In an ideal world, you would always be prepared for unexpected financial hardships. However, life is full of uncertainty. You can’t choose when challenges will arise in your life, and affluence and experience don’t guarantee that you’ll completely sidestep serious financial setbacks. According to the National Endowment for Financial Education, six in ten workers go a full year or more without earnings at least once over the course of their working lives. By age 70, close to 96% of Americans will have experienced four or more major life events that cause their incomes to drop by 10 percent or more. Consider your situation if you were faced with a sudden job loss, illness, death, lawsuit, or property damage – would your financial future be in question?
The unexpected doesn’t have to paralyze you; you can choose how you respond and chart a path forward. Here are a few tips to help you navigate periods of financial uncertainty.
Reach out to your trusted advisor and assess your situation.
When you experience an unexpected financial shock, the first step is to reach out to a trusted financial professional, be it your wealth manager or accountant. It’s important to assess how the recent change could impact your financial outcomes and determine whether any changes should be made to your existing wealth plan. Some discussion points may include:
- Your budget. If there’s suddenly a lot less money coming in, it’s imperative to examine the money that’s flowing out. If you already track spending, you’ll be able to quickly see which categories are musts and which ones are luxuries. If not, gather your spending records to see what, if any, changes need to happen.
- Your cash cushion. Chances are, you have some sort of emergency fund. But is it adequate given the situation you’re facing? Cash cushions often rise and fall. If yours needs to be bigger, it might make sense to consider ways to raise cash or borrow to meet the demands of the moment.
- Your insurance coverage. If your house burns down or suffers some sort of catastrophe, you’ll want to clarify—fast—what your insurance policy does and doesn’t cover.
- Your asset protection plan. If someone gets hurt on your property and sues you, are you sufficiently protected? Many people don’t know until they’re in this type of predicament. Likewise, if your company or someone associated with it is sued, what asset protection strategies are in place—and how strong are they?
Create supportive strategies to help you weather the storm.
Even if your current wealth planning has you well-positioned to ride out the financial shock, you might not feel it’s true. When our lives are upended, the loss of control we experience can make it difficult to believe we’re okay. If you find yourself feeling anxious despite evidence that you’re in good financial shape, you may want to consider steps like these:
- Tap tried and true methods. Do something that helps you calm your body and mind, whether it’s yoga, meditation, running, weightlifting or hiking. Seek out counseling or even a friend who is willing to listen to your concerns.
- Control what you can. When something like a death or job loss pulls the rug out from under you emotionally, you can look to exert control in other areas of your life. Consider cooking more at home to reduce restaurant spending, replacing some pricey excursions with local experiences, and being more price conscious when shopping. Actively choosing to take money-saving actions, even if they’re not necessary, can potentially be reassuring.
- Reframe the situation. A sudden financial problem can make you feel like a failure. Remind yourself that most people experience exactly what you’re going through (remember those statistics from earlier). Brush up on the many stories of hugely successful people who stumbled along on their own journey. Write down three things for which you are grateful each day to help your brain notice the good and not just the bad. When you’re not feeling buried under a mountain of stress, you may very well be able to make better choices that get you back on track faster.
However, if it looks like you may be in rough financial straits, it’s time to adjust and regroup by getting help and guidance from your financial advisor along the way.
Prioritize what is most important. What has to happen so you can pay the bills and, at the very least, get by for the next few months? Focus on those key tasks and press the pause button on the rest. If you are newly jobless, that could mean filing for unemployment or tapping into select assets for quick cash. If your spouse has died, get the ball rolling on survivor benefits from Social Security, his or her employer, and insurance policies.
We can all be blindsided by an event that makes it hard to know whether we’re still on solid financial ground. However, an unexpected financial hardship is not the end of the world. It’s wise to remember that when you’re faced with such uncertainty, there are ways to regain much-needed clarity, and steps you can take to get back on track.
Please contact us to begin a conversation about your long-term planning at team@greatdiamondpartners.com.
Joe Powers
Founding Partner & Chief Planning Officer