6 Things you might never hear from a financial planner
Here are 6 things that can have a direct impact on your finances, but are seldom talked about by financial planners. At Empower Financial we concern ourselves with all things that have to do with your financial well-being. We really mean it when we call ourselves ‘comprehensive’. So, it shouldn’t be a surprise that you see a list like this from us.
Without further ado, let’s jump right into the topic at hand - here’s the list:
Create a digital estate plan - Think how much of your data and information is stored online these days. Everything from financial, social, personal, to downright mundane like utility bills - practically everything lives online. The last thing you want your loved ones to go through in the unfortunate situation of your death or incapacitation is to be stranded without access to your digital assets. It is absolutely essential in this day and age to have a digital estate plan. The details of what exactly constitutes your digital estate and how to plan a transfer are an entire topic unto itself, but this blog post from 1Password should give you an idea.
Take advantage of the solar Incentive Tax Credit (ITC) - If you own a home where you get access to the roof, then you should consider going solar. There are many financial and non-financial considerations before you decide if this is right for you, but I want to focus on one specific financial consideration here - the solar incentive tax credit. The federal government incentivizes homeowners to install solar on their properties by giving a one-time 30% tax credit on the cost of the installation (exclusions apply). In short, what this means is that if you spend $20,000 for a solar installation, then you get back up to $6000 as a tax credit. A tax credit means that you will not receive a check for $6000, but instead your federal income tax is reduced by that amount. So, it’s important that your federal tax liability is high enough to avail the full credit. In addition to the tax credit, there are many benefits of going solar - a big drop in your electricity bills, an increase in your home value, free charging (if you own an EV), and being friendly to Mother Earth are some of them. EnergySage is a great place to start your research on solar.
Make sure your primary home is adequately insured - It is very common for homeowners to forget about their home insurance policy after they purchase their property. They only think about it when they need to make a claim. However, we recommend you check your policy coverage every few years, or when you make significant improvements like a remodel or an addition. Most insurance companies follow the “80% rule”, which in short says that you need to carry insurance for at least 80% of your home’s replacement cost, for them to pay 100% of the claim (up to the face value). Note that your home replacement cost is usually different from the market value - which is the price you can expect your home to sell for, or the purchase price - which is the price you bought your home for. Replacement cost depends on construction costs (which in turn depend on inflation), quality of construction, and the square footage of your home among other factors.
Consider buying umbrella insurance - Umbrella insurance is a type of insurance that provides protection beyond existing limits and coverages of other policies. Umbrella insurance can provide coverage for injuries, property damage, certain lawsuits, and personal liability situations. Umbrella policies are generally cheaper than other types of insurance. There are many resources online, such as this one, which explain in depth the purpose, costs and nuances of an umbrella policy. We recommend you refer to them for further details.
Get a dashcam for your car - This might seem rather strange, but dashcam footage can be the difference between a smooth claims process with your auto insurance company or a prolonged process involving appeals and third party valuations in the aftermath of an auto accident. Dashcams can cost less than a couple of hundred dollars and are well worth the money. If you choose to install one, then make sure you test retrieving footage frequently to make sure they are usable when you actually need them.
Consider adding an ADU to your home - It is no secret that adding square footage is the best way to increase the value of your home. An ADU takes this a step further - not only are you adding square footage, but you’re adding an entire unit. This study in Portland, OR found that ADUs account for 25-34% of property value. An ADU can be a standalone unit in your backyard, or a garage conversion, or a basement conversion. The end result is a full unit that can be used in multiple ways - as a long term rental, a short term rental, or as an in-law unit. Empty nesters can also move into the ADU themselves and rent out their main unit which can be a great source of income in your retirement. From a financial standpoint, ADUs can be one of the most lucrative investments. The rental income from an ADU (which can be very high in certain parts of the country, like the San Francisco Bay area) goes on Schedule E of your taxes which means you get all benefits of a real estate investment like depreciation and maintenance, taxes, interest, and other expenses on your ADU will reduce your taxable rental income.
If you’d like to learn more about any of the aforementioned items, then feel free to get in touch with us, or schedule a complimentary consultation.
DISCLAIMER
* None of these are specific individual recommendations. Please consult your financial advisor or your CPA for advice specific to your situation.
* Links, resources, and examples provided are for educational / illustrative purposes only.
* Insurance, building, local, and estate laws vary from region to region, state to state. Not all recommendations might be suitable or applicable to every individual.
