Money: Don’t pay the consequences.
The reality of my financial situation hit me like a ton of bricks: our income immediately went from ‘healthy’ to ‘zero’, we did not have an emergency fund, our life insurance policy hadn’t been updated in 5 years, we had no disability insurance. Without short term help from friends and family and the life insurance that came later, I would have quickly lost everything, including my sanity. I was frighteningly vulnerable, it’s embarrassing, but it’s true. And it is true for many of you.
Your financial situation will buy you precious time and options when you need it, or deliver another crushing blow. The good news is that getting your money scene together now can be easy, especially with the many free tools available online.
Do it now:
Schedule a family talk, make it a date. Plan for a worst-case scenario now while you save for a long and lovely retirement. Compare your monthly expenses & income, write down your plan and priorities, then tweak where you need to based on the numbers. Have the honest conversation from a place of love and good things can quickly happen.
Things to keep in mind:
- Spending/savings: How many times have you rolled your eyes at “Don’t live above your means” and “Sock away living expenses just in case”? Well, it’s true. 28% of Americans have no emergency savings, 49% have only 3 months saved, 6 months is the minimum recommended.
- Debt: If your name is on it you are responsible for it, or, if you are the manager of someone’s estate there will be follow up from creditors and those guys just keep calling. It may be smart to spread out what you owe (some of my husband’s debt was ‘dissolved’ if it was in his name only) and nobody thinks carrying a lot of debt is a great idea.
- Income potential: Your family’s breadwinner is killed or seriously ill or injured, yet your mortgage or rent, and most of your expenses, stay the same (at least initially; meanwhile, you’re having an emotional meltdown). Hmmmm. If you’re living one illness or accident away from financial ruin, plan for that ‘budget shortfall’ now. Clean up your scene if you can.
- Long-term savings, 401(k), college fund, etc: Ask the people you know who have their shit together best to recommend a kickass CPA or financial advisor and make an appointment. Or, go to your local credit union for advice or research online with free websites. If it’s an option, get familiar with your employer’s 401(k) program and dump as much money as you can in there—especially if your employer offers matching (that’s free money). If you’re self-employed, take advantage of the tax relief that comes with contributing to your own individual retirement account.
- Insurance: Insurance coverage (home, health, life, etc) is tied hand-in-hand with your money, disability insurance most directly as it generally covers 60% of your income. How much you have saved might impact how much disability you need, how soon it needs to kick-in, or how long it needs to last. But, the reality is 1/3 of Americans between 35-65 will be disabled for more than 90 days. Disability insurance, especially long-term, is more expensive than life insurance because you are statistically far more likely to use it. (re-read that last sentence)
- Short term disability: Short term disability can be a temporary safety net as it generally covers 3-6 months. If you are riding a tight line financially, and/or have limited savings, you may want this.
- Long term disability: If you or your spouse/partner is severely disabled, or if you are single or a single-parent parent like me, thinking this through is gut-churning, but very important as few people have this. Plans generally cover 5-10 years and some till you turn 65.