The Essential Financial & Legal Tools For Dads

November 11, 2010, By Tyler Newton 2 comments

We dads have a lot on our shoulders. We work hard to bring home the bacon, raise our kids well, put a roof over our families’ heads, maybe put our kids through college and save for retirement. While we all have different circumstances, there are a few common questions we all face. How will my family be provided for if we lose my income by death, job loss or disability? How will I pay for my kids’ educations? How will I provide for myself when I retire? The following “Dad-folio” items should be in every dad’s toolkit to answer these very important questions.

Term Life Insurance – Our incomes are meant to provide a standard of living for our families. Excess income is meant to be saved in order to eventually replace most of our income when we retire. If we pass away prematurely, our families lose access to both our current income and our future savings. Term life insurance, which has a set term of 1 to 30 years, is a way to bridge the income gap. A good way to think about how much term life insurance to buy can be found here.

Disability Insurance – The income replacement concept of term life insurance applies to disability insurance as well. Many employers and Social Security provide disability insurance. If you need to supplement either of these policies, you can buy your own disability insurance, although it tends to be expensive. Be sure to study the terms of any policy in great detail to make sure it fits your needs.

Rainy-day Fund – If you lose your job or face a big expense, you need access to liquidity. A rule-of-thumb for most people is to have a cash reserve to cover at least three months of living expenses. If you’re high up in your career or have an unusually volatile profession, you might want six months or more.

Property and Liability Insurance – Auto insurance, homeowner’s insurance, renters’ insurance, umbrella insurance, marine insurance, etc. are all designed to protect us from large lawsuit judgments and catastrophic loss of property. The odds are in the insurance companies’ favor, however, so only insure against true hardship. A rainy-day fund makes us comfortable with a higher deductible, which saves money on property insurance.

401(k) – As I discuss here, we should all max out our 401(k)s.

529 plan – A great tax-efficient way to save for college as a 529 plan. Each state offers its own plan and we can choose from any of them. Savingforcollege.com is a good resource for researching 529s.

Last Will and Testament – If I die, there should be no confusion about what should happen to my assets or who should become the guardians of my children. An attorney can draw up a simple will (and ancillary documents) or I can use off-the-shelf services like LegalZoom or Quicken WillMaker. The alternative is letting the courts decide. Don’t put your family through that.

What's in your Dad-folio?