|
Being
Financially Prepared for Life's Curve Balls BY
MICHAEL P. HAUBRICH, CFP February 6, 2002 |
|
|
|
Disaster! There’s a word that is
certain to strike fear and uncertainty in most people. When life throws an
unexpected curve—dare I say—disaster your way, are you prepared to handle the
financial implications? Do you have an emergency plan in place to help you
deal with your near-term recovery efforts? Disasters and
other life events that could negatively impact your financial well being can
come in many shapes and sizes. Job loss, the sudden death of a spouse, and
divorce are only a few of the curves that could be tossed our way. Being
prepared might make all the difference between taking a strike or hitting a game-altering line drive. In creating an
emergency recovery plan relative to your personal finances, it is important
to have a good understanding of how much cash you will need should an
unexpected event occur. In times of crisis as often follows an unplanned life
event, you’ll need cash or other easy-to-liquefy assets to ensure that your
daily living expenses can be satisfied. An emergency
fund should be created and maintained that can be accessed as needed. A
generally accepted rule of thumb is to have sufficient cash reserved to
satisfy three to six months of normal living expenses. Spiriting away a few
dollars a month, cashing in the coin jar, or taking the proceeds from a
rummage sale all offer good starts to setting up your emergency cash fund. It
could also represent a good opportunity to sell off some lower performing
stocks or bonds and seed your fund with the proceeds. The fund can be held in
a money market account, which will earn a little interest to help contribute
to the cause. Staying attuned
to your household’s monthly income and expenses is important regardless of
your working status. Stay at home partners need to be as equally informed on
financial matters as those working outside the home. Insurance, banking, and
investment information should be known or readily available and accessible to
all responsible parties. This state of awareness will be instrumental in
helping you get back on your feet if disaster strikes. Crisis situations are
not generally conducive for doing a lot of extra research, digging through
records, looking for account information, estimating expenses, and the like. Naturally,
paying down high interest credit card debt, keeping expenses in-line with
income, and contributing to retirement plans should also be considered
effective weapons in the war against the inevitable curve balls of life. Another
important aspect of your emergency recovery plan is to remain calm, which can
be facilitated by being prepared. Calmer heads prevail in times of crisis and
it is important not to make hasty and potentially unwise decisions that could
have a negative impact on your financial health. More so than ever, it’s
important during trying times to retain as much control as possible since
feeling in control can help with the emotional upheaval that often follows
unexpected events. Reducing stress about completely controllable factors such
as the availability of cash and the location of insurance paperwork will
better position you for getting through the crisis more quickly and speeding
the recovery process. Your financial
advisor can help you put together a disaster recovery plan that is best
suited to your needs. Depending on your situation, this activity is not
something that should require a huge investment of your time but could prove
invaluable when disaster raises its ugly head. Michael Haubrich,
CFP, is president of Financial Service Group, Inc., a registered investment
advisory firm in |