As we head into prime hurricane season and brace ourselves for news stories and video footage from the coasts, I always wonder about the folks who live in those target areas…how do they carry on in the face of storm season when loss of some kind seems inevitable? Is there a lesson to be learned about preparing for our own potential tragedy? I believe so. Anticipation cannot save us from all natural (or unnatural) disasters, but advanced planning may prevent those events from wreaking financial havoc on our lives, and the peace of mind that comes with that assurance allows us to live life to the fullest, even in the face of the inevitable.
Tragedy can come from many sources, not just hurricanes or tornadoes. Failure in your health or that of a loved one can be devastating to a family, both emotionally and financially. Economic failure caused by a loss of income due to layoff or business closure is affecting many families across the country this season, as well. These events are most often out of our control, and pain will be felt, lives will be altered in some way. However, the financial burden may be lessened significantly with adequate planning.
While few people can afford to provide for every risk in their life, many can be managed or protected against. Try this: sit down and make a list of the risks you and your family face. Once they are all identified, rank them in the order of their likeliness to occur with a separate ranking for the financial impact the occurrence would have. You might be surprised by the length of your list; most families will come up with 20 or more hazards facing them everyday. (If you do not have at least 10, then most likely you are overlooking a few.)
Evaluate your list annually. Most dangers will change over time as to their likelihood and their financial impact. Consider that changes in your life may add new risks or change their ranking. Things as simple as where you live, what type of work you do, which hobbies occupy your spare time - all can change your risk profile significantly.
But not every item on your list presents the same threat to your family’s finances. You may have only 5 or so that rank highly in both likelihood and impact. Once you have narrowed your list to these few, solutions appear more reasonable.
Life insurance is a standard solution to a tragedy that may be caused by a number of different risks. Health insurance can protect you from the cost of care creating a financial hardship. Make sure your home is insured for its full value and that you have all the potential risks covered, such as flood insurance. Maintain an emergency fund that can soften the impact of many risks-including premium cost for these other solutions by permitting you to use higher deductibles. Investments can aid in providing for a retirement fund that grows in excess of inflation.
For my younger clients, I often have a discussion of the difference between ‘need’ and ‘want’. Truly understanding these terms can assist you greatly in creating a financial plan for your life. Always giving into a ‘want’ and treating it like a ‘need’ may prevent you from ever building an investment account, planning for retirement, or having adequate insurance on yourself or your home. Do not forget, how you spend your excess income is your choice and no one else’s. Taking steps now to protect your family will not only provide peace of mind, but may lessen the hardship of a tragedy ever so slightly, knowing you will be able move ahead.
Planning for your own protection will also give you the resources to share with others when they are in need. If you have not done so, take the time to clear your closet of those garments you no longer wear. Give up eating out twice this week, and give those dollars to the Red Cross or other organizations currently helping those in need. Because, when you are unable to plan or your solutions fail, it may be the Red Cross, Salvation Army, Goodwill Industries, or your church that comes to your aid.
Of course, I recognize that there is no policy to insure you against the pain and shock of a sudden loss. And available income does not always permit a family to purchase the best solution or, for that matter, any solution. When you are in this situation, working with a professional may help implement a better plan than you ever thought possible. Call me or one of the other Certified Financial Planners in this area, and we’ll ride out the storm together.
HOW TO REACH THE WRITER
Would you like a response to a financial question? Send your question to Doug Horn, 115 W. Broadway, Maryville, TN 37801. Be sure to mark your envelope Money Matters.
Doug Horn, CFP, is an area financial planner with more than 24 years financial experience and founder of Quality Financial Concepts, located in downtown Maryville on Broadway.
Doug Horn, CFP, Registered Investment Advisor in Tennessee and Texas and Registered Principal, Branch Office of and Securities offered through CUE Financial, Member FINRA, SIPC.