Do you own sufficient life insurance to meet your needs at death? Have those needs been evaluated?
• Have you considered the impact of gift, estate, generation-skipping, and income taxes, both federal and state?
This is just a brief overview of some ideas for a periodic review of your estate plan. Each person’s situation is unique. An estate planning attorney may be able to assist you with this process.

I’m thinking about storing financial documents in the cloud. What should I know?

Cloud storage–using Internet-based service providers to store digital assets such as books, music, videos, photos, and even important documents including financial statements and contracts–has become increasingly popular in recent years. But is it right for you?

Opinions vary on whether to store your most sensitive information in the cloud. While some experts say you should physically store items you’re not willing to lose or expose publicly, others contend that high-security cloud options are available. If you’re thinking about cloud storage for your financial documents, consider the following:
• Evaluate the provider’s reputation. Is the service well known, well tested, and well reviewed by information security experts?
• Consider the provider’s own security and redundancy procedures. Look for such features as two-factor authentication and complex password requirements. Does it have copies of your data on servers at multiple geographic locations, so that a disaster in one area won’t result in an irretrievable loss of data?
• Review the provider’s service agreement and terms and conditions. Make sure you understand how your data will be protected and what recourse you have in the event of a breach or loss. Also understand what happens when you delete a file–will it be completely removed from all servers? In the event a government subpoena is issued, must the service provider hand over the data?
• Consider encryption processes, which prevent access to your data without your personal password (including access by people who work for the service provider). Will you be using a browser or app that provides for data encryption during transfer? And once your data is stored on the cloud servers, will it continue to be encrypted?
• Make sure you have a complex system for creating passwords and never share your passwords with anyone.

What’s the best way to back up my digital information?

In writing or speaking, redundancy is typically not recommended unless you’re really trying to drive a point home. When it comes to your digital life, however, redundancy is not only
recommended, it’s critical.

Redundancy is the term used to refer to data backups. If you have digital assets that you don’t want to risk losing forever–including photos, videos, original recordings, financial documents, and other materials–you’ll want to be sure to back them up regularly. And it’s not just materials on your personal computer, but your mobile devices as well. Depending on how much you use your devices, you may want to back them up as frequently as every few days. A good rule to follow is the 3-2-1 rule. This rule helps reduce the risk that any one event–such as a fire, theft, or hack–will destroy or compromise both your primary data and all your backups.

1. Have at least three copies of your data. This means a minimum of the original plus two backups. In the world of computer redundancy, more is definitely better.
2. Use at least two different formats. For example, you might have one copy on an external hard drive and another on a flash drive, or one copy on a flash drive and another using a cloud-based service.
3. Ensure that at least one backup copy is stored offsite. You could store your external hard drive in a safe-deposit box or at a trusted friend or family member’s house. Cloud storage is also considered offsite. If a cloud service is one of your backup tactics, be sure to review carefully its policies and procedures for security and backup of its servers. Another good idea is to encrypt (that is, create strong passwords that only you know) to protect sensitive documents and your external drives. So at the risk of sounding redundant (or driving the point home?), a good rule for data backup is to have at least three copies on at least two different formats, with at least one copy stored offsite. And more is always better.

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