Pride Month: How to Build Your LGBTQ Financial Plan

It’s almost LGBTQ+ Pride Month, and there’s no better way to celebrate than taking pride in your financial life. Unfortunately, far too many put off the important process of creating a wealth plan. Trust me, you do not want to be a member of this club. Here are five steps I recommend to reduce your financial stress, enhance your wealth and get your plan strutting down the catwalk:

Clarify Your Financial Goals

A plan without a map … is a plan that leads you nowhere. To chart your course, ask yourself “What do I want my money to do for me?” Whether you dream of retiring early, buying a home, saving for a big trip or starting a family via IVF, surrogacy or adoption, think both near and long-term goals.

Get to Know Your Cash Flow

Studies show that married gay men and married lesbians make more on average than their straight counterparts. However, roughly 70% of LGBTQ individuals in America claim they are behind on retirement savings. This would suggest that many in the community prioritize spending over savings. One way to fix this, and make your financial goals a reality, is to get to know your cash flow. All the pieces of your financial puzzle will originate from your income(s) and expenses. This will help you understand how you spend your money so you can begin to create wealth and minimize debt.

Starting is as easy as one-two-three! Using a spreadsheet or pen and paper:

1. Calculate your current monthly income (take-home pay).
2. Subtract out all your fixed expenses (mortgage/rent, utilities, student loans, auto loans, etc.).
3. Subtract out a rough estimate of how much you spend on groceries, dining out and entertainment each month.

If you find yourself with a negative balance at the end, it may be time to re-evaluate your spending or figure out a way to increase your income by adding a side hustle or renegotiating your salary. However, if you find yourself with a surplus at the end, this is what you will use to start growing your investment accounts.

Grow Your Accounts and Pay Down Debt

If there is a surplus at the end of each month, this gives you options to either begin building your nest egg or paying down debt. Both will increase your overall net worth.

First, make sure you have a safety net or emergency fund for any unexpected expenses. Three to six months of expenses is the consensus of how much cash to keep on hand. Next, consider applying dollars toward high-interest debt (anything above 6-7%) such as credit cards and student loans. Then, consider building your wealth by saving in your investment accounts such as your 401(k), Roth IRA or a brokerage account. Each of these account types has its pros and cons so you’ll want to review your financial goals to determine which ones are best for you. If you have multiple shorter-term goals, one strategy is to open multiple accounts and label each for its purpose, such as “starting a family” or a “down payment fund”.

Once you determine your best path of savings growth and debt reduction, you’ll want to automate as much of your plan as possible. Systemizing your plan is a great way to increase your net worth without having to think about it each month. Simply set up an AutoPay to repeatedly pay down your debts and/or increase savings at each paycheck.

Estate Planning and Risk Management

Now that you’re on track to wealth creation, it’s time to think about wealth protection. If there is someone who relies on your income and/or assets, you should consider term life insurance and basic estate planning.

Term life insurance is a relatively cheap way to protect your loved ones in the untimely event of your passing. By purchasing a policy for a specific number of years and death benefit amount, your beneficiary receives the life insurance payment if you pass within the time the policy is in force. While no one hopes to pass away early, your beneficiaries will be grateful for the additional money for expenses.

Estate planning is also an important piece of the puzzle, especially for LGBTQ individuals. You should consider creating a will or trust to spell out what you wish to happen with your assets upon your death. Without these documents, the state you live in essentially creates a will for you through a process called intestacy. Since state intestacy laws rarely include domestic partners or close friends, your assets could go to people you do not intend them to go to. Creating a will or trust should eliminate most of these concerns.

Seek Help from an LGBTQ-focused Advisor

If these tasks seem daunting, you’re not alone in that thought. Luckily, there are many qualified professionals out there that can help. It is recommended to find someone who is a true fiduciary, and preferably a Certified Financial Planner™ (CFP) who is familiar with LGBTQ planning. Having someone guide you through this process, and act as an accountability coach, is a great way to get started. If you are not currently working with an advisor, Kraft Asset Management would love to help. Please reach out to us to get started.

Happy Pride!