Planning For Life’s Unforeseen Events
AK Equity Group
Life will inevitably throw a few (or more than a few) curve balls at us. Fortunately, it’s possible to have a reliable plan in place that takes these risks into account and provides the necessary flexibility. Life’s unexpected events need not push us off course; having a sound financial plan can help keep us on track.
How do we develop a financial plan that accounts for life’s unpredictability? Here are three key concepts to keep in mind:
Clarify Your Goals With The Right Questions
Successful financial planning is about more than just the numbers. You may be doing a great job already with saving, portfolio balance and time horizons, but need some help clarifying some of the more intangible aspects of your goals.
Some questions you can use to help define how you would like your future to look are:
- For each of your financial objectives, consider: Why is it important to you? For example, once you’re retired, how do you envision spending your time in the absence of a 40-60 hour work week?
- Who will be the important people in your life come retirement? How will these people affect your preferences about where you want to retire and when?
- What kind of legacy of giving do you want to leave? How and to whom would you like to give back, either with time or money?
This is not a complete list of question to consider, but rather a jumping off point to help you plan for the life that you want in the future, beyond just the numbers.
Prepare or the Unexpected and Stay Flexible.
An unexpected event doesn’t have to be an emergency. We can – and should – prepare in advance for contingencies. Here are some strategies for handling common risk factors:
- Mitigate Market risk.Fluctuations in the market can affect the value of your portfolio. You can mitigate (but not completely avoid) risk in how you balance your portfolio. For example, it’s advised to invest more conservatively for money that has a short time horizon, say if you’ll need it in 3 years for a down payment. For investments you won’t need for another 20-30 years, there’s more room to take risks that may lead to larger profits in the long run.
- Have the right Insurance.Protection planning can help you mitigate a number of different types of risk. In your financial plan, insurance policies protect you while your investments grow your wealth. For example:
- Life insurance ensures that your loved ones will be looked after and able to meet their own financial goals
- A sound health insurance plan can help you manage costs for both routine and unplanned medical costs.
- An umbrella insurance policy can help shield your hard-earned wealth from a lawsuit—whether your dog nips a neighbor or a worker slips and falls on your property.
- Build an Emergency Fund. Ideally, your emergency fund should cover your living expenses for 3-6 months. This fund covers you for truly unexpected events: unforeseen home repairs, job loss, or a sudden medical cost. This fund will help you bridge the gap between your income and expenses, and to keep you on track with your long-term goals. 3-6 months living expenses might seem like an ambitious goal, but you can start small if need be. Any amount you can manage to save is better than nothing.
You’re probably already headed in the right direction, so don’t get discourage when thinking about the “what if” scenarios in life. With a disciplined financial plan, you prepare for what you can, while accepting that you’ll probably have to make a few adjustments along the way.