If today was your last day – Financial Guide (2)

Yesterday, we covered how to estimate your Net Worth, Meeting Your Obligations, and Assessing Your Survivor’s Financial Needs. Today, we’ll cover how to calculate your Initial Monthly Support Plan Estimate and  How to Reduce Living Expenses.

INITIAL MONTHLY SUPPORT PLAN ESTIMATE

In order to calculate the amount of funds needed by your survivors to continue their current lifestyle, you’ll need to prepare an Initial Monthly Support Plan Estimate. To do this, fill in the below chart or download the financial guide here [wpdm_file id=15].

This portion is in the third tab of the spreadsheet. In order to use the FG, you will need either Excel or Open Office. Open Office is a free program that you can download here.

Once you enter the amounts in the amount column, add them up and you will have an estimate. Remember to enter monthly expenses. If an item is due annually, divide the total amount by 12 to get the monthly amount. If it is due semi-annually, divide the total amount by six to get the monthly amount. If it is due quarterly, divide the total amount by four to get the monthly amount.

After you have done this, compare the total monthly support plan obligations to the total survivors’ estimated monthly income. How do they compare? If the income is to low, then you need to make some modifications to bring the expenses in line with the projected income. Otherwise, your loved ones are going to be in a world of hurt.

HOW TO REDUCE LIVING EXPENSES

It does not make sense to plan an estate without considering how it will be used by survivors. You need to discuss with your family how they can control expenses after you die. You and your spouse might find that you could do a better job of savings while you’re still alive to enjoy the dividends.

Fixed costs are hard to reduce (rent, mortgage, etc.). However, you can evaluate them and see if you can refinance your home; prepay some of your mortgage; downsize your home or rental. The best place to adjust your budget is with your discretionary expenses.

• If you own a home, you can prepay some of your mortgage. This single action will save you tens of thousands of dollars over the life of the loan. You can prepay your mortgage by allocating more money to the principal amount each month. Make sure you note on there that it is to be applied towards the principal amount. Otherwise, your loan institution will apply it to your next month’s payment and your principal will not go down.  I uploaded a very nice Mortgage Loan Calculator to the download page or you can download it here [wpdm_file id=16]. It is a template I downloaded from Microsoft Corporation. Use this spreadsheet to see what a little bit extra each month will do to that mortgage debt.
• Ensure that you maintain your AC and heaters in good repair. This will save you money in utilities each month.
• Instead of having a landline and a cell phone, go with a cell phone. If you absolutely need a landline, go with VOIP. Phonepower offers great service. Search the web and you can usually find a discount for their service. We prepaid for one year and received an extra year free. We now have a better service than we had with our old landline.
• If you belong to a condo association or a townhome association, be active in their activities. Stay informed about any plans for major improvements and associated assessments. They are not inexpensive and you along with the other owners will foot the bill. Try to influence maintenance and other outlays if you believe they are  out of control. Question projects that appear to be marginally essential. Make sure those in charge are getting the best buys for your money when it comes to all of the costs involved in running your property.
• Become a dedicated bargain hunter. Not only for major items but for food. Use coupons. Don’t eat out. Cook a little extra each time and freeze it. You can serve it later as a lunch or another dinner.
• Cut unnecessary expenses, like cable TV. If you have a high speed internet connection, you can watch your shows online.
• Don’t try to send your children to Ivy League or private universities. Start them with a local community college for the first two years. Then, switch them to a local university for the last two years.
• Consolidate your debts to a lower interest loan. Only do this, if you have cured yourself from spending more than you have. If you have cut-up your credit cards and are living on a budget and using cash and you can get an unsecured loan that has a lower rate than your credit cards, then consolidate them into that loan. DO NOT USE A HOME EQUITY LOAN OR HOME EQUITY LINE OF CREDIT to payoff and consolidate your debt. You have put your home at great risk.

Once you have completed the forms and have all your financial documents on-hand, you need to put them in a safe deposit box. You don’t want to store them in your file cabinet at home because if you have a fire, they’ll be destroyed. Of course, you could buy a fireproof safe and store them there. However, if somebody breaks-in and steals your safe, you’ve lost them. You have also exposed yourself to identity theft. Review your FG periodically to ensure that it is up-to-date. That means review your will, trust, etc. and make any changes needed. Make sure your loved ones have access to the safe deposit box.