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Written by Blake Allison
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Life happens. It is often beautiful, but sometimes it is not always what we expect. It is not always what we want. The upheaval in our financial markets has wiped out the fortunes of the wealthiest, forced people out of their homes, or at least increased the burdens the rest of us already bear. Most of us will never be a victim of a financial catastrophe that wipes out everything have worked so hard to save and to secure our future. However, we are not immune to the myriad of risks that threaten our financial health. There are a myriad of life events that can wreak financial havoc on our lives and our families' lives. How we plan, prepare, and respond to such events can make the difference between a financial headache and a financial disaster.
First, we have to get beyond the notion that "this (financial hardship) will never happen to me" because it is this kind of denial that will prevent us from exercising the due care needed to face unexpected financial challenges. For some, they may lose a job to a slowdown in the economy or to corporate downsizing Others may face a temporary or permanent disability that impacts their income. Other families may be torn apart by divorce - tearing their nest egg apart as well. Many have even lost their life savings and retirement nest eggs - through no fault of their own. Think Maddoff. What about the impact of identity theft or unexpected expenses such as needing a new roof? The list goes on.
What's more, financial ‘hardships' do not always have to be so ominous. Take, for example, a friend of mine who was remodeling his home in preparation for his first child. His wife and he signed the check to the architect on a Monday and by Wednesday they found out they were having twins. Later that day, the check was torn up. They were back to the drawing board - literally.
It may seem that it is difficult to prepare for the unknown or the uncertain, but there a few fundamental steps you should take to make sure you are ready for whatever life may send your way. Here a few ways to help you prepare for the worst.
Establish an Emergency Fund. An emergency fund is a cash savings account to cover at least six months of living expenses including your mortgage or rent, food, car payment, insurance, or any other monthly financial obligation. You may also want to consider establishing a Line of Credit on your home (if you can get one) or opening a credit card which are designated for emergency use only. This combination will help ensure that you have the resources and flexibility to meet day to day living expenses until you can get back on your feet.
Get covered. Make sure you are adequately insured from health to home to life to disability. The last thing you need to worry about is being forced to pay additional expenses out of pocket because you do not have sufficient coverage or have let your policy lapse. What's more, the cost of not having adequate insurance can far surpass the monthly premiums you have to pay. The insurance industry is much different than a generation ago. Today, insurance products can help you accomplish simultaneous goals such as life insurance and retirement planning. Â
Make copies of important documents. Don't wait for a flood or a hurricane to wash away your life before you realize you need to make copies of: financial statements, declaration pages for insurance coverage, title to your house and car, among others. Should something happen to you, your family will need access to this information to help manage your affairs. Keep these in a fire proof box or a safety deposit box at your local bank. Â
As importantly, my sister shared a story of friend who lost everything to a fire - including every picture she owned. Wedding. Baby pictures. Family. You name it, gone. Her friend's story motivated my sister and her friends to put the negatives of their photos in the same safe place as their other documents. Point taken.
Protect your ID. Identity theft is a growing crime in this country and costs consumers billions of dollars every year. It seems that when people are most vulnerable - in difficult economic times - the scam artists come out of the wood work. Make sure you actively monitor your credit to keep an eye out for unauthorized activity. There are numerous services that can help you do this for a modest monthly fee. Consumers are now eligible to receive one free credit report a year. This is a start but be sure to shred important documents or bank statements before throwing them away. Cut up old credit cards. Disable cookies if you spend time online. By proactively protecting your ID, you can keep yourself from becoming another statistic. Â
Find trusted advisors. Nothing is more valuable than having experts on your side who can help you with all aspects of your financial planning and preparation. It is difficult for any one of us to be an expert in investment management, real estate, tax law, insurance, estate planning, among a host of others. Take the time - now - to find advisors who are working with your best interests in mind. These professionals can help you identify your short and long-term financial goals and work with you to establish a game plan to get there. You may think that such experts are ‘too expensive' but more often than not it will cost you more in the long run not to have them on your side.
Let this be a start - not an exhaustive list - of what you can do to prepare for and even prevent personal financial disaster. We have to remember that we can never predict what life is going to send our way. Life happens. It is our responsibility to be prepared. |
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