Three Ways to Prepare for Life's Storms
The year 2020 was unprecedented in recent memory. No one expected that COVID-19 would quickly transform into a global pandemic; nor did anyone expect that life as we knew it would be so upended. With the economic shutdown touching all sectors of the economy, perhaps your lifestyle—and your financial picture—has changed in significant ways over the past 18 months.1
However there are many reasons to be hopeful. A retirement confidence survey conducted by SimplyWise reveals that two out of three Americans are confident about their finances. The Federal Reserve has suggested that it plans to keep its easy monetary policy in place for some time, with inflation and unemployment below its targets. The Fed believes that its work is far from over, as the economic rebound appears uneven and far from complete.
Having a sense of control over your financial life is reassuring and can help make your future brighter. As always, it’s a good idea to talk with your financial professional before making any big decisions, but it’s also important to talk to them about the little choices that can add up to big results.
1: Have An Emergency Fund
An emergency fund is one of the most touted and important pieces of financial advice, but many people still don’t have one.2
If the hot water heater in your home broke today, how would you pay for it? Many people would just put it on their credit card and forget about it until the bill came. It’s important to remember that a credit card is not a substitute for having an emergency fund. Having enough cash available to cover unforeseen expenses will give you a choice between using your credit card or tapping your cash.3
If you don’t have an emergency fund yet, the first step is to establish one, ideally in an account that you trust yourself not to dip into. If you already have an emergency fund, take a look at the balance and consider how far your savings can take you. Consider setting aside three to six months of living expenses, but you shouldn’t stop saving once you’ve reached that number. Your ultimate goal should be to create an account that is designed to address your individual needs. The best part is that having this cash on hand means you have more flexibility—no matter how the winds are howling.4
2: Stress Test Your Budget
The Federal Reserve and the State of Utah have created fiscal toolkits to prepare for unexpected economic downturns, such as what happened during the first few months of the pandemic. For example, the stress test plan for Utah has line items that include working rainy day reserves, operating reserves, cash flow management, and revenue enhancement. When faced with an economic issue, it has prepared plans in place to avoid the stress of crisis-driven decision making.5,6
But stress testing budgets isn’t just for large corporations and government organizations. Here are some ways you can test your own preparedness. Start by asking yourself the following: How drastically would your lifestyle change if your income dropped by half? What luxuries or optional expenses would you be able to cut? Would you be able to maintain your standard of living if you lost your job? Would your budget be able to cover open-market health insurance? If these kinds of questions make you uneasy, it’s time to work with your financial professional and create some hypothetical game plans.
Remember, even if none of these worst-case scenarios ever comes to fruition, it never hurts to have a strategy in place.
3: Review and update your Estate Strategy
Regardless of age, you need to consider your estate strategy. Some estate building blocks may include a medical and financial power of attorney and a recently updated will. Your will determines what happens to your estate after your death and helps ensure that your wishes are carried out. A medical and financial power of attorney helps ensure that if you become incapacitated, someone you trust can make healthcare and financial decisions on your behalf.
Keep in mind that power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.4,7
It’s important to remember that estate laws are constantly changing, so it’s best to view your estate strategy as a living document that needs to be updated on a regular basis. Any change in your family (marriage, divorce, deaths, and births or adoptions) may call for an estate strategy review. But some items can slip through the cracks. Is your former partner still listed as the beneficiary of your life insurance policy? Or maybe your estate strategy has changed drastically, and you need to designate a new executor who’s better equipped to handle the needs of your estate. Taking some extra time to review these designations now may ensure that your wishes are carried out after you’re gone.7
No one wants to think about the end of their life, but it’s easier to be prepared now than when in the middle of an emergency.
Emergencies and crises are bound to happen. But by taking some proactive steps, you may be in a position to handle any financial uncertainties or rough weather that comes your way.
1. S&P Global Market Intelligence, September 21, 2020
2. SimpyWise.com, January 18, 2021
3. CNBC.com, February 10, 2021
4. Investopedia.com, November 12, 2020
5. PewTrusts.org, December 14, 2020
6. FederalReserve.gov, February 16, 2021
7. Yahoo.com, February 8, 2021
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.