The year is 2020. On January 1st, we celebrated a new decade, a time to refresh and be excited for this to be the best year and the best decade yet. One month later, we are declared to be in the middle of a global health emergency. Let’s face it, 2020 came as a shock to everyone, and it left many of us worrying, questioning, and re-evaluating many aspects of our lives. The impacts were in many cases severe and unavoidable, yet some of the financial troubles could have been prevented.
Many of us realized that our jobs were not as certain as we believed that our emergency funds were not sufficient, our plan for the future was unclear, and forces outside of our control can disrupt what we thought to be a relatively stable life. This particular time period in our lives is unlike any other. However, it has opened countless eyes to the importance of financial preparation and planning for the unexpected. As a result of the pandemic, household savings rates have reached record levels. Life insurance and disability insurance applications have skyrocketed, and people are reaching out to professionals to guide them through making educated financial decisions. Although better late than never, these are most useful in the preparation of unforeseen events rather than as a reaction. So, what measures should we take to be prepared?
- Have an emergency fund equal to six months of living expenses. This money should be easily accessible and relatively safe (i.e., a savings account, money markets, etc.)
- Save 15% of your gross income, and be sure to save in various places instead of all eggs in one basket. That means you should be allocating funds to other savings vehicles in addition to your retirement plan through work. The average savings rate in the U.S. is under 6%, and saving 15% does not always happen overnight. However, anything 10% or above is a great start.
- Buy individual life insurance to protect your family or your business. You will never be younger than you are today, and most likely, you are the healthiest you will ever be. I stress the individual life insurance because your group life insurance benefits can be lost if you no longer work for the company or if the company decides to terminate this benefit.
- Evaluate your disability insurance plan through your work and/or any individually owned policies. Your largest asset is your income, and you should fully protect it.
- Review your investment portfolios with a professional advisor to ensure you are appropriately invested based on your age, goals, risk tolerance, and other factors.
- If you still have time on your side before spending your investment dollars, leave your money invested during the downturns. If you can wait out the downturns, you will likely be rewarded when your accounts rebound.
- Get your legal documents in order. Consider setting up a will, living will, and a power of attorney.
The number of life events you could plan for is far too many to think about. However, you can create a plan to properly save, protect and prepare for life’s unexpected events, as well as the planned events, such as retirement, children, and college expenses. Take the initiative and seek expert advice. You may find that you, your family, and your business (if you are a business owner) are in a much healthier and prepared financial position. One day, you will be so glad you did. Please stay healthy and safe as we all get through these challenging times together.